The Other I

November 24, 2008

Beta test for financial rescue plan

The British government today announced what in the States would be called a huge bail-out plan for the economy.  Fundamentally it consists of cutting taxes, increasing hand-outs, and borrowing mind-boggling amounts of money that will ultimately equal at least 57% of GDP.  It’s a huge gamble.  It will be early next year before analysts can make an informed guess about how the dice are rolling.

It’s similar to what Obama and the Democrats are hoping to try with a $700 billion stimulus package, but it’s a greater risk for Britain because it’s a much smaller country, and the dollar is a world currency while the British pound isn’t.  If it works, the Labour government will be hailed as heroes.  If it fails, I strongly suspect I will be dead before the country recovers fiscally.  As it is, the government cannot foresee even beginning to pay down the debt in less than eight years, although taxes will begin to shoot up in 15 months time. 

To tell the truth, despite a lot of blustering, nobody really knows what will happen. 

I think in part it is simply a question of confidence.  If people believe things are getting better they will, because we will take risks rather than stuffing all our savings under the mattress. 

Alternatively, we can take the very very long view:  fishermen have just dragged a fossil out of the ocean on the coast of Britain.  It was the fossil of a turtle whose forebears had first left the ocean for life on land 215 million years ago.  50 million years later it returned home to live an acquatic life once again.

Well, I don’t think the changes we are facing in the world today are that drastic.

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