Leader: The perils of Ricardian-Osbornism

The trouble for Osborne is that every economic indicator is heading in the wrong direction.

When George Osborne declared that "Britain has a plan and we are sticking to it" during his Budget speech on Wednesday 23 March, it was a statement of the ideological zeal that underpins the coalition's decision-making. The Chancellor's Budget speech attempted to shift the discourse from austerity and cuts to growth and enterprise. But there was no escaping the shadow of the harshest fiscal retrenchment in modern times. There will be no turning back.

Conviction in politics can be seductive, offering clarity of thought and action. It also brings boldness. Mr Osborne is very much the conviction politician and, in a superficial age, we admire him for it. But conviction is not enough, especially when too often it can tilt towards dogma. What we wanted to see from the Chancellor was flexibility and a willingness to adapt to changed economic circumstances. As John Maynard Kenyes remarked: "When the facts change, I change my mind." What do you do, Mr Osborne?

The facts have changed. The trouble for the Chancellor is that every economic indicator is heading in the wrong direction - growth has turned negative, unemployment is rising fast, inflation is at its highest rate for 20 years, consumer confidence has collapsed and average earnings are falling. Indeed, the Office for Budget Responsibility, set up by the coalition, has been forced to downgrade its growth forecasts for this year and next, as we predicted at the time of the last Budget in June. More disturbing still was that this Budget offered little hope for the unemployed, especially the 974,000 young people out of work. The Chancellor's obsession with deficit reduction has narrowed his mind.

In an essay on page 32, Robert Skidelsky, the pre-eminent biographer of Keynes, writes of the influence on government economic policy of the 19th-century economist David Ricardo. "Ricardian-Osbornism," he observes, "would be an excellent cure for unemployment if there were no unemployment to cure."

There has been a great deal of praise for Mr Osborne this week: adulatory newspaper profiles, cheers from the Tory back benches and talk of him as a future prime minister. But he will be judged ultimately on the success or failure of an economic strategy that is unnecessarily draconian and could well lead to more social unrest and years of hardship.

This article first appeared in the 28 March 2011 issue of the New Statesman, Why Libya? Why now?