Austerity's definitely happened. The question is how much damage it's done

The fact that austerity has failed does not mean no-one tried to implement it.

The Atlantic's Matthew O'Brien writes:

Britain's economy is a riddle wrapped in a mystery inside an enigma, but this much is clear: it's a disaster. After its Olympics-fueled growth, such as it was, lifted it out of recession in the third quarter of 2012, Britain might be headed back after its economy fell 0.3 percent at the end of the year the fourth time in five quarters its GDP has contracted. Britain's now verging on a triple-dip recession, which is just another way of saying a depression…

It's no accident this era of zero growth has coincided with an era of austerity. Despite entering office with borrowing costs at 50-year lows, the Cameron coalition decided the government deficit, and not the growth deficit, was the chief threat to future prosperity. It raised taxes and cut the growth of spending, but did so with little regard for what constituted smart cuts and what did not… It's the economic equivalent of shooting yourself in both feet, just in case shooting yourself in one doesn't completely cripple you.

O'Brien goes on to argue that austerity can't be the only cause of Britain's slump. For him, the real puzzle is the collapse in productivity which has lead to a recovery in the labour market (of sorts) without a commensurate recovery in GDP. (That disconnect may partially be the result of some statistical fiddling on the part of the Government).

There's a number of possibilities for such an "enigma", from zombie firms which are only kept alive by the low cost of credit, through measurement error (both that mentioned above and something gone awry with the seasonal adjustments), to genuine slumps — temporary or otherwise — in productivity.

But one group of people think they have the answer to O'Brien's puzzle, albeit by discounting one of his premises. These are the "cut further, cut faster" Tories, for whom a failure to reduce the deficit as quickly as they desire is the same as a failure to implement austerity.

NIESR's director Jonathan Portes has taken on this tendency, in the form of a detailed response to two of its biggest proponents, Tory MP John Redwood and the Spectator's editor Fraser Nelson.

Nelson writes:

We’re witnessing the difficulty the left has in reconciling its official narrative with what’s actually happening. Yes, George Osborne’s policy is not working – but for reasons that the Guardian can’t quite bring itself to accept. It’s not that his evil cuts are retarding the recovery. It’s that he’s slowly abandoning his deficit plan. The figures show that core government spending is going up, along with the debt and (last month) the deficit.

Portes responds that yes, core government spending "is roughly flat in real terms, with cuts in some areas offset by the operation of the automatic stabilisers". But defining austerity in terms of core government spending is arguing at cross-purposes with those who argue that austerity has harmed the British economy.

The simple analysis of the government's austerity program is that the reduction of the deficit is equivalent to austerity. That was the initial definition the government went with, which is why the failure to reduce the deficit to any great degree is seen as failing on its own terms.

But deficit reduction can't be directly equivalent to austerity, since it can also be achieved by growth. (Which is the argument the anti-cuts left has been making consistently for the last three years.) And so we get to the circular argument in Nelson's claim that Osborne has failed at austerity. Because what he is describing as the failure to achieve austerity — slow paced deficit reduction and flat spending — is actually a symptom of the failure of austerity. As Portes writes, the causal inference is wrong. It's not that the Chancellor is abandoning austerity and so the debt continues to rise; it's that debt continues to rise because austerity doesn't work to reduce it, and so the Chancellor is trying to quietly change tack:

The government did not adopt policy changes which led to slower deficit reduction. Instead, the front-loaded fiscal consolidation illustrated above (along with other factors, such as the similar, and similarly misguided, policies pursued by our eurozone partners) derailed the recovery, which in turn led to the slowing of deficit reduction, which in turn has forced the government to abandon its fiscal framework. Again, the IMF sets all this out quite clearly.

For Portes, the important failure of austerity is in the resulting reduction in capital investment, because austerity stands opposed to fiscal stimulus (which he defines as "Government measures, normally involving increased public spending and lower taxation, aimed at giving a positive jolt to economic activity").

The Government, in its desire to cut the deficit primarily through spending cuts with a top-up of tax rises, thus failed to achieve one of its goals. Spending was not cut significantly, but between tax rises and initial moderate growth, the deficit has been reduced. This is the austerity which is decried. The fact that one of the measures through which this was intended to be achieved is not proof that there has been no austerity, but merely further proof that austerity is self-defeating.

And by focusing on attempts to reduce spending and achieve "fiscal consolidation", the government failed to implement fiscal stimulus (even going so far as to reduce public investment by 1.7 per cent of GDP).

The failure of austerity to greatly reduce the deficit, and the fact that automatic stabilisers mean that spending stubbornly refuses to fall — as we swap a pound spent on EMA for a teenager in school with a pound spent on JSA for an unemployed civil servant — are not the same as a failure to implement austerity. It has been implemented, and it has damaged the nation: the question now under discussion is just how much.

George Osborne looking at wheels. Photograph: Getty Images

Alex Hern is a technology reporter for the Guardian. He was formerly staff writer at the New Statesman. You should follow Alex on Twitter.

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Geoffrey Howe dies, aged 88

Howe was Margaret Thatcher's longest serving Cabinet minister – and the man credited with precipitating her downfall.

The former Conservative chancellor Lord Howe, a key figure in the Thatcher government, has died of a suspected heart attack, his family has said. He was 88.

Geoffrey Howe was the longest-serving member of Margaret Thatcher's Cabinet, playing a key role in both her government and her downfall. Born in Port Talbot in 1926, he began his career as a lawyer, and was first elected to parliament in 1964, but lost his seat just 18 months later.

Returning as MP for Reigate in the Conservative election victory of 1970, he served in the government of Edward Heath, first as Solicitor General for England & Wales, then as a Minister of State for Trade. When Margaret Thatcher became opposition leader in 1975, she named Howe as her shadow chancellor.

He retained this brief when the party returned to government in 1979. In the controversial budget of 1981, he outlined a radical monetarist programme, abandoning then-mainstream economic thinking by attempting to rapidly tackle the deficit at a time of recession and unemployment. Following the 1983 election, he was appointed as foreign secretary, in which post he negotiated the return of Hong Kong to China.

In 1989, Thatcher demoted Howe to the position of leader of the house and deputy prime minister. And on 1 November 1990, following disagreements over Britain's relationship with Europe, he resigned from the Cabinet altogether. 

Twelve days later, in a powerful speech explaining his resignation, he attacked the prime minister's attitude to Brussels, and called on his former colleagues to "consider their own response to the tragic conflict of loyalties with which I have myself wrestled for perhaps too long".

Labour Chancellor Denis Healey once described an attack from Howe as "like being savaged by a dead sheep" - but his resignation speech is widely credited for triggering the process that led to Thatcher's downfall. Nine days later, her premiership was over.

Howe retired from the Commons in 1992, and was made a life peer as Baron Howe of Aberavon. He later said that his resignation speech "was not intended as a challenge, it was intended as a way of summarising the importance of Europe". 

Nonetheless, he added: "I am sure that, without [Thatcher's] resignation, we would not have won the 1992 election... If there had been a Labour government from 1992 onwards, New Labour would never have been born."

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.