In the Observer, Will Hutton has a love-in with Gordon Brown's favourite economist, Paul Krugman. Krugman argues that the political crisis in Britain is "bizarre" on account of Brown's brilliant handling of the economy. No, really. He thinks that the British economy "looks the best in Europe at the moment", that Gordon Brown's policy has been "intelligent" and even that he might win a fourth term. "If the government can hold off having an election until next year, Labour might well be able to run as 'we're the people who brought Britain out of the slump'."
That said, Krugman's message for the world as a whole, including Britain, is fairly bleak, with large parts of the global economy becoming "Nipponised" - ending up like Nineties' Japan. Germany's problem - too much dependence upon exports, too much saving ("huge inadequacy of domestic demand") and catastrophic demography - sound pretty much like the recipe Will Hutton recommended to Britain in his seminal The State We're In. That book was a virtual hymn to the German (and Japanese) way of doing things, so when the financial crisis hit and the banking collapse could be laid at the door of the ill-regulated, risk-addicted "Anglo-Saxon" model, Hutton was briefly vindicated. If Krugman is anywhere near right, however, things aren't going to be so simple or so morally exemplary.
How has Britain managed to slip through the net - if indeed it has? Says Krugman:
Well, the UK has achieved a lot of monetary traction in the way that no one else has through the depreciation of the pound. In effect, you've carried out a successful beggar-my-neighbour devaluation.
The pound fell at the right time - enough to keep the economy out of a depression - and now it's naturally rising again, against both the dollar and the Euro. In other words, Gordon Brown really can claim the credit for saving us from the worst effects of the global downturn. It is, after all, largely thanks to him that we never joined the Euro. Much to Will Hutton's chagrin, of course, as well Peter Mandelson's. Just the other day Mandelson was crediting the Euro for having saved the continent from financial Armaggedon. It was, he said, a "major vindication for the single currency".
This sounds in marked contrast to Krugman's assessment that the devaluation of the pound vis a vis the other major currencies was "a nice thing from a UK point of view".
However bad things are looking at the moment, it could have been considerably worse.