In the days leading up to George Osborne's speech to the Conservative Party Conference, we will hear a lot about Plan B. With the economy in the doldrums, we'll be told, he should go easy on the deficit, and spend more money on public works instead. He's cutting too far too fast, and damaging the economy.
It's nonsense. Osborne should change course. But he should switch to Plan R not Plan B - a dose of 1980s's-style Reganomics.
In the UK, there is a stultifying consensus among economists and pundits that the historical lessons we need to be learning are all from the 1930s. We need massive government spending, and the printing presses need to keep churning out new money, we are constantly told.
But, in truth, the decade the UK should be learning from is the 1980s. And the policies should be the same ones that Ronald Reagan pushed through after moving into the White House in 1982 -- dramatically lower taxes.
In the early 1980s, the US faced a global recession. Unemployment was rising fast, and so was inflation. Output was in decline. The government budget deficit was soaring out of control. Nobody appeared to have much of a clue how to pull the country out what looked like a severe economic downturn.
The conventional response, pushed by Keynesian economists, was to raise government spending on public works, push taxes up to keep the deficit under control, and get the Federal Reserve to push interest rates down to make money cheaper. Sounds familiar? It is just about the same mix the UK is following today. Huge public spending, high taxes, and very low interest rates.
Reagan's genius was his ability to rip up the consensus, and try something radically different. And that's precisely what he did on the economy.
Ignoring the Keynesians in academia and on Wall Street, Reagan radically cut tax rates. The Economic Recovery Tax Act of 1981 pushed down average income tax rates by a quarter: the top-rate came down from 70% to 50%, whilst the bottom rate dropped from 14% to 11%. At the same time, allowances were legally tied to inflation, and capital gains taxes were slashed.
At the time, it was denounced as 'voodoo economics', the phrase coined by his rival for the Republican nomination and later vice-president, George Bush. But it worked. True, the budget deficit rose initially. But by the middle of the decade, America was booming again. By the end of the decade, the deficit was back under control. The tax cuts paid for themselves. Regan had created what the supply-siders call an 'enterprise recovery'.
The UK should try the same trick. We have a window of opportunity. The crisis in the euro-zone has made the pound a relatively safe haven. Our deficit may be vast, but gilt yields are at record lows. For now, the bond markets are too busy attacking Spain and Italy to worry about the UK. Osborne could go easy on the deficit.
But there is no case for more infrastructure spending. The South-East may need a few more roads. Apart from that there is no evidence that poor infrastructure is holding us back. The UK's real structural economic problem is a vast and inefficient state sector and the taxes needed to pay for it.
The state now accounts for 50% of GDP, the highest peace-time level in history. Our tax rates are among the heaviest in the world. The 50% top rate on personal incomes is one of the highest in Europe, and corporate taxes are not much better. Our corporation tax rate is the 12th highest out of 31 countries in the Organisation for Economic Co-Operation and Development. According to the World Economic Forum, the UK now ranks 95th out of 135 countries for the 'effect and extent of taxation'.
Britain can't grow under the weight of all that tax. The deficit needs to be cut, and so does the size of the state. But right now we can go easy on the deficit for two years, and get taxes down right now. It is what Reagan would have done - and it's the only change of course that might actually work.