U-turn leaders treat us with contempt

The following is my latest comment from Fund Strategy. I have also written the cover story which reviews the financial crisis so far

Another day, another U-turn. Western politicians seem to be in a competition over who can do the most. Unfortunately it is the rest of us who suffer as a result of their policy gymnastics.

Henry Paulson, the American Treasury secretary, was the latest culprit – at least at the time of writing. At the end of September he led a charge demanding that a $700 billion (£478 billion) programme to buy up troubled mortgage assets be passed. If it failed it would, we were told, lead to disaster.

Eventually, after an initial rejection by the House of Representatives, it was passed. But last week Paulson gave a speech saying the programme would not be used for its original purpose (see page 10). Instead its main focus would be to purchase equities directly from banks.

It is not that the first plan was necessarily right and the new scheme wrong. It is rather that politicians feel comfortable making U-turns without properly accounting for their actions. A particular course of action is first deemed essential and not long afterwards portrayed as unimportant.

The problem with such an approach is that it undermines confidence in markets and the economy still further. Rather than offering decisive leadership the politicians simply react to the latest news story. Their response is inherently short-termist.
Nor is such short-termism unique to Paulson or even America. Gordon Brown is a past master. It was he who for many years propounded fiscal “golden rules”, which he has now broken with a fiscal stimulus. He claims that circumstances have changed but this begs the question: why have such rigid rules in the first place? He cannot have it both ways.

Brown also is now trumpeting the need for international economic cooperation. Yet Britain refused to join the euro when it had the chance.

Again, the point is not that one course of action is necessarily right and the other wrong. It is that politicians feel no need for consistency or accountability. They treat the electorate with contempt and then wonder why they are viewed with cynicism.

Politicians bear a large share of the blame for the severity of the current crisis. What we need is decisive action rather than leaders with the backbone of a jellyfish.