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




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

Andrew Smithers

ISBN: 978-1-118-51566-2 September 2013 360 Pages



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.

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