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What 1973 Can Tell Us About Today's Economic Crisis

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In truth, there had been signs of problems well before the autumn of 1973. One critique came from the fledgling environmental movement, which said the fixation on growth was dangerous. The bible of the movement, Small is Beautiful by Fritz Schumacher, was published in 1973.

The other critique was from those who said the golden age was something of a historical aberration made possible by the massive scope for expansion from the output losses in the second world war. Free-marketeers argued that higher spending on welfare, excessive pay awards demanded by organised labour and punitive taxes were stifling capitalism. This critique was provided with real traction by the oil crisis of 1973.

Cheap crude had been a key factor in the long boom and the Opec embargo increased oil prices fourfold by the end of the year. Dearer energy pushed up business costs and reduced the disposable incomes of workers. Simultaneously inflationary and deflationary, it resulted in a new word entering the lexicon of economics: stagflation.

Initially, there were attempts by politicians of the centre right and centre left to keep the show on the road. This group – Jim Callaghan in Britain, Helmut Schmidt in Germany, Gerald Ford in the US, Valéry Giscard D'Estaing in France – had come of age as statesmen in the good years but developed a more muscular approach to economic management as a result of the oil shock. Callaghan's repudiation of Keynesianism and the shift at the Treasury to an early form of monetarism were examples of the new mood.

This, though, proved to be a staging post – in the US and Britain at least – to a wholly different way of looking at the world. Margaret Thatcher in Britain and Ronald Reagan in America believed in market forces, financial deregulation, lower taxes, weak trade unions and less intrusive government.

Yet the results of this revolution have been distinctly mixed. Not only has growth been slower than it was in the so-called golden age, it has been less evenly distributed. Boom and bust has been a feature of the past four decades in a way that it wasn't in the quarter century from 1948 to 1973. And while the assault on trade unions certainly weakened the power of organised labour, the upshot has been that workers have struggled to secure as big a share of growth as they did in the 1950s and 1960s. Consumption patterns have become more dependent on easy credit from deregulated finance generating higher asset prices. Until the recent crisis, this ensured that there was no repeat of the falling living standards seen in the mid to late 1970s.


There is also the question of the US finally abandoning the Bretton Woods agreement and coming off the gold standard. Then there is the problem that for a period it was only the US that had any negative growth.





Can't remember who posted the link to the video with the guy who cited unsettled account which mentioned this.

The golden age was the economic anomaly.

Edited by interestrateripoff

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Saw a programme on the 70's last week. Most of it bigging up housing. Early 70's the bankrupt of england changed the rules regarding mortgages, putting banks onthe same playing field as building societies. What followed was tenfold inflation of hosue prices in the decade - it wasn;t all about the oil price. Last a lot fo industries in that decade leading to the bust in the early 80's, then another round of financial trickery, more debt and the bust of the late 80's, 90's.

More debt and destroyed competitiveness, I think that is what the 70's tells us. The level of labour militancy was mainly a kickback against declining living standards and inflation.

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The seventies were a disaster. Real money was scrapped and printing to pay for a bloated state began. In 1975 inflation, which was still being accurately recorded back then, hit 25% per year. Inflation figures are now systematically and deliberately rigged, so it's hard to compare, but I'd say inflation has only been around 15% per year since the insane money printing began in 2008.

The unions were massively powerful in the seventies and were run by communist militants. There were constant strikes, leading to a three day week. Industry was basically dismantled. Before the 70s most cars you would see on the road were British. But all car manufacturing got nationalized and by the 80s there was practically no car manufacturing left. There were capital controls, massive taxation and so on and so on. It was basically a Marxist's wet dream.

The seventies stagflation destroyed Keynes' economic model. The state spent piles of money on garbage and the stagflation continued. Same goes for monetarism. Money was printed like crazy and there was no economic growth. It may seem strange that economist keep regurgitating Keynesian claptrap, but when someone says what people want to hear their ideas tend to be readily adopted.

The real lesson from the seventies cam in 1983 when the stagflation finally ended. How? Inflation was brought under control, interest rates were increased and the correction was allowed to take place.

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