David Cameron and George Osborne will be remembered for two things: the nonchalance with which they called a referendum that they assumed they couldn’t lose – thus handing power to the hard-right Brexit ultras – and the visionless cruelty of austerity. In the wake of the most severe economic downturn since the 1930s, the coalition and Tory governments oversaw a steady contraction of the size and, crucially, the capacity of the state.

The result was the weakest economic recovery on record: a lost decade of wage and productivity stagnation, vicious cuts in support for those who need it most, and severe degradation of the state’s capability – not least to respond to subsequent crises. In order to make ends meet, people were forced into the cracks of the labour market, taking on precarious, poorly paid, and often low productivity jobs.

The arguments on austerity have been rehearsed countless times. But it is worth briefly recalling how Osborne’s policies were justified: deep cuts to government were essential, we were told, to restore confidence. Should bond investors lose confidence in the creditworthiness of the British state, the catastrophic consequence would be rising interest rates, which would raise the government’s debt servicing costs and lead to an unsustainable debt burden.

There was never any real evidence of this danger. When pressed on this point, the austerians will point to a failed bond auction in the spring of 2009: not enough investors turned up to purchase government debt at a scheduled sale. But this was a one-off, likely the result of the difficulty financial institutions had in accessing cash in the wake of the chaos of 2008. Rates of interest on government debt have continued to fall, even as austerity has failed to reduce government debt: investors are now willing to lend to the government at negative real interest rates – effectively paying for the privilege of lending money to the state.

Osborne’s austerity never had any basis in serious economic theory. Its intellectual foundation was an academic paper from two former IMF economists, Ken Rogoff and Carmen Reinhart. Of course, the Reinhart and Rogoff paper said nothing about the origins of the crisis, which had its roots in a complex interplay of factors – the US mortgage market, the growth of the shadow banking system, and the contradictions of the Thatcher-Reagan model of free-market capitalism. Further, the results of the paper were subsequently shown to rely on a spreadsheet coding mistake. A decade of austerity in the UK rested on the intellectual foundation of a fat finger error.

The effects of austerity are twofold. The first is direct: incomes are reduced and government services, from health and social care to policing and prisons, are degraded. But there are also macroeconomic effects. Reducing government spending and activity in the immediate aftermath of a severe economic crisis results in a shortfall of aggregate demand: households and the state aren’t spending enough money to stimulate businesses to hire workers on decent pay and conditions. In this context, the economic growth needed to generate even precarious low-paid work depends on the expansion of finance.

In the period since 2010, with the austerians shrinking the state, the task of maintaining economic growth fell to the Bank of England. The aim of expansionary monetary policy is straightforward: its purpose is to increase the flow of credit – to stimulate borrowing. Following the brief post-2008 interregnum of government activism under Gordon Brown, the response to the crisis – a crisis of excess credit and over-indebtedness – was to try and induce more credit and borrowing while simultaneously cutting back the state.

The Bank of England cut interest rates to near zero, and embarked upon the widely misunderstood policy of quantitative easing. QE is not, as some would have it, free money for the banks. Nor is it really printing money in the commonly understood sense. Rather, it is a technical operation which allows financial institutions to exchange certain assets (primarily government bonds) for newly-created cash, which they can use to expand their holdings of other assets.

It was hoped that QE would cause credit to flow to businesses that would use newly borrowed money to fund productive investment, like installing new technology and raising productive capacity. Instead, monetary activism reinvigorated the housing market and re-inflated financial asset prices. This restored the finances of wealthy individuals, who had taken a hit with the stock market collapse of 2008, and enabled an expansion of credit to households. Instead of an investment-driven boom, the economy limped forward, reliant on the unsustainable mix of household consumption spending and rising asset prices.

It was clear that the game was up even before the coronavirus struck. In Rishi Sunak’s first budget as Chancellor, the Tories turned on a sixpence, announcing a substantial programme of debt-financed government spending. Little effort was made to conceal the obvious: with the U-turn, the Conservatives conceded that the economic narrative they had pushed for a decade was false. Jeremy Corbyn and John McDonnell could claim, with substantial justification, to have won the economic argument.

But the change of heart came too late. The coronavirus crisis brutally exposes the failures of both the economic model of the last forty years, and the austerity of the last ten. Many of those currently bearing the brunt of the crisis – frontline workers in health services, social care, and essential goods retail – were also on the sharp end of austerity. There is now a widening class divide between those who are struggling to balance the pressures of remote working and home schooling, and those who run the daily risk of infection because of work or economic insecurity.

The privileging of a narrow definition of economic efficiency over resilience leaves us badly exposed to the shocks of a globalised world. As a result of austerity, the UK state lacks the capacity to cope with the crisis – as has become clear from daily reports of health workers lacking even the most basic protective equipment. While the Tories peddled the narrative that the NHS was protected from cuts, the reality was falling investment in the NHS, even as an ageing population led to growing demand for its services. Total hospital floorspace declined and the number of beds fell: we entered the pandemic with substantially fewer intensive care beds per person than France, Germany, South Korea or Japan.

So what comes next? It is likely that the globalisation of trade and finance, already in decline before the virus struck, will continue to unwind. But, as in 2008, once the most acute phase of the crisis is past, the austerians will be back. In the coming months, as restrictions on social contact are gradually lifted and a vaccine comes into view, calls to shrink the state will resume.

It is true that it will be harder for the austerians to make exactly the same case again, with debt to GDP levels surpassing those seen in 2008, and still no sign of retreat among bond investors. It will be politically difficult to make further cuts to those parts of the state directly connected with pandemic resilience. But to assume a shift in political power away from wealth and finance towards workers would be a category error.

Instead, market fundamentalism will evolve. Advocates for finance-friendly greenwashing will try to shut down claims that the coronavirus policy reaction shows that more can be done against climate change. Already the steps taken by governments are without precedent: blank cheques for substantial percentages of rich-country GDP are written daily. And policy is likely to go further, involving direct financing of government deficits by central banks – essentially printing money to pay for government expenditures.

This time, the Left must be prepared for the re-emergence of free-market fundamentalism and develop its own response to the pandemic. It will be reasonable to ask: if we can do it for coronavirus, why can’t we do it for climate change? The answer is that, with the political will, we can.