Magazine article Compass: A Jesuit Journal

Seventies: From Boom to Economic Crisis

Magazine article Compass: A Jesuit Journal

Seventies: From Boom to Economic Crisis

Article excerpt

The 1970s were the in-between decade: between the good times that preceded it and the bad times that came after.

In his monumental history of the twentieth century, Age of Extremes (1994), the British historian Eric Hobsbawm dubs the fifties and sixties the Golden Age of Capitalism, the greatest period of economic growth that the world has ever seen. Others have called those decades the era of the Keynesian Welfare State. There was full employment much of the time--and governments were explicitly committed to its achievement--with only minimal inflation. In theory, and to a lesser degree in practice, governments pursued active budget policies to fine-tune the economy. With memories of the Great Depression of the thirties still fresh, governments built safety nets to protect the unemployed and the sick and in the process put a floor on how far the economy could go down.

The eighties and (so far) the nineties are, in sharp contrast, years of recurring crises: slow economic growth, high unemployment, deep recessions, drastic restructuring in the private and public sectors. There was some growth in the eighties, but now even the Wall Street Journal is calling that "the false boom." When the nineties had no more than started, they were already being labelled the decade of "jobless recovery"; so far, at least here in Canada, we have seen more joblessness than recovery.

The seventies, then, were the decade when the world economy turned from generalized boom to generalized crisis, from mostly good times to mostly bad times. We seem to be still waiting for the turn back.

A new and unpleasant-sounding term was invented to describe the depressing mix of stagnation and inflation that took hold in the seventies: stagflation. The stagnation foretold what was to come. The inflation was reminiscent of what was supposed to happen only in an overheated, booming economy. The two together exposed a fresh contradiction of capitalism that was to prove deadly: to try to stop the inflation by deflating the economy meant further slowing the economy and worsening the stagnation.

Three specific shocks shook the world economy in the 1970s. On August 15, 1971, the Bretton Woods international financial system, established in the midforties, collapsed, along with the exchange stability associated with it. Underlying its demise were the weakness of the American dollar, which was the world's key currency, and the vast sums of money coursing about the world and subject to no particular control. It is not characteristic of great powers to arbitrarily devalue their currency and throw up a surcharge on imports. That the United States did these things was an indication of its reduced status: America, still bogged down in the Vietnam War, was apparently no longer the world's hegemonic economic power.

While orthodox economists tended to welcome the fluctuating exchange rate system that resulted (the market, by their assumption, being always good), they were probably wrong to do so even in their own terms. Without the discipline imposed by fixed rates, which required governments to deflate their economies when they were in balance of payments difficulties, the inflation those economists so deplored became more common and tended to spread more quickly from one country to another. And there was a yet deeper irony: the very orderliness of the world economy that had permitted rapid economic growth risked being eroded when there was no hegemon clearly in charge and able to impose its will.

As well there were the two oil price shocks, of 1973-74 and of 1978-79. The Organization of Petroleum Exporting Countries, dominated by Middle Eastern countries, got its act together as a marketing cartel. Not once but twice, it radically ratcheted up the price of oil, and hence of gasoline. Again it seemed that the U.S. was no longer able or willing to run the world economy. The cheap energy that had powered the great boom of the postwar years and was--at least in retrospect--essential to that boom was now put at risk. …

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