We probably do not drive about any more because petrol at the pumps is only three-quarters of its peak price, but we do have more money to spend on other things.But, in the longer term, it must be strategically dangerous, as well as environmentally disturbing, to rely on fossil fuels from a unstable part of the world. Indeed the lower the oil price the more unstable the world becomes. Saudi Arabia needs a price in the mid-$20s to balance its budget, so a lower price will mean the government cannot indefinitely supply the services that its citizens have come to regard as normal Russia, too, needs high oil prices. More than half its foreign earnings are from oil, gas and related products, while the oil and gas industry contributes about half the country’s tax revenues.The point is often made that whatever happens in Middle East politics, the countries there will need to continue producing oil to give them revenues The same goes for Russia. But that ignores both the dangers of disruption to supply and the complex and ill-understood interconnections of the world economy.Saudi Arabia has played an important role in the past as the “swing producer” of OPEC: it has actually been very responsible, using its own production to try and maintain stable prices That it has not entirely succeeded is not its fault. A period of $10 oil might be very helpful for the world economy in the short run – but at a high cost in the future.. Later this month Gordon Brown will present his pre-Budget report.

It is likely to show a sharp deterioration in the public finances But that is as it should be. Last week produced another significant sign of slowing economic activity, the first rise in claimant count unemployment. In economic downturns social security payments rise while tax revenues fall. The resulting increase in government borrowing is a net stimulus to the economy. Just what is needed in these difficult times.
Gordon Brown has sought to portray himself as the prudent Chancellor who has banished the cycle of boom and bust by laying down fiscal rules and sticking to them. He has never claimed to be a fiscal activist, because Keynesian demand management went out of fashion a quarter century ago. According to Treasury orthodoxy, the job of the Chancellor at Budget time is not to steer the economy.

It is simply to set tax rates and public spending levels so as to hit the medium-term targets for government tax revenues, spending and borrowing.Yet a case could be made that Mr Brown is the most successful fiscal activist of modern times. He controlled public expenditure very tightly in the first three years of his stewardship. At the peak of the boom he took around £20bn of cash from the private sector by the sale of the 3G telecoms licences. He subse- quently announced a major expansion of government spending on health and education, which now seems remarkably well-timed, to counter the fall of private sector demand in the downturn of the early 2000s.The turn-round in government finances between the last financial year and this (estimated by Goldman Sachs at £40bn) is one reason why Britain is enjoying the best performance of the major economies. A sizeable stimulus is clearly under way.The stimulus is more than welcome, because manufacturing industry’s confidence has fallen steeply again, says the CBI business optimism indicator. That measure has had a remarkably good track record in predicting recessions, apart from in 1998 when it predicted a sharp fall when it was only a small dip.The current downswing in confidence looks as bad as 1998.

We must expect a worse outturn this time around because the world economy is in a less healthy state. The events of 11 September have pushed the US into outright recession, and that is particularly bad news for the fragile Japanese economy, so dependent on its large export markets in the US.I wrote (before 11 September) that the severity of the UK recession will depend mainly on whether business confidence recovers before consumer confidence collapses. The latest figures tell us that the terrorist attacks have made that less likely, by further damaging confidence, in the service sector as well as in manufacturing. Not surprisingly consumer confidence has also faltered, but less than in 1998 (so far). Consumers are being buoyed up by the lowest interest rates for a generation.