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

Published August 15th by Wiley first published January 1st To see what your friends thought of this book, please sign up. To ask other readers questions about The Road to Recovery , please sign up. Lists with This Book. This book is not yet featured on Listopia. Apr 07, Athan Tolis rated it it was amazing Shelves: This is perhaps the first sensible, non-sensationalist book that has been written to highlight that in the absence of new policies the current economic slump is here to stay.

As usual with great books, while nothing fundamentally new is presented, theories that have existed for a while are combined to further our understanding of the world. My favorite book of , Stockman's "Great Deformation," argues that the financial crisis was caused by the lethal combination of three factors that in isola This is perhaps the first sensible, non-sensationalist book that has been written to highlight that in the absence of new policies the current economic slump is here to stay.

My favorite book of , Stockman's "Great Deformation," argues that the financial crisis was caused by the lethal combination of three factors that in isolation could have been benign: These factors, Stockman argues, combined to fuel 1. Andrew Smithers takes this much further. He asserts that the incentives which fuel Corporate Equity Withdrawal not only caused the financial crisis and Great Recession of all major recessions are started by falls in asset prices, he argues , but also stand in the way of recovery.

Here's a set of rhetorical questions to summarize his argument: Is everyone surprised at how profitable UK and US corporates are at the moment? Is everyone surprised at how low corporate investment is right now in the US and the UK? Is everyone dismayed about how little these fresh new jobs are paying? Was the new record year for corporate issuance following another record year in ?

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

Is inequality of income the topic on everyone's lips today? Additionally and this has less to do with the Macro picture, but it corroborates the whole argument has anybody noticed that corporate earnings are massively more volatile than both their past volatility and their volatility in GDP accounts? Refusing to lower their profit margins in the interest of temporarily sending up the stock price and losing market share in the long run 2. Making up for the lack of investment by hiring cheap labor to fill in the gaps? Issuing tons of debt, only to turn around and use the proceeds to buy back stock?

Taking huge writedowns as soon as they land a new job like loan-book writedowns after the financial crisis, legal provisions after oil spills etc.

• Exemplary Esau.
• Rings On Her Fingers.
• Wyvern (Elfhome).

Compensating themselves with options that automatically get driven up in price as record amounts of stock buybacks are squeezing up earnings per share via the denominator and have taken the ratio of pay from the shop floor to management higher than Smithers basically addresses the major conundrum of the anaemic post recovery through a single explanation: CEOs across the UK and the US are only keeping their jobs for five years rather than ten or fifteen like they used to so they're doing whatever they can to drive up the share prices that turbo boost the value of the options they are awarding themselves.

They are refusing to sacrifice profit margins to gain market share, they are refusing to make investments that won't bear fruit immediately, they make up for inadequate deployed capital by hiring cheap stop-gap labor, they are issuing as many bonds as the market can bear, landing tons of cash on their balance sheet, which then gets used to fuel massive stock buybacks, with the express purpose of sending up their pay pacakges. As a result, expansionary monetary and fiscal policy has very little effect.

Lower rates don't help with investment, because high rates never were the cause of inadequate corporate investment. Au contraire, low rates make it even cheaper to issue tons of bonds and buy more stock with the proceeds.

See a Problem?

And government spending is merely making up for the deficit in corporate spending, but at the cost of a continuously mounting government debt, which will at some stage become a source of instability. While he's at it, Smithers also demolishes two other explanations for the current slump in the UK and the US: Yes, it's what might have happened in Japan about which more later , but not here, because firms in the UK and the US are not at all shy about borrowing at the moment and neither are households. Corporates are borrowing at record levels, while households' indebtedness has only come down by the amount of housing loan defaults.

Everybody else is still borrowing all they can. Nobody feels chastened by the lessons of Corporates are refusing to invest not because they don't know what to do with the extra capacity, but because i it is more important for them to be able to keep prices and margins higher and ii they'd rather use any extra money to buy back more stock. Uncertainty is actually a good thing for corporate CEOs, it increases the volatility of the stock market and the value of their options A rival theory Andrew Smithers actually endorses is that since the crisis which took out scores of competitors across many industries the corporate landscape has become a lot less competitive.

On the scale from perfect competition to oligopolistic competition all the way to monopoly, we have moved further away from competition and closer to monopoly. Monopolies, as we know, keep output below the competitive equilibrium output, prices above those at the competitive equilibrium, profit margins higher than their zero value under perfect competition and can act as monopsonists vis a vis their employees. I actually like that theory even more. But I recognize it does not explain the current proliferation of crappy low-paying jobs the cause of the celebrated "fall in productivity" as well as Smithers' theory.

In practice, both must be happening at the same time! Having spent a hundred-odd pages on this main idea, the book drifts into stuff that did not captivate me as much. There's a chapter on Japan which explains convincingly to somebody like me that the problem there is the opposite: There's a chapter on Inflation that left me wondering if the author was scared of high or low inflation. You surely cannot reasonably fear both equally at the same time. There's a chapter on the instability caused by the combination of very high government debt, over-inflated asset prices in US Equities, UK real estate and bonds all over the world, central banks that refuse to remove the punchbowl etc.

Maybe it said something different, but it could have been written by Martin Wolf in the FT. He did write the forward to this book, after all. I say that as a negative, I still don't understand how he's allowed to get the very same article through the editor of the FT every month without anybody saying "enough" And then come the conclusions, which actually enraged me.

It strikes me that if the problem is CEO shortsightedness, then those companies that have myopic CEOs, no matter how important, will be outcompeted by companies that don't treat their stakeholders like idiots. It will take no more than a business cycle. If Andrew Smithers is right about what's stopping the recovery from coming, then this slump will have the same ending as H. Wells' "War of the Worlds: So I thought that the consistent reaction to the conclusions of the book is to be extremely hopeful. The author clearly does not see it that way and proposes a series of different ways to compensate management.

But that's his prerogative, I'm just thankful he wrote this book. Oh, and I really hope nobody tries to do what he suggests, btw. The guy who has a written contract to work toward will always win, let's face it. And just in case the monopoly explanation is important too, maybe somebody out there should wake up and start enforcing the Sherman Act! Finally, in case Stockman is right, why not get rid of the corporate income tax and replace it with a tax on all distributions, and set it to the highest marginal income tax rate?

But that's an altogether different kettle of fish. Buy and read "The Road to Recovery" it is a unique book. I took away a message of hope. If he's right about the causes of the persistent slump, it can't be too long till things start going better Jan 25, Steven Peterson rated it liked it.

Andrew Smithers examines current economic policy, in the wake of the recent recessionary meltdown, to determine what happened and what changes might be made to reduce the likelihood of such problems in the future. The focus of this book is to Page 1 ". He observes that this hypothesis is simply not accurate and that much mischief follows from its shortcomings.

He also notes--and this is a central point--that a new method of compensating corporate leaders has created long-term problems. He observes that there has been dramatic change in how those who lead businesses get compensated. For those corporate leaders, salaries have gone up, to be sure, but bonuses based on performance have become very important as well. And these create the inducements for suboptimal financial decisions by those leaders.

To get short-term increases in such metrics as earnings per share, they cut back on longer term investments such as research and development for short-term economic gains--which enrich the leaders with higher bonuses. Smithers tests some alternative explanations and believes that his concept of bonuses as warping motivations and decision making is the most powerful of the alternative explanations.

But I am leery of one factor explanations, and human decision making is not simply guided by cost-benefit calculations. I am not persuaded that his these is correct. On the other hand, this is a thought provoking work and asks readers to consider different perspectives on the economic meltdown and how to structure financial decisions for a better future.

May 08, Robert Muller rated it really liked it. This is a hard book to review. I think Smithers is correct in his analysis; he's not tilting at windmills, but he might as well be. I don't think there's the slightest chance that regulators and financial businesses and corporations will undertake the policy changes he recommends, particularly with respect to the bonus culture that is shifting perspectives to short-term versus long-term thinking.

Few listened to him then. More should do so now.

How and Why Economic Policy Must Change, which should be read by every City fund manager, politician and policymaker before even more damage is done. The Independent , 5 October anyone who wants to know how we got to a point where companies are making record profits but real wages are falling every year and growth is flat lining must read Andrew Smithers new book The Road to Recovery: How and why economic policy must change.

Financial Times, 11 October Smithers argument is too important and too well-grounded to be ignored. The implications for economic policy are fundamental because unless we recognise how business behaviour has been fundamentally changed by bonuses and do something about it, we will be waiting round for years for a sustainable recovery which is just never going to happen. Instead, stagnation will become the norm. London Evening Standard, 3 October To the benefit of readers, Smithers does not explain his points via esoteric econometrics.

He uses clear charts throughout the book to illustrate the points being made. As well as a significant bibliography Investment Europe, 1 October any senior executives benefiting from an incentive plan, who pride themselves on being open to evidence and new ideas, or on being an independent spirit rather than one of the herd, should not dismiss The Road to Recovery, but rather take up the gauntlet flung down by Smithers and read what he has to say. World Economic Forum, October "A highly recommended and insightful read. Mortgage Strategy, October Read more You may have already requested this item.

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Road to Recovery: How and Why Economic Policy Must Change

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