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Crisis and Inflation:

Back to the Future? Gordon Brown claimed that he had ended the boom and bust cycle. The current economic crisis demonstrates that normal service has been resumed.


t is one of the ironies of our times that the election of ‘New Labour’ in 1997 was meant to have left ‘Old Labour’ and everything connected with it behind. The popular perception (first outside the Labour Party and then inside it) was that Old Labour meant nationalisation, inflation, labour unrest, and a host of other negative experiences that were associated with life in the 1970s. Gordon Brown was the New Labour ‘iron chancellor’ who had left all this behind, created a low inflation environment and abolished boom and bust. The current economic crisis has demonstrated that normal service has been resumed. Unemployment is on the up (no Labour government has ever left office with unemployment lower than when it was elected), the financial sector is in turmoil, price rises are at their highest level in years, and state sector

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wage restraint means that the unions are (understandably) grumbling. One of the interesting things about capitalism is the way in which when the economy is booming an economic consensus of sorts has a tendency to break out. The general support for Keynesian economics that developed during the long boom of the 1950s and 60s was famously labelled ‘Butskellism’ by the Economist after Tory Chancellor Rab Butler and his Labour shadow, Hugh Gaitskell. In recent years there has been a similar consensus of opinion even if the Labour and Tory parties don’t like to admit it explicitly – it is almost as if when the economy goes well they are afraid to do anything too different, lest they upset the magic formula in the process. Psychological blow What happens when an unexpected

economic crisis breaks out is that politicians, central bankers and pundits all realise that perhaps the magic formula didn’t work after all. The realisation in the 1970s that Keynesian economics didn’t really work was a psychological and philosophical blow that some never recovered from, and its replacement by something loosely called ‘�������� ��������� monetarism’ was never entirely accepted even by those on the political right who had been most well-disposed towards it. After a series of crises in the 1970s was followed by the big recession of the early 1980s, and then the recession of the early 1990s, another long boom occurred and with it the latest economic consensus. There was little if any new thinking to underpin it – it was merely a pragmatic amalgam of vague aspects of ‘monetarist’ practice with some left-over bits of Keynesian theory. For the politicians and economists, these

Socialist Standard November 2008 24/10/08 10:39:24

November 2008 Socialist Standard  

Official Journal of the Socialist Party of Great Britain

November 2008 Socialist Standard  

Official Journal of the Socialist Party of Great Britain