If you want to understand why George Osborne is so keen on austerity, you could do worse than dip into a report released on Thursday by the Organisation for Economic Co-operation and Development, which details how much pain countries in the rich west are going to have to endure in order to knock their public finances into shape. Plenty, is the short answer.
The Paris-based thinktank says western countries' aim should be to reduce national debt to 50% of national output by 2050 and, given the damage caused by a seemingly unending downturn, that will require a long struggle. For the UK, it says the annual budget deficit needs to be improved by more than 8% of GDP – in excess of £120bn in today's money.
Osborne will like this study, since it provides intellectual cover for his deficit-reduction programme. He agrees with the OECD's analysis that western countries need to do urgent repair work to their finances before the big structural challenges posed by the ageing of the baby-boomer generation start to manifest themselves.
The reasoning behind the OECD report is relatively straightforward. Countries that have high debt levels suffer because a large chunk of public spending has to be earmarked to pay the interest on the debt, and they tend to have to pay higher interest rates to investors when they borrow money in the financial markets. This is not always the case: Japan, for example, combines the highest debt to GDP ratio in the western world with low long-term interest rates. Crucially, though, Japan has very high levels of domestic savings that it can use to finance its deficit. Most countries are not in this fortunate position.
So if high levels of debt are bad news, what is all the fuss about? Surely it makes sense to get on with the job of reducing budget deficits without delay?
There are at least three points that need to be made. The first is that the current debt levels look high in comparison to where they were before the recession, but in historical terms do not look all that alarming. Britain's debt-to-GDP ratio was well over 200% at the end of the second world war.
The second point is the 50% target set by the OECD is a bit arbitrary. Most research shows that countries have to be running much higher levels before there is an impact on growth. Work by Kenneth Rogoff and Carmen Reinhart suggest that debt only really starts to be a problem when it is in excess of 90% of GDP. The OECD says a 50% target would leave its rich member states with a margin of safety; some might say this is an excessive amount of wriggle-room.
Thirdly, it may be that we are getting things back to front. Debt levels tend to increase for those countries that are struggling, so it is arguable that low growth leads to high debt levels, rather than high debt levels leading to lower growth. After the second world war, it was year after year of strong growth (plus a bit of inflation) that brought debt levels down, not austerity.
Osborne is right to be worried about debt. Ed Balls would be worried about it if he were chancellor. This, though, is not really about ends but about means – how much austerity the economy can bear before it kills off the growth that has to be a big component of any deficit reduction plan, and the right mix between fiscal and monetary policy. At present, monetary policy is doing all the heavy lifting, but quantitative easing contains risks of its own, not least the serious repercussions if financial markets suspected for a moment that central banks were secretly seeking to "monetise" (inflate away) the debt.