Summary and Conclusions

The world economy is being held back by poor economic policy that is based on poor economic theory and analysis. The key mistake is the assumption that the current weakness of private sector demand is simply a temporary phenomenon. This leads to the expectation that demand will recover when entrepreneurs recover their animal spirits, consumption revives as households become less cautious and private sector deleveraging ends. As I have pointed out, this assumption and the expectation that follows from it are incompatible with the data. It is also sadly typical of the aprioristic bias of so many academic economists that they are either ignorant of the contrary evidence or choose to disregard it. The first essential step on the road to recovery is that the structural nature of today's recession is recognised and the data be given a proper consideration so that public debate can start as to how current obstacles to sustained recovery can be overcome. Only if this is done are we likely to be able to find ways to reform the bonus culture that is currently depressing demand in Anglophone economies and damaging their capacity to grow over the longer-term. In Japan there needs to be a similar public debate about the damage being done by excess depreciation allowances, so that politicians and bureaucrats can be persuaded to reform the structure of corporation tax. If we can get these matters aired rather than ignored, I am confident that we can solve the obstructions ...

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