Winning the Confidence Game

In the Business Standard:

Developed nations must invest in confidence-renewing measures like the Marshall Plan.

On April 2, the G-20 will hold a summit in London to discuss what we may hope will be an internationally coordinated plan to address the world economic crisis. But can such a plan really work?

The basic problem, of course, is confidence. People everywhere, consumers and investors alike, are cancelling spending plans, because the world economy seems very risky right now. The same thing happened during the Great Depression of the 1930s. A contemporary observer, Winthrop Case, explained it all in 1938: economic revival depended “on the willingness of individual and corporate buyers to make purchases that necessarily tie up their resources for a considerable length of time. For the individual, this implies confidence in the job, and in the end comes equally back to the confidence of industry leaders.” Unfortunately, confidence did not return until World War II ended the depression.

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