Having analysed, reviewed and commented on financial markets over the past year, I believe a slight touch of philosophy to market movements and economic behaviour could help economists and policymakers think outside-the-box.
The past year has seen numerous attempts by global economies to boost economic growth, numerous negotiations to stabilise the energy sector and setbacks in economic policies that have spilt over to affect nations worldwide.
Why isn’t the global economy growing?
"The mind is furnished with ideas by experience alone": John Locke Photo: Shutterstock
For one, the failure to reach growth targets may well be due to historical actions being taken by central banks, in the belief they will trigger repeated reactions and market movements of preceding economic cycles.
Certain enhanced monetary policy measures taken, such as the quantitative easing rolled out following the 2008 Lehman crisis, have proved supportive to economies, so much so that lower interest rates do in fact have a correlation factor vis-a-vis boosting consumer spending via lower borrowing costs.
Investor reasoning and rationale is constantly evolving, however, and one cannot assume expectations to remain stagnant over time when implementing repeated policies.
To quote Heraclitus: “One can never step twice in the same river”. If inflation targets after numerous rounds of monetary easing are not being met, maybe what is needed is a different approach by pursuing new policy measures never taken before.
The limitations to that statement can be countered by a quote by philosopher John Locke: “No man’s knowledge here can go beyond his experience”. Although repeated policy measures may not have had the same desired effects, the lack of knowledge and experience in enforcing new policy measures may be the current limitations in doing so.
We are living in a world where technological progress and globalisation continue to alter the norms of society. If change is what is needed, then maybe adaptation to a new market environment may be what is required. After all to quote John Locke yet again: “The mind is furnished with ideas by experience alone”.
Adapting to new economic surroundings in the form of a laissez-faire system may well provide the experience needed to move forward.
If nature is self-regulating in the long term, why shouldn’t economies follow the same reasoning?
The problem stems from political bias and agendas. Taking the US presidential saga as an example, the fact that Republican nominee Donald Trump has made it so far in this campaign is surely giving philosophers some new study material to analyse. Political motives almost always interfere in the true requirements of an economy and hinder a self-regulating economy.
It is well known that political issues are a drag on economic performance. When policy measures are implemented, they often follow a lengthy decision-making process. An economy’s situation may well have changed by the time of implementation. Lagging and certain leading data indicators alone are insufficient tools to depict the true economic picture.
A worldwide change in political thought processes could alter the way economic issues are handled but for a final quote by Jean-Jacques Rousseau “Man is born free, but is everywhere in chains”, meaning that man’s intentions are naturally good but become tarnished by the pernicious influence of human society and institutions.
I have enjoyed being Homer for one morning. Getting back to reality, US upcoming elections, Brexit uncertainties and an oil production agreement will continue to set the tone of market volatility in the weeks to come.
This article was issued by Mathieu Ganado, Junior Investment Manager at Calamatta Cuschieri. For more information visit, www.cc.com.mt .The information, views and opinions provided in this article are being provided solely for educational and informational purposes and should not be construed as investment advice, advice concerning particular investments or investment decisions, or tax or legal advice. Calamatta Cuschieri Investments Ltd has not verified and consequently neither warrants the accuracy nor the veracity of any information, views or opinions appearing on this website.