Alistair Darling is a good chancellor of the exchequer. He has presented a Budget that does essentially nothing - a good budget, given the dreadful economic circumstances. ....Mr Darling is doing his best to clean up the mess left by his predecessor, Gordon Brown. .... the global financial regulatory race to the bottom have left the UK .... in its worst fiscal shape ever in peacetime ...... It has a bloated financial sector, including a banking sector that is too large to save unless state support is restricted to the UK high street banking bits of UK-based global banking groups....Under the best possible scenario, taxes will have to be raised and/or public spending cut on a permanent basis by between 5 and 6 per cent of GDP to regain fiscal sustainability. The necessary permanent fiscal tightening could easily be larger. The pain will be widely felt. The ambition to bring British infrastructure back up to the level it achieved at the end of the 19th century has been postponed by another quarter-century. Education and health will suffer....If the necessary fiscal tightening is not forthcoming because different groups and vested interests are engaged in a war of attrition aimed at shifting the fiscal burden to the other guy, markets could easily panic and Britain could face an emerging market-style “sudden stop”, with the rest of the world withholding financing from its public and private sectors.....I would consider the case for a government of national unity. It would help if Mr Brown - responsible more than any one for this debacle - were to resign.
In my unacademic, vulgar leftist way I think he's saying (a) British capitalism's basic 'national business model' just went down the Swannee; (b) there will be an upsurge of class struggle after the election to play 'pass the pass' with the consequences of this; (c) but this risks the 'mutual ruin of the contending classes' if the international markets decide not to finance the country's debt.
P.S. Hopi is quite right to boast about the quality of economic debate on his site. Duncan in particular has crystallised something for me by doing a quick back of the envelope calculation which suggests that the gap between tax yields and spending is about 12% GDP - equivalent to either 25% of all public spending, or a general tax increase of 30%. Neither of these things is going to happen in their entirety of course - but neither is any possible combination of them without massive struggles....which Buiter says the international money markets have the capacity to simply call time on by taking their money away.