The Coalition is taking a reckless gamble with the economy.
Like many myths, today's contains an element of truth; but it is an incomplete part of a larger picture, and the larger picture renders it misleading.
Yes, cutting spending at a time when the economy is emerging from recession is a gamble. To be clear, the coalition risks a double-dip recession if taking demand out of the economy makes it start shrinking again. But what about the alternative? Labour's policy - smaller cuts, and slower - involves a different kind of gamble, namely that the gilt markets will be sufficiently convinced that we're serious about reducing the deficit to carry on lending us the money, at rates we can afford, or at all.
There are two reasons for thinking that the Coalition's gamble is in fact much less reckless than Labour's. The first is that the consequences of losing the gamble are much worse if we don't cut fast enough. Losing the confidence of the gilt markets will either drive us into the arms of the IMF, in which case you will see cuts which make Osborne's efforts resemble the proverbial vicarage tea party, or, worse, will force the UK to default on its debts: if that happens we will be living within our means not in four years or ten, but now, today. Because no-one will lend to us any more. Then the money truly will have run out.
But it's not just that the consequences of Labour's gamble failing are worse. The mechanism on which they are gambling is so much more febrile. For Labour proposes gambling on the patience of the gilt markets. A market is a human construct, dependent on human qualities, ruled by greed at the top and fear at the bottom. A market can change its mind twice in the same afternoon. And in this case it is a market that was making anxious noises about Britain's credit rating more than a year ago.
The coalition on the other hand is gambling on something slow moving and to some extent quantifiable, namely the ability of the economy to grow its way out of recession at the same time as a certain amount of demand is being withdrawn in spending cuts. It's not just that this is a more impersonal mechanism than the excitable gilt market: it is also a mechanism that can to some extent be measured and tweaked as it operates - by altering tax rates for example or, in a last resort, by more quantatitive easing.
Although I have no idea whether George Osborne has got it right, or whether we'd be better off in the hands of Ed "no cuts are necessary" Balls, for these reasons, given the choice of where to put my money, I'd bet the farm on the Coalition any day.
Economics is not an exact science. As Irwin Stelzer said, "Decimal points were invented to show that economic forecasters have a sense of humour". So whatever we do now is a gamble.
