Let’s start with the conventional view which is from an article whose title begins, A jobs miracle is happening in Britain:

At the start of this government, Ed Miliband predicted a jobs armageddon — austerity would inevitably mean mass unemployment. Osborne would cut 500,000 public sector jobs, he said, with ‘no credible plan to replace them’. And surely government spending is synonymous with prosperity? Boldly, he forecast a ratio: one private job would be lost for every public sector job lost — leading to the loss of ‘a million jobs in all’.

The conventional Keynesian wisdom, to which Miliband subscribed, is that government spending cuts make the economy weaker: fewer public sector workers means less money spent in the shops, so less demand, therefore more unemployment. Osborne saw things differently. What if the problem was not the supply of jobs, but the supply of willing workers? If you cut taxes on low-paid work, it becomes more attractive: more people want to move from welfare. Especially if welfare reform makes it harder to game the system.

What else would someone who learns his economics from a Keynesian text believe? So let us then go to the actual situation as it has now turned out:

In five short years, Britain has gone from having mass unemployment to jobs galore. Unemployment is falling at a rate that confounds the economists, and employers are starting to panic. Maths teachers, chefs — the list of ‘shortage occupations’ grows ever longer. Construction companies are not tendering for work in London because they can’t find bricklayers. Financially this is a headache, but economically it’s a problem of success. The Prime Minister set out to get rid of the deficit. He failed. But instead he has presided over a jobs miracle — one that economists and policymakers are still struggling to understand.

Just before the Budget was published, the latest figures came out — all of them smashing records. There are 30.9 million of us in work, the most ever. That’s an employment ratio of 73.3 per cent, the highest in history. Employment is up by 1.7 million since Cameron took power and 1.5 million of these jobs are full-time. The number on Jobseekers Allowance fell by 30 per cent last year alone and the youth claimant count stands at its lowest since the 1970s. Birmingham added more jobs to its economy last year than the whole of France; Britain is adding more than the rest of Europe. David Cameron can take credit for creating more jobs than any first-term prime minister in postwar history.

The article attributes this turnaround entirely to tax cuts. Even though he notes that the central feature of Government policy has been the “austerity” program, even the writer here, who no doubt was mis-educated on Keynesian aggregate demand, cannot see, really see, what is happening before his eyes, even though he can see the outcome. Of course taxes should also be cut, which is part of the way we reduce even the ability of governments to spend. But the diversion of our resource base into productive activities is the key.

It’s this Keynesian economics that will blind you to reality. But slowly but ever so surely it is entering the dust bin of history. Shame the same cannot be said about our economics texts which still continue with the same as before.

[And my deep thanks to DB for sending this article along.]