Price: $89.12
The prevailing economic model, the neoclassical synthesis, hinges on presumptive views often disproven by empirical data, and glaringly omits the vital role of finance. This flawed framework has been a catalyst for financial disasters, such as the 2008 crisis, the ensuing ‘Great Recession’, and the sluggish growth thereafter. In the illuminating book, The Economics of the Stock Market, Andrew Smithers presents a robust, data-tested model that effectively rectifies these shortcomings by incorporating the influence of the stock market on the economy.
The current model’s deficiencies often stem from an unscientific methodology, where assumptions are upheld despite clashing with empirical evidence. Smithers adeptly highlights these flaws, such as the Miller/Modigliani Theorem (which asserts that leverage doesn’t impact the value of produced capital assets), the belief that short-term and long-term interest rates, along with the cost of equity capital, are interdependent, and the presumption that corporate management’s decisions solely aim to maximize the present value of corporate assets (‘profit maximization’) rather than the value determined by the stock market.
The Economics of the Stock Market introduces a model that comprehends and explains the steadiness of real returns on equity, grounded in the intricate interplay between the contrasting utility preferences of company managers and owners of financial capital. Smithers’ claims are bound to spark controversy, and he invites a public debate to compare the merits of the neoclassical synthesis and his proposed alternative.