Spend, spend, spend

In the topsy turvy world of an economic downturn, it is interesting to see that the leaders of the major economies are turning to the poor to save them from the consequences of their incompetent management. Thus the G8 morphs into the G20, and countries such as Mexico, Indonesia, Turkey and Argentina suddenly find themselves placed solicitously at the top table. Are they being offered a free lunch?

Far from it. The Titanic has hit the iceberg that wasn't supposed to exist, and what the newly cosseted guests are asked to do is provide fuel for the engines needed to refloat it. That means a massive splurge of spending - delicately called an economic "stimulus" - to create the demand that will turn the mighty engines of global production once more, and with them the somewhat less tangible components of the financial system. As if debt were not already a big enough problem, they are being asked to take on more, and the cure for the world's financial problems looks very much like more of the behaviour that caused it in the first place.

All this affects the poorer participants in the global economy, in two ways. First, the countries which are being asked to take the strain are themselves massively unequal, which large populations living at the margins of subsistence in India, Brazil, South Africa and many others. Secondly, within the rich countries, policymakers have woken up to the Keynesian wisdom that putting money into the hands of the have-nots generates more immediate demand than putting it into the hands of the wealthy, who don't need to spend it immediately: our good old friend a differential "marginal propensity to consume".

In the UK increased state spending is seen as too slow a method of increasing demand - it takes several years to plan and build a school or hospital. Even tax cuts for the poor won't do, because they won't get the money until next financial year. No, the poor have got to get on with the job of saving the economy immediately, meaning a hike in benefits and pensions. Of course that sounds like generosity - nothing to repay - until you consider that it is in fact the state which is proposing to take on the debt on everyone's behalf. Later on, when it comes time to repay the state's debt, the economy will be motoring again, and the rich will be claiming they can't be taxed for fear of destroying their incentives. Meanwhile those public sector goods like schools and hospitals will not have been built, and given the state of the government's finances are never likely to be.

And therein lies the point. As Bush, Brown and the others appeal to the second and third tier economies to save the day, and promise to reform the IMF to improve stability and revive the WTO negotiations on freeing trade yet further, and as they impose consumption on their own poor in the interests of economic normal service, who will make the simple points in return?

From the states being asked to help: Yes, we will co-operate, on condition of permanent democratisation of the management of the world economy, with fair representation in the IMF, World Bank and WTO. And from the poor themselves, the condition of a permanent shift to a more equal pattern of income distribution, within nations and worldwide, including the construction of the sustainable public goods which only the state can provide.

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