Consumer confidence can't be bought

ConsumersThe latest Westpac-Melbourne Institute index of consumer sentiment was published last week. It showed a continuing drop in confidence. Australians' confidence in the economy has declined to the lowest level for 16 years, particularly among the more wealthy. Westpac chief economist Mr Bill Evans suggested the most recent fall was due to higher petrol price and to rising inflation.

Although to the amateur, forecasting future trends on the basis of consumer confidence may seem as arcane as the Roman practice of examining bird entrails, a little reflection suggests why confidence matters.

If we are gloomy about the future of the economy we are likely to spend less. If we spend less, shops will sell less and factories will make less. If they sell and make less, they will earn less and need fewer workers. All that may mean less desire to borrow money and so lower interest rates.

But of course on each scale of this economic snake, peoples' lives change. Dismissed employees find it hard to get new jobs and to pay mortgages. Anxiety and pressure rise and, as we deal with them inappropriately, family harmony and community cohesion are also made more precarious.

So confidence matters to people as well as to economists. Even if governments can't do much about the price of petrol or the cost of borrowing money, they still talk up the economy and try to encourage confidence. Fairly ineffectively, it must be said. Governments are seen as deserving scapegoats, not as the cause of economic troubles.

The human hardship associated with economic difficulties points to the need, both in individuals and in society, for a deeper source of confidence. We need to trust that, come what may, we will survive and that what matters more deeply to us can be maintained even in economic struggle. This confidence goes deeper than economic good times.

Governments can do a little to foster this confidence. It helps us be confident if we know that when all else falls apart there is a network of social security that would enable us, at least inadequately, to feed ourselves and find shelter and medical care for our family.

Governments can also enable more important things. For people who live in destitution in third world cities, any deeper confidence they may have to face the day comes from their trust in the resources of their indigent communities. If people have something, they are willing to share it with another in desperate need. If children need a temporary home, someone will take them in. Confidence builds on local networks.

In Australia this was revealed in the Community Adversity and Resilience Report. It showed that poverty and disadvantage were concentrated in certain postcodes. But in these suburbs the sense and reality of being connected were higher than in more affluent suburbs. People's source of confidence lay in other people and in local groups.

This suggests that the deeper confidence that blesses a nation can be fostered by governments consulting with and working through community groups. The idol of the strong, competitive economic individual is very brittle. When it shatters, confidence also fragments.

We also grow in confidence if we feel proud of our society and nation. Governments can encourage that pride by acting decently and steadily and by speaking in a way that endorses these values.

Of course, governments find themselves in a bind here. We have seen that they gain short term advantage by acting indecently, particularly by harsh rhetoric and arbitrary laws directed against those seen as different, like asylum seekers, Muslims and so on. By acting decently, they often incur the wrath of the popular media whose lust for blood is always profitable.

But the more our angers and fears are mirrored in public rhetoric and legislation, the more our anxiety grows. Steady and decent public policies in which we can take pride actually build confidence.

High economic confidence is quite useful. High human confidence is not only useful. It is also valuable.

Westpac-Melbourne Institute index of consumer sentiment


Andrew HamiltonAndrew Hamilton is the consulting editor for Eureka Street. He also teaches at the United Faculty of Theology in Melbourne.


Flickr image by Paul Robert Lloyd




Topic tags: andrew hamilton, consumer confidence, community welbeing, westpac-melbourne institute index



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Existing comments

Thanks Andy for a thoughtful and encouraging piece.

There is of course an upside to this downturn, if you'll pardon the economist's jargon. Australia and much of the world has experienced a bull run for the last 15 years. It made the economic management of the Howard years an easier task than that other governments have had to cope with.

Indeed, I'd be interested if anyone could tell us when there's been as long a period of sustained prosperity in Australia's history. All of this has prepared a generation or two who've never known the historically common experience of reversals and downturns.

Confidence - economic and otherwise - not only builds from the support significant human networks provide. It has to be based on the strong foundations of seasoned and realistic experience, something the current context will provide in abundance.

That experience teaches there's not always gold at the end of the rainbow and life's trajectory and project needs to reckon with reversal and failure as being as ordinary and expected as triumph and success. Or perhaps I've been to the races too much.
Michael Kelly | 16 June 2008

This is very right! Hopefully, this economic 'recession', 'depression', call it what you like, will stop people from buying so many things they don't really need. Hopefully, it will be the end of the 'throw away' society and the beginning of a caring society.
Nathalie | 16 June 2008


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