The Observer reports that:
Alistair Darling must tear up Gordon Brown's 'golden rule' and cancel the planned public spending squeeze to avoid exacerbating the slowdown in the British economy, the Ernst and Young Item Club warns today.
For once (and I've a long history of disagreeing with the Item Club) this group have got their thinking right. What they're saying is pure Keynesianism and absolutely correct.
Now is not the time for dogma created in the mid 90s when sticking to a fixed ratio of government borrowing imposed little constraint on a government when GDP was rising because of market conditions, however misguided those conditions were (and we're talking dot com here).
Now is the time for the government to say it has a real and positive role in managing the economy, and to make clear that when markets have clearly shown they do not know how to allocate cash resources (as the collapse in commercial property prices, the sub-prime crisis and Northern Rock all show) that they can actually use them to much better effect.
It's time to scrap this ratio: the UK needs Keynesian thinking at this moment, and he'd have absolutely no truck without such artificial constraints. They are, after all, mere indication of Brown being the slave of some defunct economist.