What timing. On the day that the new coalition government starts down the road of rapid deficit reduction, Adam Posen, external member of the Bank of England’s Monetary Policy Committee, throws a well-aimed grenade into the mix. The questions he asks should make everyone pause for thought.

Today, the new government was displaying its new fiscal probity and claiming this was the route to economic happiness. George Osborne, chancellor, said:

“This is the first time this Government has announced difficult decisions on spending. It will not be the last. But I want people to know in the years ahead that we do this not for its own sake but in order to improve the quality of people’s lives and build a better economic future.”

David Laws, the chief secretary, sang a similar song:

“The years of public sector plenty are over. But the more decisively we act, the more quickly and strongly we can come through these tough times.”

In his speech, Mr Posen uses his ample experience of Japan’s lost decade to look at the consequences of fiscal tightening after a big bust and when monetary policy is not as effective as normal. It suggests the ambition from fiscal tightening is not to consider a brighter future, but to avoid disaster and accept pain. It is not cheery stuff.

The first set of advantages Japan had over the UK today in responding to a recessionary shock comes from its relative closedness and passivity of its domestic savers and investors. Fiscal stimulus will be more limited in its effect and less sustainable on a large scale in the UK than it was in Japan. The threat of savings leaving the UK for other currency-denominated assets is low, but not zero, and has responded to fiscal concerns in the past. In contrast, clearly Japanese savers have been unwilling to move a large share of their savings abroad, no matter what has occurred with public debt to date. The multiplier on Japanese fiscal stimulus was higher than it has been in the UK. The upshot is that declaring a limit on fiscal stimulus in the UK well before Japan should have is sound policy, yet no one should doubt this will be painful in terms of aggregate GDP growth (beyond its direct human effects), either. The loss may be less than some fear, since a low multiplier works for cuts as well as spending, but given where interest rates are now, there will be no bonus from fiscal discipline. This is about pre-empting an interest rate rise.”