Cutting public spending when there is no other source of growth in the economy is a sure-fire strategy for recession. As if the lack of recovery wasn’t bad enough, the lack of growth also scuppers your deficit-reduction goals – the very reason for austerity in the first place. Like throwing away the engine to trim a car, you have offset the lack of revenue recovery by slashing capital spending. The results are already being seen in the forecasts: there will be no spurt of growth to regain the losses of the recession. The best we can hope for is a slow crawl along the bottom.
Is there a way out? Initiatives such as the National Infrastructure Plan and the Green Investment Bank aim to mobilise private money behind growth-boosting capital projects, but they lack the financial backing to have a real impact. The government has promised less than £10bn, a fraction of the size of the cuts to public investment. Why not more? Since well-chosen infrastructure and energy-saving projects will be revenue-generating, increasing capital spending does not even have to come at the expense of a higher deficit.
With a chancellor who believes that budgets can be balanced by cutting expenditure without simultaneously boosting demand, we are stuck in a vicious cycle. Unless there is an immediate change of course, your legacy will stare at us in the form of downward-sloping graphs for a long time to come.
Robert Skidelsky is Professor of Political Economy at the University of Warwick and author of How Much Is Enough? (Allen Lane).
Read more advice to George Osborne from leading economists at the Guardian: www.guardian.co.uk/politics/2012/aug/17/top-economists-advice-george-osborne