Osborne should try Plan A and leave the rhetoric alone

It's a great song (with lines like "then you career from career to career", perhaps one of the greatest lyrics ever produced), but it's a story of decline as well as survival, and the dominant mood is defiance rather than triumph. The character has been reduced to the status of TV "personality" – surely, along with "PR executive" and "Deputy Prime Minister", one of the most pointless and dispiriting job descriptions imaginable.

But most of us, not having met a big financier, can't muster even that desperate defiance. If we pay any attention to the news, we are profoundly depressed. What's most obviously still here is depression.

The economy's contraction by 0.3% in the last quarter of 2012 means that, unless growth is achieved over the first three months of this year, we will enter the first ever "triple-dip" recession. And – even before taking into account the snow – there's no sign of growth. Even if there is some minor adjustment to last week's economic figures, we have now taken longer to begin recovering from the crisis of 2008 than we did from the crash of 1929.

Predictably enough, there are calls for the Chancellor to change course. They come not only from Ed Balls, who helped bring us the crisis in the first place, and whose solution to everything is to borrow and spend more, but from Boris Johnson, who wants to "junk talk of austerity". His speech at Davos was less disloyal to his Tory colleagues than newspaper reports suggested – though no-one imagines that the advancement of the party line has ever trumped the advancement of Boris himself in the Mayor of London's priorities.

The International Monetary Fund has also started making noises about whether it might be time to think of Plan B. Since it was equally vociferous about sticking to Plan A, though, perhaps it is not all that omniscient, especially when we bear in mind that its primary function is to ensure that bankers get paid.

Still, if something isn't working, why not try an alternative? I wholeheartedly agree. But first, a look at what isn't working reveals that, oddly enough, Mr Johnson may be right. We've had talk of austerity and cuts, and it hasn't worked. By all means, let's junk that. What we haven't had, though, is austerity and cuts. My radical alternative to Mr Osborne's talk of Plan A is to try Plan A itself, rather than rhetoric about it.

The rhetoric about Plan A is that we are borrowing less. But we are borrowing more. The rhetoric is that we are cutting public spending. But we are increasing it. Mr Osborne is like a man wondering why the bathwater is still pouring on to the floor when he's turned one of the taps down a little bit, while assuring us that he's taking urgent steps to remove the plug, even as he uses his foot to hide the fact that it's still there.

Those who argue that, since we came out of the Depression of the 1930s faster than this one we could learn a lesson from what happened then are quite right. Where they tend to be wrong is in knowing what happened then. Their usual point of reference is the New Deal in the US, and their assumption is that stimulus spending like that, or of the sort President Obama is now trying, improves matters. In fact, America emerged from the Depression more slowly than Britain, where growth had returned by 1934, and productivity increased rapidly for the rest of the decade. The US, by contrast, did not emerge. The difference was that Britain didn't try stimulus spending; it did what sounds rather like Mr Osborne's Plan A, with the difference that the Government acted, rather than talking about it. In his second, emergency Budget of 1931, Labour's Philip Snowden cut all benefits and the salaries of all public servants by 10%. The Government tried to go even further and cut pay in the Navy by 25%, and backed down only after a mutiny.

But from negative growth of 6%, the country returned to real GDP growth the following year. Compare that with today's stagnation, and the protests when benefits are actually being increased, albeit with a cap at 1%, or when it is proposed that they should not exceed a figure almost the same as the average wage.

The Government's second step was to ensure that such quantitative easing as it introduced ensured the availability of cheap money to private businesses, rather than allowing it to end up in the pockets of bankers. It's not a coincidence, perhaps, that the 1930s also saw a large number of high-profile criminal trials. By contrast, hardly anyone responsible for the criminal negligence which brought about our current crisis has had to face a reckoning.

Being pro-markets is not the same thing as being pro-business; New Labour, with its cosy relationship with tycoons, showed what happens when you distort the former to favour the interests of the latter. Creating confidence in markets involves giving people an assurance that poor businesses can be allowed to fail, and that the richest people in the country will not be bailed out by the poorest. Instead, Mr Osborne has shored up the one group which should have been brought to book. It's small wonder that many private enterprises, though they have access to funds, are reluctant to invest them in creating jobs or building their businesses.

That did happen in the 1930s, which was a period of considerable technical innovation, construction and building of infrastructure, largely privately financed. And the thing which sparked that growth in productivity was the Budget of 1934, in which Neville Chamberlain cut income tax by 6d in the pound (making the basic rate around 22%). That year growth leapt to 6% and averaged just under 4% for the rest of the decade, a period during which the Government ran a surplus.

Cut spending, restore confidence, cut taxes, result: recovery. I agree the rhetoric about Plan A hasn't worked. But before advocating Plan B, which is what we were merrily doing before 2008, why not actually try Plan A? Because we haven't yet.