Here is austerity April and the great economic experiment begins, with us as laboratory animals for George Osborne's rerun of the depression years. If extreme retrenchment didn't work then, double the dosage and try again. Apply more leeches and see if consumer demand rises or falls. Will the ailing economy put on a sudden growth spurt, or shrivel and sicken? Will the deficit fall because of spending cuts ? or will it rise as tax receipts plummet faster and welfare costs soar? The answers are plain: government action so far has already lowered growth.
The great austerity is launched straight into the headwinds of this week's dismal economic news, as average incomes fall for the first time in 30 years. Dixons, a good bellwether, delivered a shock profit warning as sales tumbled 11% in 11 weeks: its CEO warned of the "chilling effect on consumers. We think this is the result of the way people are reacting to government cutbacks." Dixons is cutting capital expenditure by 25% ? not exactly growth. Oddbins goes into administration. Thomas Cook warns of "fragile consumer sentiment". H Samuel and Ernest Jones sales are down: no money for jewellery. Argos, Comet, Mothercare ? on and on the rollcall goes of sudden falls in sales and profits. The CBI reports "even best performing sectors ? grocers and clothing ? have seen volumes continue to fall".
Mortgage defaults jumped "unexpectedly", reports the Bank of England. House sales are down, as is manufacturing again. Small businesses are increasingly defaulting on their secured loans. Surveys tell the same story: GfK NOP's consumer confidence index reports the biggest drop for 20 years. They say: "This month's figures show how badly some form of stimulus is needed ? Next month's figures will reveal whether the budget really did put fuel in the tank of the economy ? or merely poured more cold water on people's personal finances."
How are those personal finances? Osborne last year described personal debt as the "cause" of the financial crisis. But according to the Office for Budget Responsibility forecast, UK personal indebtedness is due to rise steeply. People's debt-to-income ratio fell between 2007 and 2010: now the OBR expects it to hit an all-time high. Public debt will fall by £43bn ? but household debt will rise by £245bn. Why? Because the only possible way the economy can grow when employment falls, real wages fall, inflation rises, taxes rise and benefits are cut is by people borrowing more to stay afloat. Or perhaps they won't ? but the only way to magic up a reasonable growth forecast is to assume they will, otherwise the figures would be terrible.
Rarely has Keynes's famous dictum mattered more: when the facts change, he changed his mind. Will Cameron and Osborne? Steaming into a hurricane, they could change course and batten down hatches until the storm passes. All that matters is getting this right. They don't need excuses: inflation is higher than expected because of forces beyond their control, with soaring oil, food and cotton prices, while Japan has shaken global confidence. They need not admit that their first tranche of austerity has already shown how too-deep cuts make things worse. Delay the self-defeating effort to cut the deficit until the global economy picks up ? or risk an Irish death spiral where cuts create a worse economy, requiring yet more cuts. Don't fear the bond markets.
Here's what Nobel economist Paul Krugman wrote last week in the New York Times: "Like America, Britain is still perceived as solvent by financial markets, giving it room to pursue a strategy of jobs first, deficits later. But the government of Prime Minister David Cameron chose instead to move to immediate, unforced austerity, in the belief that private spending would more than make up for the government's pullback. As I like to put it, the Cameron plan was based on belief that the confidence fairy would make everything all right. But she hasn't: British growth has stalled, and the government has marked up its deficit projections as a result."
The confidence fairy has flown, even before these tougher cuts and jobs losses kick in. It would be quite easy for a Conservative-led government to respond pragmatically, halt the worst cuts and wait for growth before cutting the deficit. They would garner anxious business support. The bond market trusts Conservative governments ? unfair but true. Abandon the fiscally neutral, phoney "budget for growth" that did the opposite. Invest in major works, employ people, keep hold of all those doing valuable jobs.
The chances of this happening are negligible, partly from fear of losing face (which they need not), partly because conviction trumps the evidence in front of their noses, but also because they are revolutionaries bent on changing the relationship between citizen and state for ever. The economic risk is worth their goal ? a small state contracted out to any willing provider.
Instead, Labour should seize this moment. Increasingly trapped inside Alistair Darling's straitjacket, Labour should embark on a new economic direction. The FT quite fairly analysed the figures: the difference between Labour and coalition deficit reduction plans is just £24bn by 2014. Ed Balls's claim that cutting half as much is "a massive difference" is only true if he offers a route map to explain what tax rises and what growth formulae deliver the same deficit reduction as would Tory cuts. Both Eds sound uncomfortable because sticking to the Darling plan means more painful cuts than they can admit. The argument that they are not in power so don't need a complete budget may be tactically correct, but it doesn't work as a public statement. Labour can only take a commanding lead over the next austerity months by offering a more convincing economic alternative.
Some might want to stick with Darling to prove Labour's hardheadedness: but are they really willing to spell out what that means honestly? Otherwise, do what Cameron and Osborne should do: change course when the facts change. The economy is tanking: even lowered forecasts for growth look unrealistic. Lay out a real budget for growth with ambitious investment in house-building and productive projects. Agree some cuts to raise the cash to invest for growth: local authorities say they can cut, but not so much nor all at once. Focus on jobs ? with a real New Deal job guarantee for all. Warn of the costly social deficit caused by creating another workless generation. That's not deficit denying, it is the government that denies its policies are already increasing the deficit. Sound the alarm.