In recent years, many people have come to feel that the economy is just not working for them. In fact, median wages are lower today than they were in 2007 – a period of mass impoverishment not seen since the 1820s. And now we have a cost-of-living crisis brought on by rising inflation. There are calls for a change of track, for economic policies that meet the needs of the population.

But we are also hearing a counter-argument: we have already tried another way of running the economy – the Keynesian way – after the War, and it failed. The dreadful performance of the economy during the 1970s discredited that system and ushered in the tough but necessary Thatcher/Reagan reforms – we do not want to go back to the 1970s.

Martin Sandbu summarised (but did not endorse) this argument in the Financial Times,

“Comparisons of our current challenges with the world’s economic and political struggles in the 1970s are now a dime a dozen. … Overall inflation is the highest in decades, and many fear we face a repeat of the 1970s scourge of stagflation. The similarities end with the effects for political and economic thinking. Once the turmoil of the 1970s had discredited the mixed economies of the post-war era, it paved the way for the market-liberalising transformations pioneered by Margaret Thatcher and Ronald Reagan.”

And we have all heard so much about the 1970s – high inflation, high unemployment, low growth, strikes every other day – that this sounds right to us. However tough things may be today, we would not want to go back to the 1970s.

Or would we?

If we look at the facts, we find that economically, the 1970s were a far more successful period than any we have seen since. If we learn anything from the 1970s, it should be that Market Capitalism hasn’t worked:

  • The 1970s showed the robustness of our economic system – a robustness which is now absent;
  • The economy still worked for most people in the 1970s – it does not now;
  • Only the Top 1% had reason to dislike the 1970s and to prefer the system of Market Capitalism that Thatcher and Reagan brought-in.

The 1970s Showed the Robustness of our Economic System

The 1970s had to cope with an external shock to the world economy far greater than any we face today. During the 1970s, oil prices quadrupled and then almost doubled again – a total rise of almost 700% over the decade. Oil prices today are about 50% higher than they were 10 years ago and around double where they were from 2015-20.

And when we look at how the 1970s coped with that extraordinary shock, what we see is itself a shock to most of us: the economy performed as well in the 1970s as it has in any subsequent decade – indeed better than most of them.

This is unbelievable to many people: we have all heard of stagflation – the combination of low growth and high inflation – a term which was coined to describe the 1970s experience. Can it be true that the 1970s were not actually that bad?

The Bank of England has helpfully complied a dataset called A Millennium of Macroeconomic Data, which goes as far as 2016; we have taken the data for 2017-2020 from the Office for National Statistics.

What the data show are that, although the UK economy did indeed slow in the 1970s, and suffered from serious recessions, we have never since had a decade with higher growth.

Despite the oil shocks, the UK economy performed – in real terms (i.e. adjusted for the higher inflation) – almost as well as the 1960s and the 1950s, as well as the 1980s and substantially better than any subsequent decade. The 2000s might perhaps have matched the 1970s if it had not been for the Global Financial Crisis; but that Crisis did happen, and our economy was less robust than it had been in the 1970s.

The 2010s had no external shocks to cope with – only a self-imposed austerity – and yet they were as poor as the 2000s (the decade which had to cope with the Global Financial Crisis).

The truth is that the 1970s were far better for the economy than were the 2010s. And the 2020s are not starting even as well as the 2010s.

 

The Economy Still Worked for Most People in the 1970s

But that is a picture of the economy. What about real people? Many remember the waves of unemployment which swept Margaret Thatcher to power at the end of the 1970s. It is no consolation that the economy is growing if you don’t have a job.

So again, it is worth looking at the facts. And again, they are rather shocking. Having come to power claiming that she would tackle unemployment, Thatcher almost tripled it.

In terms of unemployment, the 1970s were indeed significantly worse than previous post-war decades, but they were far better than any since.

Well, you may be thinking, that is less than 10% of the working population – what about the other 90%? How did the 1970s treat those who were in work?

The answer is: surprisingly well. Despite the higher inflation, real wages actually grew strongly in the 1970s. From the 1990s, however, wage growth has been subdued. And from the 2010s, it has been dire.

Despite the oil shocks, despite the inflation, for most people, the 1970s were a period of increasing incomes. Each year, they could afford to buy a little more than the year before. Since 2010, we have been getting used to the idea that each year we shall be able to buy a little less.

Only the Top 1% had Reason to Dislike the 1970s

This all sounds so different from what we normally hear that it is hard to believe. How could it be that a relatively successful period could have such a poor reputation. One further set of data may be revealing.

The post-war period from 1945-1980 is called by historians the Golden Age of Capitalism for reasons that the data above showed. But not all capitalists saw it that way. Although, of course, the top 1% were still far richer than the average person, the gap was narrowing, and they did not like it.

They have been far more comfortable with the trends in wealth distribution since 1980.

As Polly Toynbee wrote in The Guardian,

“So why does history record the 70s as nothing but a time of strife, shortages, hyper-inflation and decline? Well, it’s because history is written by the victor. And that victor was Margaret Thatcher, whose 1979 election conquest sought to uproot, marketise and diminish the role of the post-war state. Her political tribe used all their media power to expunge inconvenient 70s memories that didn’t fit her narrative, as surely as Stalin purged Trotsky from the photographic record.”

Toynbee is right: more than 60% of total readers in the UK consume media owned by one of four off-shore, tax-avoiding billionaires with a strong vested interest in redistributing wealth upwards. And so the myth of the ‘dreadful 1970s’ has become accepted as if it were fact.

Conclusion

It is not that there is no alternative to the current economic system. It is not that we tried and failed with a system that would make the economy work for the benefit of ordinary people. We had such a system during the Golden Age and it did work – even in the 1970s. But a small and highly influential group have established and perpetuated a myth which makes it harder to contemplate the kinds of changes we need to make.

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