Policy Paralysis?

World economy - stuck fast, going nowhere.Copyright, Philippa Roberts 2012.

I saw a fascinating article online at the FT this morning - fascinating in part because of the comments section - about the lack of confidence in policy makers going into the G20 Forum today in Mexico.


If you think the news is grim when you here about the ongoing recession here in the UK, or the European debt and currency crises, it all starts looking even worse when you look at the figures coming out of the rest of the world, especially the BRICs.


Merryn Somerset Webb recently wrote about why China is a bad place to invest in right now, listing 17 reasons.  The FT article points also to the slowdown in other large developing economies and the fact that US growth could be slowing.


The FT/Brookings Institution Tiger Index of world economic conditions is showing that the recovery is stalling, because of a lack of confidence in the policy makers ability to get their economies growing again.


But if we look at the range of options; we have seen technocratic governments in Greece and Italy.  Since the start of the crisis in 2008, the left has lost General Elections in the UK, Portugal and Spain, the right in the US, France and Denmark.  There will be another election in the Netherlands in September as the austerity measures could not be agreed by the ruling 'coalition' parties and in Belgium, records were broken in 2011 when it took 541 days to form a government.


All of this could point to a lack of anyone having a solution.  Or it could point to the fact that the public do not believe their politicians and the solutions they have been given thus far.  In 2008, many spoke of the fact that this could be the start of a no growth decade, rather like the one experience by Japan in the 90s.  So far, 4 years in, it looks like this is going to be the case.  But many of the policies that are being suggested and the structural reforms that are needed will take longer than an electoral cycle.  Some of these decisions will be the sort that Sir Humphrey would tell his Minister are 'brave'.  Some, and these is where I thought some of the comments were interesting, will question how on earth we stimulate demand when real incomes have fallen so much, and if that's the case, should we be stimulating consumer demand at all?


The policy reaction over the last 4 years has been fire-fighting, because the fires have been springing up all over the place and the priority must be to put them out.  I think though that there is still a lack of a coherent vision about what a different economic future will look like.  Until we have that, and know where we are headed, then the lack of confidence in policy makers will continue.