WE POLITICIANS ARE PRONE TO DELUSIONS ABOUT OUR capacity to shape the world around us. We must avoid this occupational hazard as we consider the challenges of rising inflation (except in the housing market) and general slowdown.

Confronted with disturbing headlines on price rises, job losses and a collap-sing confidence in housing, it is all too tempting to resort to "something must be done"-ism. Not that government should just walk away or do nothing. Of course, if government can positively influence the economic climate, it should. But it is far more important to resist the temptation of short-term headlines at the expense of the long-term interest.

There have been a number of announcements at UK level aimed at recovering the country's, and the government's, fortunes. There may well be more over the party conference season and in the run-up to the prebudget report in the autumn. But given the state of the public finances, and the electoral cycle, it's fair to assume that the unveiling of the government's answers to these problems will not be a long process.

Alex Salmond argued last week that now was the time for government intervention to stimulate the UK economy to the tune of £30 billion. He was, of course making a political point about the lack of financial policy options available to the Scottish government under the current devolution arrangements. But it is only fair to ask just how much discretion is available even to the UK government, given that we have an independent central bank, and that the public finances are in the state they are in.

The first minister may well want more powers at his disposal - most politicians do. Finding themselves in charge of the first Scottish government to exist at a time of widespread economic uncertainty, Alex Salmond and finance secretary John Swinney have to deal with the powers they have, not the powers they would like to have.

So what can, or should, the Scottish government do to help the situation?

There are some policy levers available to the Scottish government: business rates, for example, have already been reduced for small businesses and will be cut further next year - a widely welcomed move that the Conservatives ensured was included in last year's budget process.

But although these substantial cuts will be a great help to small businesses, for many, the economic slowdown and higher inflation will wipe out the benefits. Can further relief be offered? With higher than expected inflation impacting on the Scottish government budget, it won't be easy, or pain-free, to identify areas where spending could be trimmed to help fund business rate cuts.

The Scottish government asserts that it can make £281 million of efficiency savings to subsidise local income tax a few years down the line. But the same budgetary pressures make it more difficult for them to find money now to subsidise a reduction in council tax, which would help households faced with rising bills elsewhere. Also, a cut in council tax is probably off the table for political reasons too - the SNP won't want to do anything to make the property-based tax more palatable, at least while their alternative remains in play.

If nothing else, the Scottish government should decide on a "do no harm" approach, cancelling or delaying measures that might adversely affect the economy, even in a small way. They should assess all current proposals and ask what impact they would have on business and jobs, as the regulatory review group recently recommended. Now is not the time to pile extra pressures or costs on businesses.

For example, the single seller survey in the housing market isn't going to help the property market if it comes in as planned in December, and some of the ideas floating around in other areas, like a ban of the display of tobacco products, would impose extra costs on businesses at a time when many simply can't afford them.

The classic short-term wheeze is a windfall tax on energy companies: something the Scottish government can't impose, but where it might - just - be able to exert influence on the UK government. We all know the importance of the energy sector to the Scottish economy - a windfall tax would merely drive away investment.

I am highly sceptical about the ability of the Scottish government to do much, other than at the margins, to influence the economy in the short term. Over the medium to long term, the decisions taken on infrastructure investment have a very significant impact on the potential and health of our economy, as will decisions on education and skills, and on the exact nature of business support to be provided by Scottish Enterprise.

In that context, this week's announcement on the Scottish Futures Trust will be important for signalling the government's intention on public-sector capital projects. Longer term, the strategic transport projects review looks even more crucial to improving competitiveness.

At the risk of stating the obvious, the right decisions for the economy in the short term are no different from the right long-term decisions. Headline-grabbing initiatives may be what is required in today's political culture, but of much greater benefit to our sustained prosperity is a stable business environment where strategic decisions are made and followed through. Businesses and investors need certainty if they are to plan. It is that simple.

Derek Brownlee is the MSP for South of Scotland and Conservative finance spokesman