The recent fusillade of economic figures and announcements have undoubtedly done very little to ease the burden of consumer and investor uncertainty in the economy. The business pages of the papers continue to exceed the boundaries of repetition as every statistic and number seems to be a perfectly designed metaphor to create a sense of foreboding in the economy, as if there isn't enough already.
What recent events have highlighted is the inability of politicians to be proactive. The recent debt crisis in the Eurozone could have been prevented if politicians had consistently monitored their spending and considered possible future downturns which are inevitable in the economic cycle. If a proactive approach had been taken then the issue of debt would be non-existent and it would be a whole lot more easily to stabilise an economy under a global economic storm.
Secondly, politicians have failed to act under pressure. The role of a politician is to lead under good times and bad yet, when suddenly investors and media turn to politicians for answers in a crisis, they fail to unite and act decisively. The lack of action which is the consequence of the inductiveness and cohesion results in poor consumer confidence and market volatility. I have lost count of the number of meetings that have taken place between European leaders and finance leaders yet when it comes to announcing policies designed to help the working classes and to rapidly boost economic growth, a blank appears. These politicians consistently come out to the media after these meetings and give an optimistic message which focuses on agreements and plans. This rhetoric is purely designed to reassure the markets, public, credit rating agencies and political rivals yet a short time later the issue reappears. This is because no action is being taken and what has been visible in the last few months is that as this rhetoric is consistently being deployed, the impact of this rhetoric is weakening which has led to much discontent with politicians both in the media and public eye.
The third issue which is undoubtedly the most important issue is that of policy effectiveness. Economic conditions are ever-changing therefore the policies designed to influence the economy must also evolve. Politicians are making the mistake of taking a narrow and straightforward view of the current economic downturn and resorting to old policies such as investment. The idea that pumping money into an economy to stimulate growth and recovery appears to be a belief which is widespread amongst the political classes. Unfortunately, this doesn't seem to be the case. An example of the ineffectiveness of simply pumping money into an economy is the recent quantitative easing measures taken by the Bank Of England. The measure which is designed to increase growth and act as a stimulant in the short term was also deployed in the 2008 recession and a couple of months back, it was announced that a further £50bn was going to be pumped into the economy. This measure appears to have made a diminutive impact so far.
My underlying point is that in a world where bureaucracy and regulation seem to be the norm, investment becomes diluted as it passes through from the lender to the recipient. In addition, the policy of investment isn't sustainable in the long term and in the case of the developed economies, investment cannot save them from the developing countries developing a competitive advantage thus attaining demand for products leaving the developed countries with falling demand for their goods and services. As a result, innovation and efficiency are just as, if not more important than investment. Efficiency inevitable leads to the investment going further and the utility being increased as more of the money reaches its intended destination. Innovation is the source of sustainability in investment. If a country encourages innovation by creating the right environment to do so (which doesn't necessarily mean investment) then new sectors in the economy can be created which lead to a continuing source of employment and demand being created.
So my message to politicians is: stop the rhetoric and get thinking.