Given that he was announcing a six-year programme of spending cuts unprecedented in the modern era, George Osborne said little in his budget speech about unemployment. Now we know why.

Over the next five years, the Treasury believes that at least 2,000 jobs a week are to go from the public sector and up to 2,800 a week from the private sector as a direct result of the planned spending cuts. So much for the idea that the coalition government is taking a surgical knife to a bloated state, creating the space for an unshackled private sector to take up the slack. The private sector will face a double whammy: work from the public sector will dry up, while the loss of so many public jobs will have a ripple effect through the private sector. Those parts of the country heavily dependent on the public sector, anywhere north of a line from the Wash to the Severn estuary, the impact threatens to be dire.

Osborne's argument is that he has no choice but to take drastic action; but, apart from the supposed need to appease the bond markets, there is no economic rationale for slashing the budget deficit in the way being planned.

First, there is no evidence that the public sector is "crowding" out investment in the private sector. On the contrary, it has only been the demand from the public sector that has prevented the economy sliding into an even bigger hole over the past two years. The chancellor seems to believe that taking the axe to the deficit will lead to a spontaneous recovery in the animal spirits of firms, who will respond by investing more, exporting more, and taking on more workers. This seems improbable, not least because the "crowding in" of the private sector would require a big and permanent reduction in interest rates. But both short-term rates (those set by the Bank of England) and long-term rates (set in the bond markets) are already at historically low levels.

Second, the climate for job creation is poor and likely to remain so. Britain's biggest export market, the euro area, is moribund, while the US, which hitherto has rebounded more quickly than Europe from recession, appears to be running out of steam. Bank credit is available, but only at a price, and on conditions businesses consider too onerous. As a result, investment is weak. Consumers swallowed pay cuts and pay freezes in order to safeguard jobs: now it appears more than a million jobs are going to be lost anyway. The temptation for households to save rather than spend will be mightily strong over the next few years.

Third, the attempt to appease the markets may prove counter-productive, as big sell-off in share prices on both sides of the Atlantic showed. The plunge was caused, not by concerns over a sovereign debt crisis, but because of a sharp fall in US consumer confidence. Having panicked governments, including ours, into crash deficit reduction, the markets are now worried about the impact on growth. All of which shows it is dumb to allow the financial markets to dictate policy.

In Britain's case, that means spending cuts on a scale that will exceed both in scale and duration those imposed by the International Monetary Fund between 1976 and 1982. Yet, unless the next few years throw up a source of job creation as yet unidentified, the impact of this budget will be depressingly similar. Think 1980s. Think Boys from the Black Stuff. Think a new lost generation.