On December 3rd George Osborne, Britain's chancellor, delivered the autumn statement, the country's annual mini-budget. We are hosting a round-table discussion of the statement and the direction of British economic policy. Our first contributor is Professor Simon Wren-Lewis from the Blavatnik School of Government at Oxford University.

By any standards George Osborne’s period as chancellor has been dismal for Britain. He started the job as the economy was beginning to recover from the recession. In the previous two British recessions, the first three years of recovery produced increases in output per head of over 8%. Between 2010 and 2013 Britain managed only 2% growth.

Economists will long debate just how much of this disastrous performance was down to the man running the Treasury. But a significant part clearly was. The Office for Budget Responsibility (OBR), Britain’s fiscal watchdog, estimates—conservatively—that growth in both 2010-11 and 2011-12 was 1% lower than it would have been without fiscal austerity. The mistake was to try to reduce the deficit when interest rates were stuck at their zero lower bound. We can only speculate about quite why this mistake was made.

What we do know is that the chancellor chose to ease up on austerity from 2012 onwards, in response to lower-than-expected growth. He could have tried to stick to his original plan to eliminate the current deficit by 2015 by undertaking additional austerity, but he chose not to. The obvious reason for easing up is that more austerity would have done the economy further harm. This seems to suggest that by then he understood the nature of his original mistake.

Since 2013 the economy has shown reasonable growth quarter after quarter, but interest rates remain at the zero lower bound, and the Bank of England is not expecting inflation to reach its 2% target until 2017. This suggests plenty of scope for additional growth remains, but it also means that more growth depends on expanding demand. As the prime minister has recently emphasised, there are significant risks that growth elsewhere may falter, and this would reduce the demand for British exports.

In this respect, 2015 looks much like 2010. Recovery is forecast, but there are important downside risks to that forecast. As in 2010, monetary policy can do very little if things turn sour. We still have very little idea of what impact more quantitative easing might have, and there are many who argue that it is no longer effective, or perhaps too dangerous to use. As a result, any renewed austerity will be a drag on growth that monetary policy cannot offset, just as in 2010-11 and 2011-12. The OBR make a similar point in their latest forecast.

There is one big difference between 2010 and 2015. We now know that there is no chance that Britain might ‘become like Greece’. The idea that a policy that leads to little or no debt reduction after 2015 will lead to market panic about a possible British default is laughable. If the market was going to react badly to a let up in austerity it would have happened in 2012, and it did not. Thanks to the ECB’s Outright Monetary Transactions (OMT) programme, we now know that the eurozone debt crisis was particular to a group of countries that could not print their own currency, and which until OMT had a central bank that refused to be a lender of last resort. There is no push coming from the financial markets to reduce debt rapidly.

So with this knowledge, and the risk that monetary policy might again be unable to offset the negative impact of austerity on British growth, you would imagine that the chancellor would not make the same mistake again. He would not plan sharp cuts in government spending while interest rates were at or close to their lower bound. While hubris and politics may mean that he does not admit his past mistakes, he would not plan simply to repeat them.

If you imagined this, then your imagination failed you. This is exactly what the chancellor, supported by his Liberal Democrat partners in government, proposes to do. The best we can hope for, if he remains chancellor, is that this is all a gigantic bluff. In what I call the ‘mediamacro’ world where reducing government debt is thought to be the number one priority, perhaps he believes that painting the opposition Labour Party’s more modest deficit reduction plans as somehow less responsible is a ruse that might win votes. In other words, our best hope is that these plans are a fiction. On the other hand, perhaps he really does believe that the goal of reducing the size of the state is worth the gamble he is taking with the economy. Bluff or repeat gamble? Does the country dare take the risk of finding out?