{"title":"Misinformation Adds to the Risks for the Economy","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0023","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0023","url":null,"abstract":"The damage done by misinformation needs to be contained. Companies should publish their domestic and worldwide output. This should reduce the misstatement and thus volatility of published profits. US profits are habitually overstated, and this does relatively little harm, but periods of excessive overstatement lead to the risks in credit markets being under-appreciated and markets overpriced. Overstated RoEs encourage high hurdle rates, which reduces investment. The complacency about debt and asset prices is less prevalent today than it was before the financial crisis to which it made a major contribution. But restricting debt and asset prices is more difficult when there is bad information about asset values and credit risks. Misstated profits also contribute to asset bubbles and consequently to the magnitude of cyclical swings in the economy. Modern corporate accounting has contributed to this profit volatility.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"31 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125867126","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"What I Seek to Show","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0002","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0002","url":null,"abstract":"This chapter previews the argument set out in the book. A change in economic policy is essential to prevent a fall in living standards in the UK and the US. Weak growth was the result of changes in demography and productivity, caused by the fall in the birth rate in the 1960s and in investment after the 1980s. We cannot change demography so we must increase investment. Conventional growth theory needs to be revised. Current consensus Total Factor Productivity Models are untestable and thus unscientific. This chapter proposes a revised model which is testable and robust when tested. This shows growth does not just depend on technological advance as it can be boosted by policies that encourage more tangible investment. The distractions that have led to a lack of debate over this are examined and policy measures to revive investment and growth are proposed.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"7 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131567568","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Distractions from Serious Debate","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0018","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0018","url":null,"abstract":"Low corporate investment is not caused by a lack of profitable opportunities but by the bonus culture. It can therefore be cured if its perverse incentives are reversed. Official estimates for trend growth rates are very optimistic. The risk of falling living standards should be a matter of major public concern but is not. This is damaging as problems are unlikely to be solved unless widely debated. One persistent problem is that growth is largely discussed in terms of technology rather than investment. The threat that we will soon be replaced by machines attracts much more attention than the problem that this is not happening fast enough to boost productivity. It is also nonsense to claim that companies are not investing in order to reduce debt, or that demand is inadequate. The post hoc fallacy remains a barrier to sensible debate.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"48 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125104053","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Changing the Economic Impact of Current Incentives","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0022","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0022","url":null,"abstract":"The other way to improve investment and productivity is to leave the incentives unchanged but change their impact on investment. Managements would be encouraged to invest if this raised EPS more than buy-backs and TSRs more than dividends. These aims would be achieved by making all investment allowable as an expense for corporation tax in the year the money was spent. The depreciation charged in company accounts would not rise but the tax charge would fall the higher the level of investment. The basic rate of corporation tax would have to rise to offset the loss of revenue, but this could be limited by disallowing interest as an expense. This would be a great benefit as it encourages excessive leverage and buy-backs.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"87 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121944385","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Other Influences on Growth","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0006","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0006","url":null,"abstract":"Productivity and demography have been the major determinants of growth and this will continue unless there are significant favourable changes in unemployment, hours worked per person and participation rates. These three variables are not, at least in combination, likely to change in a way which will help growth. Unemployment is very low by historic standards and unlikely to be able to fall further without causing problems through the impact on inflation and inflationary expectations. Hours worked tend to rise as incomes per head rise and are thus unlikely to help. Participation rates should improve as those over 65 become more willing to work, but the improvement tends to move cyclically with unemployment where further falls are unlikely. The past help provided by the increase in female participation seems to have run its course. On balance little help to growth rates from these three variables in combination is likely.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"94 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122207997","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Investment, the Capital Stock, and Economic Policy","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0013","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0013","url":null,"abstract":"Of the constituents of NTV only corporation tax and the hurdle rate seem credible targets for policy changes designed to boost labour productivity. The hurdle rate is stable over the long term so corporate investment usually responds to changes in RoE. It did so until 2000 but not since. The relationship between investment and corporation tax shows similar stability until the breakdown in 2000. These relationships provide the link between the level of investment and the growth of the capital stock. The sharp change in the investment response to favourable changes in tax and RoEs must have occurred because of an adverse change in one or more of the other constituents of NTV. But all constituents have changed in a favourable direction except the hurdle rate, whose change must have caused the current low level of tangible investment.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"2 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128233812","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Poor Productivity and Damaging Demography","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0003","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0003","url":null,"abstract":"Over the past decade the slowdown in growth has reduced UK GDP by 20 per cent and US by 18 per cent. The contributions to this decline are calculated from changes in the population of working age, unemployment, participation rates, hours worked, and labour productivity. This shows that the deterioration in productivity caused 102 per cent of the slowdown in the growth of GDP for the UK and 65 per cent for the US, and the changes in demography caused 15 per cent of the slowdown in the UK and 37 per cent in the US. At least 100 per cent of this decline was therefore caused by damaging changes in demography and productivity. Changes in unemployment, participation rates, and hours worked offset some of the deterioration in demography in the UK but had almost no combined impact in the US.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"46 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122449448","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The UK Is Similar to the US","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0020","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0020","url":null,"abstract":"The UK resembles the US, with similar adverse changes in demography and productivity. Sharp falls in investment in both countries started well before 2008 and caused the subsequent slow growth in the net capital stock and labour productivity. The UK has experienced a similar rise in management pay and bonuses, so it is probable that the decline in investment and productivity in the UK is also the result of the perverse incentives of the bonus culture. Poor data means that the relationship between investment corporation tax and RoE cannot be tested for the UK. Like the US, however, large companies have been the main cause of the decline in investment and productivity. Brexit is likely to depress real living standards and amplify the problem of low to zero growth.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"11 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"115806138","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"The Bonus Culture Has Raised the Hurdle Rate","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0014","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0014","url":null,"abstract":"The rise in the hurdle rate shows a change in management behaviour caused by the preceding change in incentives. Following a dramatic rise in US CEOs’ salaries and bonuses in the decade to 2000 there have been no significant changes since. This change in incentives had the usual effect, with a natural time lag, of changing behaviour. The benefits for management that come from improving short-term profits have risen sharply compared with the longer-term benefits from corporate investment, which are unchanged. This has discouraged investment in a similar way to a rise in the hurdle rate on equity. These incentives are much stronger for quoted than unquoted companies and it is for the former that the weakness of investment has been most marked. This provides additional evidence of the bad impact on the economy that has been caused by modern management pay systems.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"28 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116960003","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Management and Shareholder Interests","authors":"Andrew Smithers","doi":"10.1093/OSO/9780198836117.003.0017","DOIUrl":"https://doi.org/10.1093/OSO/9780198836117.003.0017","url":null,"abstract":"Objections to the bonus culture because it is unfair and morally unpleasant raise serious issues, but have diverted attention from its economic damage. Pay has also been misinterpreted as being an issue between management and shareholders. But shareholders are not damaged as, unlike the economy, they do not benefit from faster growth in GDP. This can be seen by comparing the growth rates of different countries and the returns that have accrued to shareholders. Shareholders are not a homogenous group. Those who are retired benefit from high share prices. Those saving for their retirement should like low prices so that they will have high returns on their savings, but few recognize their ‘real interests’ in this way. No group of shareholders likes, in practice, to have the prices of their shares decline.","PeriodicalId":134328,"journal":{"name":"Productivity and the Bonus Culture","volume":"16 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-07-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133241076","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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