Crisis and subsequent weak growth had different causes

Andrew Smithers
Financial Times [In Letters] , 17th August 2017


Sir, Martin Sandbu’s article “From Lenin to Lehman — the big lies” (August 16) is an example of the post hoc ergo propter hoc fallacy (after this therefore because of this). It is true that “the crisis and its aftermath have left the young with little reason to hope . . .”, but the causes of the financial crisis and the subsequent weak growth are completely different.
High debt and asset prices caused the financial crisis and threaten to cause the next. Subsequent weak growth is due to demographic change and poor productivity. The causes of both antedate the 2008 recession by many years. We cannot reverse the long-term fall in the birth rate which underlies the demography problem. It is therefore vital that we reverse the fall in tangible investment, which caused poor productivity.
The bonus culture discourages investment; its impact is similar to a decline in competition. Both benefit shareholders at the expense of the economy. Only government action therefore can halt the damage. The longer it is delayed, the more serious the problem becomes.

Andrew Smithers
London W8, UK

Follow up letter from Dr Frank Boll (Unfortunately, deflation is likely to remain alive) was posted on 21 August on the FT's Letters to the Editor


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