Learning from your mistakes

The big policy lesson from our current recession is: save money in good times to see you through the bad. Obvious? Apparently not, especially in Britain, where the government spent the unprecendentedly long expansion period from the late 90s to 2007 running deficits. But it’s good to know that we can learn from our mistakes, right? 

But [Alistair Darling] made clear his plans depended on a rapid economic bounce-back – with a forecast of 1.25% growth next year rising to 3.5% in 2011. [link]
The IMF World Economic Outlook (WEO) report predicts the UK economy will shrink by 4.1pc in 2009, with the downturn expected to continue into next year when the economy will fall by 0.4pc. [link]
This is unacceptable. After years of squandering prosperity by running deficits in boom years, now the government proposes to dig even deeper. 
My university, Brown, is cutting staff right now. By anecdote, it is far from alone in the higher education world in doing so. Why is it that a bad year means the operating budget is slashed? Why was the financial plan based on an assumption of constant, unlimited growth in the endowment (i.e. a constant, unlimited rise in stock prices)? Why were national governments operating under the same assumptions? 

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