Our world in 2009

This is a post from Economist's blog. It has many entries and it is worth checking it out.Follow this link to read all the entries



"BUDGET deficits in the rich world will balloon in 2009. Recession will lead to soaring government spending.

In Britain, Gordon Brown's erstwhile "prudence" will be long forgotten as the budget deficit pushes towards 6% of GDP. Ireland, already in recession, projects a budget deficit of 6.5% of GDP.

In America, as David Brooks points out in the New York Times, a combination of factors points in the same direction: spending on the bank bail-outs, an inevitable new stimulus package for the economy, a Keynesian spending spree on infrastructure, tax cuts promised during the campaign and a costly health-care plan (assuming Barack Obama wins the presidency).

What we’re going to see, in short, is the Gingrich revolution in reverse and on steroids. There will be a big increase in spending and deficits. In normal times, moderates could have restrained the zeal on the left. In an economic crisis, not a chance. The over-reach is coming. The backlash is next.

Mr Brooks sees a looming era of big government. This will be highly contentious, and not only in America.

In Europe, budget deficits will burst through the 3% ceiling of the European Union's stability and growth pact. Rules against state aid for industry will come under strain (if you can bail out the banks, the argument will run, why not the airline, or the car company, or the steel industry?).

In other words, it looks as if the old economic rulebook will be increasingly rejected or ignored—to the dismay of those who remember the reasons why the rules were written in the first place.