The narrative of Gordon Brown's ten years as chancellor looked irresistible: ten years of non-inflationary growth, the longest upturn in British economic history for 200 years, 59 quarters (which became 63) of uninterrupted growth, and so on. Brown liked kicking sand in the eyes of his critics, the City scribblers and the analysts who were so often bettered in their economic forecasts by him and the Treasury.
But out of Brown's confidence grew a complacency. He appeared to believe that, whatever happened to the British, and, for that matter, the global economy, he and any government that he led would emerge as gold medal winners. The great vessel UK plc having survived the Asian crisis of 1997-98 so soon after Labour came to office, as well as the shock waves from 9/11 and the dotcom collapse, what could possibly blow it off course?
The belt-tightening from the credit crunch must therefore be a passing phase only. Indeed, I understand that when Brown was briefed on the March 2008 Budget by his successor, Alistair Darling, that growth was slowing from 3 per cent in 2007 to 2 per cent in 2008, the Prime Minister lost his cool. He believed that Darling was allowing the pessimism of the Treasury, the City and the International Monetary Fund to undermine his golden legacy of non-inflationary growth and ever-expanding budget revenues.
Not only was the PM living in a fantasy world, but the very forecasts he doubted were themselves rose-tinted. With Britain's banking system flat on its back and the economy starved of the credit and loans that had made it so dynamic, there was no way Darling's forecasts stood up to scrutiny. The issue was: could Britain avoid recession?
We now know the answer. Both Brown and his Treasury counterparts were resting on their laurels in a world in which Britain was "better placed" than its competitors to fall over the precipice. The most recent figures from the Office for National Statistics have shown that the economy was in free fall. The government's response has been peculiarly incompetent.
The July leaks from Downing Street that the PM was going to temporarily lift stamp duty on housing transactions produced the opposite of the intended effect. Instead of lifting confidence, it led sellers and purchasers to postpone all but essential transactions. Brown had made a fundamental error about markets that left his normally calm Chancellor seething.
Back to trusted weapons
Darling's admission to the Guardian that the economic crisis is the worst in 60 years was his declaration of independence from Brown. At a stroke, his willingness to go along with the PM's belief that Britain can withstand the current difficulties better than our competitors was challenged.
Darling had been overruled once too often by No 10. Now, finally, post-Northern Rock and the credit crunch, he is willing to go it alone as Chancellor, whatever the risks, because, after 16 years of uninterrupted growth, the UK economy has ground to a total halt. With the speed of the decline and the calamitous fall in household spending, recession - technically measured as decline of output in two consecutive quarters - is now inevitable.
It is hard to escape the conclusion that jobs are in danger. In the first half of the year, construction fell by 1.1 per cent. Financial services are barely growing. Manufacturing is in recession after two consecutive downward quarters, while retail grew by just 0.5 per cent.
So what can Labour do to lift the gloom? Interest rates are in the hands of the Bank of England, and the inflation-fighting tendency on the interest-rate-setting Monetary Policy Committee would rather see a recession than a return to the prices spiral of a past age.
This leaves the government with fiscal policy, the old Keynesian weapon for keeping demand up in the face of slowdown. Darling has already taken a big step here by easing the fiscal rules and allowing the government to spend beyond its means. So, as more people are thrown out of work, more is spent on welfare and unemployment benefits, in addition to cash already earmarked for public investment.
In addition to tax breaks through stamp duty to homebuyers, the government looks certain to go further, through schemes designed to assist the less well-off with utility bills. But it lacks the resources and political courage to deliver cash bonuses through wages, as the Bush administration has done in the United States.
The trick for Brown and Darling will be to deliver an old-fashioned autumn statement and make what they do look substantial, boosting consumer and political confidence.
What is missing from economic policy is coherence . Brown needs to restore to the Treasury the right to act independently. It is fundamental to the competence question that now dogs Labour.
Alex Brummer is City editor of the Daily Mail