strategy with risks

Rescue plan for global economy

Published:

GORDON Brown is leading the world into uncharted waters with his fiscal stimulus plan to rescue us all from the global economic downturn.

It is bold, imaginative and, for the sake of jobs and security, it had better work.

One risk attached to the strategy is that the prime minister’s measures do not boost demand enough to stop the economy from experiencing deflation – a period of consistently falling prices.

The idea of prices falling might seem welcome right now, but a lack of economic activity could put jobs at risk.

Another problem is that the government will have to borrow to fund the expansionary measures. In effect, we will be borrowing from ourselves as future tax returns will be needed to pay off the debt.

If economic activity stays low, there will be nothing in the kitty to meet repayments. That could lead to cuts in government spending which in turn could result in job losses among companies dependent on public-sector contracts.

Ministers call it “borrowing within a medium-term framework for fiscal stability”.

In more normal parlance, it is borrowing to give the economy a huge injection of spending money in the hope that jobs will be saved and we can skim off the bottom of the downturn sooner rather than later.

It also means that there will be a lot of money to be paid back in the end.

It is a gamble on a monumental scale, but sometimes we are left with no option but to take a chance.