The Labour Government responded to the financial crisis of 2008 with a stimulus package, much like that put together by the incoming Obama administration in early 2009. Growth resumed. But then the Conservative Lib Dem Coalition was formed in the wake of the inconclusive 2010 election, and put forward a radical package of cuts which enforced a massive shrinkage of public sector investment, benefits, and procurement just at the worst moment, in Keynesian terms.
Back in the UK, we're relearning the hard way the lessons of the 1930s - that you don't deleverage public sector spending when private deleveraging is so high. We've relearned the paradox of thrift on a massive scale, as the government, in an attempt to cut public spending, has miscalculated the multiplier effect, which in turn has forced them to borrow more.
Let's call it failure
John Lanchester looks at the nation's finances
Saying 'I told you so' is supposed to be near unbeatable fun, so it's disappointing to report that, in the case of the government's handling of the British economy, speaking for myself, no fun is being had. As George Osborne's autumn statement made clear, the scale and speed and completeness with which things are going wrong are numbing. The Tories went into the 2010 election with a manifesto commitment to reduce the structural deficit - the amount by which the government's spending in any given year exceeds its income, excluding temporary effects from the downturn. The first point in their economic policy read as follows: 'We will safeguard Britain's credit rating with a credible plan to eliminate a large part of the structural deficit over a Parliament.' How? It's on the next page: 'We will cut government spending to bring the deficit down and restore stability.'
That's what they set out to do. In June 2010, in his first budget, Osborne said the structural deficit was 4.8 per cent, and that with three years of reduced spending, the figure would be down to 1.9 per cent. So how's that going? Well, by the end of those three years, after £59 billion of tax rises and spending cuts, the figure is set to be.... 4.9 per cent - higher than it was when the coalition came to power. Osborne's single biggest economic ambition was to get the deficit down, but he hasn't managed it, and has had to abandon his noisily announced target to get rid of most of the deficit in a single parliament. Gather round, children, and take a good look. This is the thing we call failure.