Barack Obama recently mentioned at a congregation in Washington that federal government would do all that is needed to provide suitable climate for recovery and growth of economy.
Albeit there is absolutely nothing wrong with the comment , it is the tone bordering on nonchalance which is abhorable.
Even at the risk of being termed a pessimist , I don’t mind admitting that I am amazed at the confidence of the American president on kick starting the US economy.
I am a firm believer of " Yes , we Can " but i find his statement shallow , banal and it suggests lack of comprehension of the complexity involved in solving the Gordian knot faced by the erstwhile land of opportunity .
Therefore, i aim to look at the "suitable environment" and following points mentioned below ,are what it should entail :
1.Easy availability of resources for initiating and continuing business [ financial( credit) & non financial - commodities, raw material etc}
2.Favourable trade policies - low entry barriers
3.Protection on intellectual property rights of the stakeholder : the comfort that value created by taking risk will stay lawfully with the promoters .
4.Confidence - of the promoters , stakeholders, consumers etc...
Now, this would be an almost sufficient and necessary list to complete the climate ... however it assumes that losses stop at current levels which is improbable ... the point is ,that losses would reduce risk appetite - and therefore poor confidence begets.
Much has been said about the fiscal and monetary measures which are needed at this stage .Therefore ,I would like to ristrict my opinion on the last point - .i.e. confidence .
Not just academically , Confidence is the connection between expectation and performance....It is an everyday term which indicates future prospects in variety of circumstances .. self confidence of athletes , consumer confidence on spending, confidence vote of a political party .
It is like index to future expectation .That future would be better is what everyone is hoping everybody else will tell them.....and good news is awaited from any quarter.
Until now almost every single crisis has been handled through a Keynesian approach … which by the way did work. But this is different , decade long misallocation of resources has led to creation of the asset bubble that could not be sustained. Unfortunatley , It is widely believed that sudden fall in demand can be corrected by pumping enough purchasing power into the economy.
Until the feeling of "better days ahead " takes root it would be difficult to give direction to the recovery. Fundamental structure will be backed on creation of demand and as you all know demand (willingness to buy backed by capability) in a sense is connected to aspiration of the consumer thus indicating its linkage to future earnings , future outlook and therefore spending ... confidence in short !
To instill confidence there is also requirement of commitment and consistency of action.No more can demand be sustained on cheap credit .
Ironically , if there is one person who seems to have lot of it( confidence ) is Obama ! I hope it gets instilled in the investors , consumers and entrepreneur ...