Follow the fleet?

British prime minister Gordon Brown has always liked to cast himself as a light unto the nations. As finance minister, or chancellor of the exchequer, under Tony Blair, he presented himself as the prudent fiscal conservative and lectured Europe on why his way was best. True, he soon learned to bend his own self-imposed "golden rule" to fit his spending needs. Taxing pension funds and selling the nation's gold reserves at the bottom of the gold cycle were just two of the more egregious ways he chose to fund spending while keeping a lid on borrowing. Then, when borrowing rose anyway, he used statistical sleights of hand and tricks of timing to cover his tracks. He certainly never thought to put aside money from the nation's (now dwindling) oil and gas revenues in a sovereign wealth fund or encouraged consumers to save for a rainy day. You have to wonder how much interest he would have shown if Norway or Singapore had chosen international meetings to boast about how their prudent way was better than Britain's.

But now he is at it again. Superhero and legend in his own lunchtime that he is, he has saved the world's banking system from ruin by showing the U.S. how to part-nationalize its banks. Who, he must be wondering, with that weird smile that keeps growing sunnier as the gloom deepens, could have contemplated the bailout of Citigroup Inc. without his example at Royal Bank of Scotland Group plc, Lloyds TSB Group plc and HBOS plc? Now, he's overturning all his previous orthodoxies by increasing government borrowing to cut taxes for the lower paid (another sleight of hand) -- he's merely reinstating a lower rate he tried to remove earlier this year, causing a row that nearly cost him his job. He also will be tinkering with state pensions, offering help for small businesses and temporarily reducing value-added tax. He'll raise other personal taxes again after the next election.

He still wants the world to follow suit. After all, a domestic fiscal stimulus will do little unless other countries also increase their borrowing. Otherwise, British consumers would buy more foreign goods (they will do so, anyway, because we manufacture so little at home), giving exporting nations a free economic fillip at the expense of the U.K. taxpayer. Brown wants the world to know that he has learned from the mistakes of others and that other leaders must now learn from his successes.

Not everyone is convinced. For a start, Alistair Darling, Brown's puppet chancellor, has had to reaffirm his fiscal prudence by warning of future pain. Many people will want to conserve whatever little extra the government has given them now rather than splash it out on a recession-busting spending splurge. Besides, if you think deflation is coming, why spend today when you can wait for prices to fall tomorrow? What's more, it will take a lot of extra consumer spending to get the retail sector back on its feet and keep it standing after Christmas.

There are some hopeful signs. If people expect to see the 2.5 percentage point decline in value-added tax reversed 13 months from now, they might confound the doomsayers and spend on big-ticket items while they're cheap. After all, there's nothing like a guaranteed purchase-tax increase on the horizon to counter deflationary expectations. (Perhaps Brown should be modest enough to acknowledge his debt to the Germans on this one. German Chancellor Angela Merkel's decision to raise VAT by 3 percentage points from January 2007 played a possibly unintended role in Germany's economic recovery in the months ahead of its implementation -- even if it also meant consumers spent less thereafter. Incidentally, Merkel is now insisting on maintaining a balanced budget despite the recession.)

And, arguably, the announcement by RBS that it will guarantee overdraft rates for small businesses and not withdraw lending facilities for at least a year may do more to enhance business confidence than anything Brown and Darling have offered. The politicians claim that their financial support for the banks and for the Scottish bank in particular were the real reason for this change of heart. They now want other lenders to follow RBS' life-affirming example.

Maybe it will happen and the world will be saved. But it will be interesting to see if other government-rescued lenders (Citi, perhaps, or Belgian-Dutch bank Fortis SA/NV) are not only ready to follow the same path, but are prepared to acknowledge any debt to the British prime minister.