Labour's prime minister James Callaghan virtually admitted this when he told his party's conference in September 1976:
We used to think you could just spend your way out of recession by cutting taxes and boosting government borrowing. I tell you in all candour that that option no longer exists; and insofar as it ever did exist, it worked by injecting inflation into the economy. And each time that has happened, the average level of unemployment has risen.
The point was repeated 20 years later by the future Labour prime minister, Gordon Brown:
Countries which attempt to run national go it alone macroeconomic policies based on tax, spend, borrow policies to boost demand, without looking to the ability of the supply side of the economy, are bound these days to be punished by the markets in the form of stiflingly high interest rates and collapsing currencies. 4
Politicians and academics who had been brought up on Keynesianism came to accept the same parameters for deciding economic policy as their old opponents, with no alternative to high levels of unemployment, welfare cuts, "flexibility" to make workers "more competitive" and laws to restrain "trade union power". Keynesians who did not drop their old beliefs were pushed to the margins of the economic establishment. By 2007 a study showed that "72 percent of economic students" were at educational institutions without a single "heterodox economist" who challenged "the neoclassical and neoliberal assumptions".5
But the rush towards monetarism by supporters of the system was not any more able to come to terms with the crisis than Keynesianism. Monetarism was, after all, little more than a regurgitation of the neoclassical school which had dominated bourgeois economics until the 1930s. Just as it had been incapable of explaining the unprecedented severity of the inter-war slump, it was incapable of explaining the crisis of the 1 970s and 1980s, still less of dealing with it. In Britain the monetarist Howe budget of 1 979 was followed by a doubling of both inflation6 and unemployment, and left industrial output in 1 984 15 percent below its level of 1 1 years before.7 The monetarist measures did not even manage to control the money supply; its broadest measures (what economists call M3) grew in 1982 by 14.5 percent instead of the intended 6 to 10 percent. 8 The policy merely served to destroy much of local industry, exacerbate the crisis of the early 1980s and lay the ground for another crisis in 1 990.
The End of the Golden Age
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