Those of you who remember the 2006 TV series “Life on Mars” could be forgiven for thinking we are living through a real-life re-run.
For those unfamiliar with the programme, it involved a policeman character who after falling into a coma either went back to the seventies or imagined the whole thing.
Wags now joke that there is no need to go into a coma to relive the seventies as it’s happening right now in the not so soaring twenties – and by soaring, we mean inflation.
The annual inflation rate in the UK is currently 9% and heading north fast but it still has a way to go to hit the 24% inflation rate it touched under the premiership of Labour’s Harold Wilson in the wake of a humbling bail-out from the International Monetary Fund.
Things are also not as bad – yet – in terms of fuel supplies as they were in the seventies but there are parallels.
War? What is it good for? (Well, pushing up fuel prices, for one)
In the twenties, the West is dependent on Russia for gas and in the seventies, it was dependent on the Middle East for oil. In both cases, wars made that dependence awkward, to say the least.
Russia’s invasion of Ukraine provoked numerous sanctions from the West against its erstwhile Cold War opponent and it's probably only because Russia needs the money from gas sales to finance the war in Ukraine that the gas keeps flowing westwards, although prices have shot up all the same.
In the seventies, it was the Arab countries that were imposing the sanctions, penalising the West and the USA in particular for taking Israel’s side in the Yom Kippur war against Egypt.
As a result, the price of crude rose in 1973 from US$3 a barrel to US$12, which is not much in actual terms but much greater in percentage terms than the increase we have seen in the price of Brent crude since Russia invaded Ukraine on 24 February; the price of Brent crude is currently around US$120, up from around US$90 the day before the invasion.
In the UK in the decade of brown and orange, the soaring price of oil put the mining unions in a strong position as they went on strike in support of pay claims. Conservative prime minister Ted Heath elected to fight them and what we got was the three-day week, as the nation sought to conserve vital fuel supplies.
Eventually, Heath went to the polls asking who runs the country; him or the unions?
The electorate gave him an honest answer. In the seventies, the trades union movement was at its peak, with membership running at 13mln in 1979; it is less than half that now but that has not stopped the unions from doing what they are supposed to do, which is agitating for the best pay and conditions for their workers.
Keen on Keynes all of a sudden
A Labour prime minister, “Sunny” Jim Callaghan, later tried to get the unions’ help in taming inflation with his “social contract” or “social compact”, which if memory serves limited pay rises to £6 a week – the fact it was expressed in terms of weekly wages rather than monthly salary indicates this was a squeeze largely aimed at blue-collar workers.
This idea has echoes of advice given recently by the massively well remunerated (£500,000 a year, reportedly) governor of the Bank of England, Andrew Bailey, for the plebs to exercise restraint in pay claims – this after the worst decade for real growth in wages in the UK since the mid-19th-century, according to the Resolution Foundation.
As some have observed, there is an alternative to pay restraint as a way of curbing inflation and that is for companies to accept lower profits – a topic we’ll return to in a few paragraphs.
The seventies was the last decade of post-war Keynesianism. That’s John Maynard Keynes and his “prime the pump” economic policies rather than his lesser-known brother Milton Keynes and his “can you make that boulevard a bit wider?” town planning philosophy.
Or was it the last decade of post-war Keynesianism?
The response of the Conservative government led by Boris Johnson to the Covid pandemic has been very Keynesian, although the chancellor of the exchequer Rishi Sunak has given every impression of being extremely reluctant to spend the public’s money on making life liveable for the … er … public.
Although the seventies is often pilloried for the industrial strife that characterised the decade, which culminated in the winter of discontent, it is arguable that the Keynesian policies served the country well. UK gross domestic product grew by around 2.5% a year from 1970 to 1979 and incomes grew in real terms by around 2.8% a year.
The UK’s Gini Coefficient, a measure of inequality, was at its lowest between 1970 and 1979.
There’s a phrase for that sort of social engineering and that phrase is “levelling up”.
Cui bono?
Why, then, did the country turn its back on good old Mr Keynes and rush to embrace the opposing view of another famous economist, Friedrich Hayek, whose philosophy was much more on the side of “let the market decide”?
Some pundits have argued that while the man and even the not yet wholly liberated woman on the Clapham omnibus did all right in the 70s, company profits suffered and that hurt the rich and the powerful.
The eighties, the decade of “greed is good”, saw the balance shift away from labour to capital and whether you think it has shifted too far probably depends on your political viewpoint or whether there is a riot taking place in the street outside your door.
There is little doubt that the balance has continued to tilt since then in favour of capital and the rentier class – people who make more money while asleep each night from their investments in property or securities than a wage slave does from eight hours of toil at the rock face – but nothing lasts forever; after all, in the 70s, Liverpool FC never lost European Cup Finals.