I’ve reread Duncan’s post about 1976. It seems to imply the idea – “Look, capitalists/market-nutters fooled Healey into accepting (presumeably wicked) debt reduction ideas back then – and now, look its the same”.  I think Bill may agree with this view.  Both are wrong.

The major reason is in this chart – forgive the MBA-instinct to do 2X2’s:


Interest levels back then were so high that the government was obliged to pay more in interest payments as we will in 2012, despite debt being 50-60% of GDP and not 80-90% as we will have.

Another reason – though I need to reread narratives of it – would be about it being an external constraint causing problems in 1976, and not so much now: I think we had had a loan from Europeans, short term, to tide us over, and we were relying on the IMF to replace it.  That single, focal point, is different from the gradual and inevitable piling up of debt that we are due to get.  Very different timings.  Healey had to get something done that year: the “savagery” that Clegg is currently demanding is about a decade of austerity.

In 1976 it was “If the  IMF says no the £ is f**ed”.  Why they still needed to prop up the £ mystifies me.  Inflation, perhaps – it being 20%.   The key difference, as Duncan recognises, is inflation.

In 2012, it will be “the market says no.  Your interest payments are going to go through the roof”.  Different

Callaghan was right that they could not spend their way out of recession.  1977-8 were not bad years, and Healey’s spending cuts did not wreck the economy – quite the opposite, in his autobiography he describes himself as something like “walking on air” the next year, generally regarded as a God amongst finance ministers (then he would. But he certainly did not lose his credibility – he was a near-favourite to be next leader, even considered a few weeks before the 1983 election). Sometime spending cuts CAN improve an economy – it depends on whether we are suffering “depression economics“.

Callaghan was right because (a) the mid 1970’s shock was a supply shock – oil – and therefore (b) we were at our economic capacity limit.  Again, totally different – (c)  i nflation again makes the biggest difference – it determines where we are in the 2×2.

The Labour government having some fanatical public spenders is also a major difference. As is the cause of the trouble:  a different governement (the Barber boom, the most extreme ever) could not have been worse timed given the impending oil crisis.

Finally, while I agree with the general scepticism of long range projections of anything, I think we can be VERY confident that deficits will be enormous in 2010-3010 if we don’t adjust.  The revenue we relied on have definitely gone.  Vital variables like City turnover, housing market turnover, capital gains, unemployment levels, levels of higher incomes for tax purposes – all of these we can know pretty well.  The Treasury is better at this now.  I would love to see Duncan, or anyone, sketching a fiscal pathway based on current policies that will not cause very large deficits.   The forecasting error of 1976 does little to undermine this certainty, I reckon.

(sorry this is rushed.  Bad grammar etc.  Lucky wife is not divorcing me).


13 thoughts on “2010 is not 1976

  1. Vaguely related comment:

    A while ago I was reading through cabinet papers from the 1974-6 era. Very interesting.

    Healey is adamant that spending needs to come down, sharpyl. The figure baloons over the course of about 12 months from (I think – can’t remember exactly) £10billion to £30billion (obviously, that was worth a lot more in those days than now)

    The Cabinet basically goes into hysterics, and it’s Healey’s firm hand that carries the day.

    You also see what a complete fecking nutter Tony Benn was. The man was actually advocating full-scale withdrawal from the EU, enacting total protectionism on all imports and exports as well as virtually all immigration, as a way of “rebuilding our national industries from behind a wall of protection”.

    The animosity between him and Healey is abundantly clear. Healey carries the day, as we know – but you are right about the presence of fanatics in the cabinet. Funny how some of those fanatics have gone on to become national treasures and sound-bite factories beloved by so many.

  2. I think I would happily take a week out to read verbatim reports of those Cabinet meetings. Tectonic plates shifting. And Benn is let off way too much for (a) what he did to Labour (b) being a total loon. Cuddly Ali-G loving grandad no way.

    Now thanks to Duncan I’ve got to add the Cairncross book to the huge ever growing pile

  3. I would recommend the Cairncross book.

    The most interesting postion in the Cabinet was that of Crosland.

    I fully accept that we have a large deficit ahead – and I fully accept that it needs to be brought down. But I suspect we’re more talking 2012 than next year or even 2011.

  4. Yeah, Crosland is one of the great What Ifs. His position also sounds like it was actually right . . .

    I think our views are probably a lot closer than I realised, G

  5. Giles,

    I’m going to bung you a PDF of a cabinet memorandum, which is particularly striking. (Got a blog email, or can I get one off the CentreForum website?)

    The “confidential annex” at the end is hilarious (and jaw-dropping): the cabinet openly questions whether Healey’s estimates on the economy are right, on the grounds that they’d read different estimates in the Sunday newspapers.

    The entire cabinet records are available online at the Public Records Office/National Archives website (though you have to be sneaky to get them for free – but you can).

    Benn is a mentalist. He made Labour unelectable and Thatcher possible. I can’t believe how little scrutiny he’s been subjected to by the left:


  6. An intern in May sent me a couple of 1976 papers released under the 30 year rule, I think: I have added them to the right in a separate category of links, hopefully just before “Books I’ve been reading”.

  7. Wait ‘til those children are 16 and 18, Giles. You have felt nothing yet.

    1. No, 2009 is not 1976. I may be dense, but isn’t the difference ‘demand’ with both its effect on and consequence from the destruction of money?
    2. The economics is different, but the culture is the same – all those agendas – which is why the history is useful to those seeking to know the present and shape the future. Who to trust and who not. What to watch and what question. [This is why I pointed towards David Gowland, a low profile but influential witness going in and out of No 10. Half an hour on the phone to him would be worth a 1,000 cabinet minutes.]
    3. You speak today with certainty of money markets in 2012, just as others were certain of 1980 in 76/77.
    4. Fly the plane by watching the money supply. (Keep in mind the relationship between money supply and PSBR.)
    5. Carry people with us by vision and leadership. This is an extraordinary opportunity to change the culture of Britain with a redefinition of the citizen’s relationship to, role of and therefore power of the state.
    6. Which is why ‘it’s politics, stupid’ and greater freedom is the ultimate goal.

    Best wishes


  8. Giles,

    Couldn’t find an email for you on CF.

    I’ve bunged copies of the PDF to Duncan and Paul C.

    If you want, just drop me a line: paul [at] thebadconsience [dot] com

    and i’ll send it to you

  9. BTW, Bill, I have no confidence that flying the plane with the money supply can work. Are there any reliable relationships left there? if there were in 2007, they’ve been ***ed now . . . .

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