The Tyranny of Nostalgia

The Tyranny of Nostalgia


Russell Jones has
written a history of the UK economy since the 1970s, and
as narratives go this is very good. While I inevitably had minor
points of disagreement, on most issues I think the author makes the
right calls. The narrative is clear and not unnecessarily technical,
so you don’t need to be an economist to read it. (The book is also
chart free, which I think is a shame.) It is very
comprehensive implying extensive research, which is quite an achievement when writing about 50
years of economic developments and policies.

These virtues have
costs, of course, at least for an academic like me. Being
comprehensive can mean that you give too many reasons why this or
that happened, or particular policies failed, rather than focusing on
the key drivers. That in turn can lead to ambiguities or
inconsistencies. One rather interesting one is the conflict that
emerged between PM Brown and Chancellor Darling over the relative
priorities to be given to the recovery (requiring fiscal stimulus)
and controlling the growing budget deficit (requiring fiscal
consolidation). While I sense that the author favours Darling on
this, his later discussion on austerity rather suggests that Brown
was right.

As this blog has
featured many of the episodes covered by this book, I will not try to
go over this ground again here with a short narrative about a longer
narrative. (For this, see William Keegan’s nice
). Instead let me try and do something
different. I want to use the book as material to bust several widely
held myths about the macroeconomic history of the UK over the last
fifty years.

  1. There is no
    relentless decline. This is a point I have made before but cannot be repeated too often, given the UK economic
    temptation many fall into. This period
    might have started and ended in relative decline compared to the US,
    Germany and France, but from the 1980s until around the Global
    Financial Crisis the UK economy grew as fast or faster than these
    economies. This is a point the author notes at various places in the
    text, although the book’s title and conclusions do relapse
    somewhat. .

It is this relative performance that really matters. Those who say
Thatcherism and New Labour disappointed because growth was no better
or maybe even worse than in the golden age after WWII ignore that
starting point! The reality is that much of Europe and Japan were
rebuilding their economies after large scale destruction during the
war, and the UK was bound to see some of the benefit of that. The UK
economy may have never had it so good in the 1950s, but it was
falling behind other major economies, which is one of the reasons we
kept trying, and eventually succeeded, in joining the EU.

  1. The relative
    unimportance of economic thought. The myth that it is otherwise is
    often promulgated by economists, suggesting that economic history is
    to a considerable extent determined by changing economic ideas
    within academia. So, for example, the story goes that In the UK
    Keynes ruled from WWII, but Keynesianism failed in the 1970s with
    high inflation, so Freidman and monetarism took over from the 1980s.
    While the author does describe changing academic fashions at various
    points in the book, reading his account confirmed my view that these
    changing academic winds were generally not the key driver of policy

In my view the key policy failure of the 1960s and 1970s was that
policymakers were determined to avoid using demand management as a
means of moderating inflation. It is not, as James Forder has
pointed out
, that policy makers were using the wrong
Phillips curve, but just that UK policymakers didn’t want to use
the Phillips curve at all. To call this reluctance ‘Keynesian’ is
really too far a stretch, as neither Keynes nor those who developed
Keynesian theory were great proponents of prices and incomes

Equally, in the narrow sense of the term, what came after the
1970s was not monetarism. As the book makes clear, money supply
targets were briefly tried and failed miserably, with great harm done
to UK manufacturing and many who worked in it. What changed in 1979
was the UK got a Prime Minister and Chancellor who were no longer
committed to maintaining full employment, but were determined to get
inflation down without resorting to prices and incomes policies.
Today the reluctance of policymakers in the 1960s and 1970s to use
the Phillips curve to control inflation looks like a temporary
aberration reflecting a determination not to repeat the disaster of
the Great Depression. [1]

Equally the idea that austerity was the result of work by
Alesina or Reinhart and Rogoff is nonsense. The unfortunate truth is
that there will always be some economists around to give even the
craziest policies some respectability, as Brexit showed. The pandemic
taught us that this is not a peculiarity of economics, but can happen
with supposedly harder sciences as well. (Actually, as my
own book
argued, medicine is perhaps the closest
discipline to economics.)

If there is an exception to this argument that economic ideas
matter very little to recent UK economic history, I think you can
find that too in this fifty year period. The idea that macroeconomic
stabilisation should come from independent central banks pursuing
inflation targets did come in large part from current academic
economics, rather than politics or Keynes’s 30 year old academic

  1. Another
    favourite myth of mine that I have talked about before, but which is
    clearly shown to be a myth by this book, is that Conservative
    politicians are better at managing the economy than Labour
    politicians. Labour tends to get the blame for the IMF crisis in the
    mid-70s, but this had a lot to do with the earlier Barber boom,
    where the author reminds us that policy aimed for 5% growth. The
    Thatcher period may have seen relatively good growth on average, but
    it was a really bumpy ride because of what can best be described as
    destabilisation policy: monetarism, the 1981 budget (Jones describes
    this as “an admission of failure”) followed by the Lawson boom,
    then ERM membership at an overvalued rate leading to Black
    Wednesday. The author is right that Labour inherited a reasonably
    healthy economy, but the 1997-2007 period was incredibly stable
    compared to the 1980s and early 1990s, in part because macro policy
    was much better. Unfortunately 2010 to today has seen a return to
    destabilisation policy, first with austerity, then Brexit, then the
    government’s reaction to Covid and finally Liz Truss.

  2. 2010 sea
    change. 1979 rightly represents an important shift in how UK
    economic policy was done, although I would argue this is not so much
    from Keynesian to monetarism (see 2 above) as the advent of
    neoliberalsm. However 2010 (to 2024?) may also come to be seen as a
    similar sea change.

    From reading this book it is clear that from WWII until 2010
    policymakers were constantly looking forward, trying (and sometimes
    failing) to deal with real and serious economic problems.
    Policymakers constantly worried about the productivity gap (and
    therefore prosperity gap) between the UK and Germany, France or the
    US, and tried to do something about it. It is a major reason why UK
    policymakers wanted to be part of the EU, and then the Single Market.

    In contrast since 2010 Prime Ministers and Chancellors have
    based policy on largely imaginary problems, like austerity or
    sovereignty, to further either minority or individual goals. Since
    2010 policymakers have stopped focusing on the UK’s relative
    productivity compared to Germany, France and the US, and instead have
    preferred to tell us that everything they do is ‘world beating’.
    It is the shift in focus that is perhaps the underlying story behind
    the UK’s relative
    since 2010.

If you want a
comprehensive and well researched book on which to compose your own
ideas (or bust myths) about UK economic policy over the last 50
years, this book is for you. Alternatively if the subject just
interests you, and you want a well written account that avoids dogma,
I can recommend this book. One thing you can say unequivocally about
UK economic policy over the last half decade is that it has been far
from uneventful or boring.

[1] Just to preempt
the inevitable responses, although basic MMT does hark back to
post-war policies it does also use demand management and the Phillips
curve to control inflation. With a job guarantee what changes is the
number of people on the JG scheme, rather than unemployment.

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