In the current climate of fear, uncertainty and doubt about almost everything, I’m reminded of my education in economics (a rather poor A-Level grade C; I blame the teacher) where I learned that expectation and sentiment have always played a crucial role in driving both booms and busts. Anyone who works in the business of influence can’t help but be fascinated about whether and how this might be changing.
Today, European debt doom dominates the news cycles, and relentless pessimism seems to feed itself daily. Yet the corporate sector seems robust – or at least not yet engaged in the kind of knee-jerk cutting we saw in late 2008 and 2009. In the US corporate earnings have so far held up. In China, consumers continue to spend. Here in Hong Kong, the punters in the bars in Lan Kwai Fong continue to spill out into the street. What’s going on? Why isn’t this making people more optimistic?
A journalist friend pointed me to a thought provoking piece from Reuters Breaking Views. It suggests that our current problems are largely concerned with the financial system, rather than the underlying economics of employment, production and consumption.
Yet far too frequently this distinction is lost by the media. The mainstream business news media in particular are seemingly disproportionately focused on the purely financial. It’s not hard to see why. News about stock prices, indices, rates is easier to report than complex economic realities. There are more news items, more stories, more updates, more often. Shed-loads of numbers and graphs. And almost everyone has a direct interest, whether it’s their mortgage or equity investments.
Economics, on the other hand, is famously dismal. My A-level experience was that once you get beyond drawing demand and supply curves, economics gets exceedingly dull, exceedingly quickly. Perhaps that’s why I got that C.
My journalist friend tells me corporate earnings are a lagging indicator. But I’m not convinced. If we had to choose between governments and companies to get growth going again, I’d bet on companies every time. They act rationally, most of the time. Better still, they are quick to act and react. Eric Schmidt recently quoted an Andy Grove observation that tech companies act three times faster than normal companies. And that normal companies act three times faster than the government.
Companies remain a significant driver of underlying economic activity. If they are doing well, it needs to be communicated. Even if they’re suffering from either consumer or corporate uncertainty, they are better equipped to respond, perhaps at least three times better than governments.
So there you have it. One drop of inadequately-informed positive sentiment in an ocean of inadequately-informed worry.