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The Road to Recovery: How and Why Economic Policy Must Change

ISBN: 978-1-118-51566-2
360 pages
October 2013
The Road to Recovery: How and Why Economic Policy Must Change (1118515668) cover image


Renowned economist Andrew Smithers offers prescriptive advice and economic theory on avoiding the next financial crisis

In The Road to Recovery, Andrew Smithers—one of a handful of respected economists to have accurately predicted the most recent global financial crisis—argues that the neoclassical consensus governing global economic decision-making must be revised in order to avoid the next financial collapse. He argues that the current low interest rates and budget deficits have prevented the recession becoming a depression but that those policies cannot be continuously repeated and a new consensus for action must be found. He offers practical guidance on reducing government, household, and business debt; changing the economic incentives for the management class that currently inhibit long-term growth; and rebalancing national economies both internally and externally. Further, he explains how central bankers must broaden the economic theories that guide their decisions to include the major factors of debt and asset prices.

  • Offers practical, real-world economic policies for restructuring and rebalancing the global economic system
  • Presents a modern economic theory for preventing the next collapse
  • Ideal for economists, investors, fund managers, and central bankers
  • Written by an economist described by the legendary Barton Biggs as "one of the five best, most dispassionate, erudite analysts in the world"

As the global economy continues the long climb out of recession, it's imperative that central bankers and other economic decision-makers not repeat the mistakes of the past. The Road to Recovery offers prescriptive guidance on redesigning an economic system that is healthy, stable, and beneficial to all.

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Table of Contents

Foreword ix

Chapter 1 Introduction 1

Chapter 2 Why the Recovery Has Been So Weak 3

Chapter 3 Alternative Explanations for Today’s Low Business Investment and High Profit Margins 47

Chapter 4 Forecasting Errors in the UK and the US 61

Chapter 5 Cyclical or Structural: The Key Issue for Policy 69

Chapter 6 The Particular Problem of Finance and Banking 81

Chapter 7 Japan Has a Similar Problem with a Different Cause 107

Chapter 8 The End of the Post-War Era 125

Chapter 9 Misinformation as a Barrier to Sound Policy Decisions 149

Chapter 10 Avoiding Future Financial Crises 169

Chapter 11 The Current High Level of Risk 179

Chapter 12 Inflation 195

Chapter 13 Prospects Not Forecasts 219

Chapter 14 Tackling the Bonus Culture 229

Chapter 15 The Need for Change in Economic Theory and the Resistance to It 237

Chapter 16 Summary and Conclusions 255

Appendix 1 Mean Reversion of US Profit Margins 259

Appendix 2 Goods’ Output Requires Much More Capital Than Service Output 261

Bibliography 263

Acknowledgements 269

Index 271

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Author Information

Andrew Smithers is Chairman of Smithers & Co. Ltd. and is a leading expert on financial economics and global asset allocation. His forty-five years’ experience in international investment includes twenty-five years at SG Warburg & Co where, amongst other roles, he ran the investment management division, and over twenty years as head of his own investment consultancy firm, Smithers & Co, based in London. He is the co-author of three books on international finance: Valuing Wall Street, co-written with Stephen Wright, published in 2000; and Japan’s Key Challenges for the 21st Century, co-written with David Asher, published in 1999. His book Wall Street Revalued - Imperfect Markets and Inept Central Bankers was published by John Wiley & Sons, Ltd. in July, 2009. He is also the author of Chapter 6, “Can We Identify Bubbles and Stabilize the System?” in The Future of Finance: The LSE Report, published by The London School of Economics and Political Science in September, 2010. Andrew is a Trustee of the Daiwa Anglo-Japanese Foundation, a Fellow of CFA (UK) and member of the Advisory Board for the Centre for International Macroeconomics and Finance (CIMF) at Cambridge University.

As head of Smithers & Co., Andrew has helped pioneer the application of academic analysis of financial economics to investment management. He is well known for his work on valuing markets, including application of ‘q’, for his pioneering studies on the distorting impact of employee stock options on US profits, and for work on showing the understatement of Japanese published profits compared with US ones.


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Press Release

November 07, 2013
The Road to Recovery: How and Why Economic Policy Must Change

The Road to Recovery:

How and Why Economic Policy Must Change

Andrew Smithers


Published September 2013, by Wiley £18.99

Hardback and e-book


The last financial crisis, like those which followed the 1929 crash in the US and 1989 crash in Japan, was caused by excess debt, with the trigger provided by falling real asset prices (shares and property). In The Road to Recovery: How and Why Economic Policy Must Change,author and renowned economist, Andrew Smithers explains the practical steps which need to be taken, and the revisions to economic theory which must be understood and broadly accepted for practice to improve.

The Road to Recovery explores key practical issues to prevent a repetition of the crisis including: How to reduce debt for governments, households and business; How to change management incentives which are currently inimical to economic growth; and How to rebalance economies, both internally and with regard to their external balances.

Smithers looks at how, for policy to be consistent and successful in practice, the errors of economic understanding that caused the past policy mistakes must be recognised. The author explains the direction in which these changes are likely to go and the progress that is already being made in what is, of course, a never-ending process.

The book also discusses how progress towards better policies requires better understanding of economics, but that this must not be limited to professional economists. In democracies, Smithers believes that progress towards better policy must be based on a broad understanding of the issues among voters.

The Road to Recovery: How and Why Economic Policy Must Change will be available where books and e-books are sold.


Notes to editors:

  • Review copies and jacket images are available on request


For more information or a review copy, please contact:

Jocelyn Cordova





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