That is not to underestimate the distress that yesterday's package of announcements will cause. Nearly 500,000 public sector jobs are to go over the next four years, and they won't all be from natural wastage and the pen-pushing ranks of back-room administration; many front-line jobs, from probation officers to social workers and bobbies on the beat will go, too. There is misery behind the upbeat fa?ade and political point-scoring of yesterday's speech.
But as was always likely, the bottom line is that Mr Osborne has failed to get the cuts from departmental spending he was aiming for. Privately, he must have known this would be the case. Following the practice normally used in wage bargaining, he aimed high – 25 per cent real terms cuts over four years across non-protected departments was what he was looking for – but he has had to settle for just
19 per cent. This overall number disguises truly swingeing cuts in some departments, but even so, the make-up of the consolidation has been quite substantially rewritten.
The gap is bridged in large part through further cuts to welfare, which is now expected to shoulder nearly a quarter of the total spending cuts of ￡81 billion a year by 2014-15. Other measures to make up the shortfall include public sector pension reform. Though technically not part of the consolidation – the Office for Budget Responsibility refused to certify the numbers – the Government also hopes to derive a heroically optimistic
￡15 billion a year from cracking down on tax avoidance and tax credit fraud.
Quite a bit of the departmental cuts also come from presumed scope for administrative and efficiency savings, another holy grail of governments down the ages, which has rarely, if ever, delivered as hoped.
In any case, as Mr Osborne delighted in pointing out, the departmental spending cuts have turned out to be lower than those pencilled in by Labour in its final Budget last March. Clever news management, with the out-turn not as brutal as we were led to believe – or has the Chancellor bottled it?
Whatever the answer, we've ended up with what in macro-economic terms is actually a reasonably sensible outcome. Rarely in our adult lifetimes have the choices now facing economic policymakers looked quite so difficult, or the consequences of those choices so uncertain.
Round and round in circles goes the "cuts versus growth" debate, without providing much in the way of illumination one way or the other. Will the austerity packages being announced across Europe undermine the recovery and thereby make the task of tackling mountainous public debt even harder; or, as Mr Osborne would argue, are they a necessary precursor to the resumption of sustainable growth?
What we know for sure is that to leave public debt on its present upward trajectory will eventually be profoundly destabilising. Business confidence would be further undermined, and in time there would be significant disruption in bond markets. Interest rates would rise, with renewed damage to private sector demand. Putting the argument the other way around, it's quite hard to see why leaving the deficit unaddressed would create any fresh upward momentum in the economy. It hasn't so far, and you cannot keep piling on debt for ever.
Even if the Government delayed the consolidation, the economy would still likely return to sluggish or negative growth once the brakes were applied, only with a lot more accumulated public debt.
There would be nothing left in the fiscal locker to fight the next crisis, and eventually, so much of the tax base would be wasted servicing debt-holders that the country would lose the spending power even to defend itself against its enemies.
None the less, there are plainly substantial risks in attempting to shrink the deficit by 2 percentage points of GDP annually for the next four years, which is what the Government is trying to do.
A study by the International Monetary Fund in its latest World Economic Outlook found that this sort of exercise in fiscal consolidation will, typically, lower growth quite substantially in the short term. Extrapolating from historic experience, the IMF concluded that after two years, a budget deficit cut of
1 per cent of GDP tends to lower output by about 0.5 per cent and raise the unemployment rate by one-third of a percentage point.
Interest rate cuts and a fall in the value of the currency usually soften the impact of fiscal consolidation on growth. However, this cushioning effect is lower when, as now, interest rates are near zero, or when many countries consolidate at the same time.
Applying the IMF analysis to Britain would logically imply reduced growth, as a result of the consolidation, of one percentage point a year and a rise in unemployment of two-thirds of a percentage point a year. These are big numbers that the private sector may struggle to counter.
In a letter to The Daily Telegraph this week, 35 company bosses insisted that private enterprise would be able to absorb the expected flood of public sector refugees. We have to hope they are right, for quite apart from the hit to fiscal demand, the economy faces a number of other headwinds which at the very least will keep growth slow and bumpy for some years.
Consumers remain financially weakened and profoundly worried by the prospect of unemployment, business confidence is in the doldrums, credit availability is still shrinking, there is renewed weakness in the housing market, and outside Germany, the advanced economies of Europe and America seem in even worse shape than us.
We may escape an overt double dip, but nobody's betting on a return to normalised growth soon. To rely on the Bank of England to come riding to the rescue with a second bout of quantitative easing hardly amounts to an economic strategy. Even the proponents of QE admit that they don't really know how – or even whether – it works.
It has certainly generated a money-making field day for the investment bankers, and to the growing dismay of the developing world, a flood of hot money chasing emerging market assets, but it is not clear that the further slight reduction in interest rates QE achieves at home will have any effect on depressed domestic demand or the availability of credit. There are also, quite plainly, big risks involved.
If there is going to be no growth from state or private consumption, where is it going to come from?
The hope is investment and trade, but even if larger corporates were persuaded to start investing their burgeoning cash mountains, would they not do so in the growing markets of Asia and Latin America rather than here? With falling living standards in the advanced economies, why would they want to spend their financial surpluses at home, unless it be on job-destructive efficiency and productivity initiatives?
"Great Britain should," wrote Adam Smith in The Wealth of Nations, "endeavour to accommodate her future views and designs to the real mediocrity of her circumstances." Nearly two and a half centuries later, this miserable endeavour has once more fallen to a British Chancellor.
Mr Osborne needs to go much further in creating the business-friendly environment that will allow the private sector to fill the void left by a shrinking state, but unlike the US, Britain is at least grasping the nettle of unaffordable public spending and by making welfare bear the burden, rather than the fabric of the state, he is doing it in the most growth-friendly way he can.
In a speech this week, Mervyn King, Governor of the Bank of England, reflected that the NICE decade – non-inflationary continuous expansion – had been replaced by the SOBER decade – savings, orderly budgets and equitable rebalancing.
We have entered a new age of fiscal conservatism, both at a household and state level. Though the consequences are unpredictable, what we do know is that the change will be profound.
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