George Osborne grandly set out his economic vision in his Mais Lecture to City luminaries earlier this year. A smaller state coupled with higher exports and increased investment were his stated objectives. As Chancellor, he is now pursing these goals and keeping his fingers crossed that after he has hacked off chunks of the public sector, the private sector will step in to fill the gap.
If the unprecedented boom in exports and business investment needed to realise Osborne's plan doesn't show up, his approach, to borrow a phrase from Lady Thatcher, can be described thus: "You turn if you want to; the man's not for turning." Urged on by Tory backbenchers, the Chancellor refuses to countenance a plan B, while his Liberal Democrat coalition partners wonder what brake, if any, the Chief Secretary to the Treasury, Danny Alexander, is applying to this ideological adventure.
Alistair Darling, Osborne's predecessor, set out a plan to halve the deficit in four years starting in March 2011. This was controversial with many within Labour: the balance of tax rises to spending cuts was questioned, as was the need for such rapid fiscal consolidation. Despite this, the judgement of the new Office for Budget Responsibility was clear: the deficit would have been reduced from over 10 per cent of GDP in 2010/11 to 3.9 per cent by 2014/15 under Labour's plans.
Crucially Darling had a plan B. If the economy got worse and the prospects of high unemployment or a double-dip recession increased, the tempo of deficit reduction could be changed accordingly – the pace of fiscal tightening would be set by the pace of economic recovery (Vince Cable, too, argued for this during the election campaign).
Conversely, Osborne has decided to go further and faster. He is planning on tightening by an additional £40bn over Darling's plans by 2014/15, as set out in his June Budget and this month's Spending Review. He has rhetorically lashed himself to the mast of eliminating the structural deficit in one parliament, allowing very little flexibility if the outlook changes. He is also relying more on spending cuts, and less on tax rises, putting him at odds not only with Labour, but also with Ken Clarke.
The Justice Secretary, while chancellor under John Major in the 1990s, achieved a similar rebalancing of the economy and relied much more on tax rises and less on spending cuts to repair the public finances, in the wake of the last recession, than Osborne proposes now. Then exports and business investment grew strongly, although not as strongly as Osborne needs them to at present. And conditions then were very different from those in 2010: exports were helped by a booming world economy and investment increased by the need for business to respond to the revolution in information technology and communications. Neither seems likely over the next few years.
We should also remember the 1930s and the 1980s. In both cases, state spending was cut back as Tory governments, clinging to approaches variously referred to as "the Treasury view", "sound money" and "monetarism", waited for a private-sector recovery to take hold. Yet, when the problem is too little demand, who seriously advocates cutting back demand further? This is economics driven by ideology and lacking in common sense.
Today the Chancellor's rhetoric has made dealing with the deficit the sole aim of macroeconomic policy but, as the axe falls and jobs are lost from the public sector, there is a great danger that the private sector is not strong enough to absorb the newly unemployed workers. If this proves to be the case, unemployment will rise and, with it, the welfare bill as tax income falls. The deficit will worsen, forcing Osborne, who has left himself with no option, to cut spending further. It is self-defeating austerity that could well create an economic death spiral.
Moreover, in the 1930s and the 1980s the recovery did eventually come, but years later than it had to, and with a high social cost in unemployment, poverty and crime. In both cases the lack of an active regional policy, as now, left pockets of higher deprivation blighted by structural joblessness. And in both cases there was an alternative that could have been taken if the government had not been so blinkered.
One hopes that the private sector will be strong enough to counteract the effects of Osborne's measures, and that Britain will enjoy an exporting and investment renaissance and workers move near-seamlessly from the public payroll to newly created jobs in industry. However, history suggests that the odds of this occurring, especially at a time of continued global economic turmoil, are not high.
Osborne's lack of a plan B could prove his undoing. Unfortunately it is the British people, and not the likes of Osborne, who ultimately will pay the price.
Chuka Umunna is the Labour MP for Streatham and a member of the House of Commons Treasury select committee. Duncan Weldon is an economist and former adviser to the opposition Treasury team.