Links


What they say

Stephen Archer is a speaker with great charisma. By using illustrations and personal experiences and not being afraid to share his own point of view of the current situation and who is to blame for it, he engages the whole audience, at the same time helping us all to understand the credit crunch a little better.

— Warwick Business School

Archives

Confidence – the ultimate economic factor ?

Intuitively we all know that confidence is a critical factor in the economy. But economists struggle to measure it and some struggle to even fully acknowledge it and its effects.

When the crunch effect was rampant between autumn 2008 and mid 2009 the confidence amongst business and financiers was close to zero. How else would GE stock fall to $6 from $36! In a unique turn of economic trend the consumer confidence level was nowhere near as low and the consumer economy trickled along – all be it at a much lower level. Had consumer confidence in the damaged economies had taken the same plunge as business did, then we would almost certainly have seen a total collapse of the financial systems. It was close enough as it was.

So how should we view the confidence factor? Certainly it is by nature volatile. One day strong, the next it can weaken. It is infectious – it spreads around communities and cultures – both positively and negatively. It affects decisions in a tangible manner; people will say ‘I will not make that financial commitment because I am not confident’. It is time bound; it may stay up or down for some time and sub –consciously people will feel a need to review their own confidence levels – and perhaps change them as a result.

Paradoxically in this age of vast, open, instant communication it can remain contained within communities. For example, the estate agent world is a community as is the telecoms world. The two communities do not necessarily infect each other – provided that there is enough evidence within each to maintain the existing mood. The mood of bleakness in banking did not fully migrate to other parts of the economy. The media obviously has huge role to play in this and the BBC came in for criticism during the crunch for ‘talking it down’.

So how can we measure confidence? To some degree it can be anecdotally assessed and therefore measured. We may even build a picture of what factors are influencing people’s confidence. E.g. GDP, economic outlook for the US, jobs, bank regulation, Davos pronouncements etc etc. David Smith, a serious economist none the less refers to the ‘skip measure’ how many skips can be seen as signs of people making home improvements. I have heard worse ideas! During late 2008 it was noted that traffic speed fell on the M25 motorway by 5mph – drivers felt there was no point in hurrying. The speed is now back up I believe.

Can we manage it? Yes, with facts and behaviour. The dissemination of economic facts that support the growth assumption. This does not require spin in my view. Secondly it is by leadership and the demonstrable understanding of what is holding back confidence. It’s no good George Osborne telling business to invest to help the recovery – he has to provide cogent reasons to underpin belief that such action will make a difference. The leaders of the western world need a very sure touch. It can work, just look at Obama’s rating after his 2011 State of the Union address.

Above all, leaders must stay in touch with the people – only then can they really be entitled to speak to them and do so effectively. Confidence may be intangible but it’s critical and right now we are at another tipping point – confidence is lower than at the end of 2010. How do I know? Like you, I just know.


Share this post

Share


  • Archerboy6

    your best yet

blog comments powered by Disqus