Growth and stability bury an ugly decade

There are many areas of life where nostalgia for the 1970s is widespread. Film, music and television have all experienced phases of retro fashion. Think of Charlie’s Angels, Starsky and Hutch or Life on Mars. Such films and television programmes have a substantial following even if they are not to everyone’s taste.

But there was one area where the 1970s was indisputably ugly: economics. The combination of economic stagnation and rampant inflation – dubbed “stagflation” – meant pain for many. Only a masochist would want to return to the conditions of the decade.

That is why many commentators find current conditions so worrying. Although there is no full-blown stagflation there are signs the world could be moving in that direction. Growth is slowing at the same time as signs of rising inflation are emerging. The image of the stretched man on the cover of this review is meant to represent such conflicting forces.

To put it into context, rising inflation is normally a sign of rapid economic growth. When the economy overheats, and output is above its normal capacity, prices generally rise rapidly. But the combination of slow growth and high inflation means this trade-off no longer applies. The economy experiences the pain of inflation without the advantages of economic growth. That is why stagflation is such a painful combination.

Rising oil prices are the clearest expression of contemporary fears of stagflation. The quadrupling of oil prices in October 1973, following a war in the Middle East, was widely blamed for precipitating the downturn at the time. Today the region is again in turmoil and oil prices are nudging $100 a barrel.

But despite such apparent similarities with the 1970s the parallels are superficial. The Retail Price Index peaked at 26.9% in Britain in August 1975 compared with 4.2% today. Economic growth in Britain is currently about 3% while in the mid-1970s there was an economic contraction.

In global terms the differences are even more stark. The world economy has just enjoyed its longest growth run since the early 1970s. Although there are signs of financial volatility there are no indications of any economic crunch in the short to medium term.

Nor is it just a question of degree. The 1970s were fundamentally different to today in many ways including the severity of the business cycle – economies shrunk for sustained periods rather than growth simply slowing – and the strength of industrial militancy. Today the cycle is muted and industrial conflict is minimal.

The nightmare of the 1970s is not about to be repeated – at least in economics if not in bad movies and unimaginative television.