Tuesday, November 25, 2008

Gordon Brown's approach to the economic crisis

He's taking a decidedly Keynesian direction:
Prime Minister Gordon Brown swept aside three decades of economic orthodoxy with tax increases on the rich and plans that will double Britain’s national debt.

Brown’s proposals yesterday to mitigate fallout from the global economic slump would cost 25.6 billion pounds ($38.7 billion) in the U.K.’s biggest round of stimulus since 1988.

The plan, which will result in the largest budget deficit among the Group of Seven industrialized nations, represents a retreat from policies that have shaped the British economy since Conservative Margaret Thatcher’s 12-year tenure that began in 1979. Brown’s predecessor Tony Blair called himself a proponent of “New Labour” and advocated policies Thatcher had promoted, including spending restraint, low debt and tax cuts for the rich.

“It is back to the 70s,” said Bill Jones, a political scientist at the University of Manchester. “It’s a return to the two-party divide and a temporary end to consensus politics. It’s like Labour has suddenly burst out of its straitjacket.”

Labour’s traditional union supporters backed the proposal by Brown, 57, to impose a new 45 percent tax on those earning more than 150,000 pounds a year, while opposition Conservatives accused him of irresponsibility for running up debt that will exceed 1 trillion pounds by 2014.

From here. The extra tax on the rich is long overdue; I can't comment, though, on his debt proposal. It might be a good idea, but it might also be a very bad idea, and whether it's good or bad depends partly on what international investors think. As noted previously, I suspect part of the reason why the US has gotten away with running up huge debts is that said investors are reluctant to bet against the US dollar; the fate of the pound, though, is a lot less critical on an international level, so they might well just pull the plug on the UK. On the other hand, anti-Keynesian sentiment may have declined somewhat since Bob Rae tried this approach in the early 1990s, and it might significantly mitigate the worst effects of the crisis on Britain's population. The situation definitely bears watching; the world economy is in very bad shape indeed, and if Brown can mitigate this to a noticeable degree, a lot of people will want to follow his lead.

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