Andrew Smithers, Author at American Affairs Journal

Andrew Smithers

Andrew Smithers is the founder of Smithers & Co. and was previously the head of S. G. Warburg & Co.’s asset management business (now part of BlackRock). His most recent book is The Economics of the Stock Market (Oxford University Press, 2022).

Articles by Andrew Smithers

Coming to Terms with Fiscal and Trade Deficits

U.S. trade deficits measure the gap between the income generated at home and the amount spent on consumption and investment. Without the U.S. government’s deficits, spending demand would have been lower and, unless the trade deficit fell by the same amount, domestic output and employment would have fallen. As the United States had a structural liquidity trap, either the trade deficit had to fall, unemployment had to rise, or the United States had to run a large persistent budget deficit. The decision made in favor of budget deficits was not because they were welcome; rather, the alternatives seemed either unattainable in the case of lower trade deficits, or unbearable in the case of unemployment. It is, however, a policy that is no longer viable, because the rate at which the national debt is rising is much faster than the trend growth rate of national income…

How Economic Theory Went Wrong

Well-managed economies grow at a decent pace while keeping unemployment and inflation at low and stable levels. By these criteria, all major developed countries have been run incompetently for the past two decades. They have experienced stagnation of output and incomes, the worst recessions since the Great Depression, and, more recently, a surge in inflation.…

Monetary Policy, Tax Policy, and Investment

The economic performance of the United States and other major developed economies in the twenty-first century has been appalling, whether in comparison to the period of nearly eighty years since World War II or with the rest of the world over the past two decades. Having suffered the most severe postwar financial crisis in 2008, we now face a high risk of another one…

The Stock Market Model

Economic policy aims to preserve stability by keeping inflation stable and unemployment at historically low levels. Decisions about how to achieve these aims are inevitably based on some theory, and these theories fall into two main groups: those which are usually described as neo-Keynesian, and those based on dynamic stochastic general equilibrium (DSGE) models. For all practical…

The Rise of Carry and Macroeconomic Risk

For most of the twentieth century, the neoclassical synthesis in economics was generally believed to provide a solid basis for public policy. There were, nonetheless, significant dissenters. Hyman Minsky, for instance, wrote that “modern orthodox economics is not and cannot be a basis for a serious approach to economic policy…

Savings Glut or Investment Dearth: Rethinking Monetary Policy

Unasked questions are unanswered ones, and a virtue of Stephanie Kelton’s The Deficit Myth is that it forces attention on why governments ever go to the expense of issuing bonds in the first place. Her critique of the weaknesses of conventional economic policy should receive wide acceptance. Things become more complicated, however…

Investment, Productivity, and the Bonus Culture

Weak growth is far and away the most important economic problem facing the United States. This problem is not simply the result of the financial crisis or the severe recession that followed; the period of low growth began in 2000. Rather, it is the result of a much earlier reduction in business investment. While short–term…

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