Incessant crises show old economic model is running on empty
First it was a financial crisis. Then a decade of slow growth that bred political anger. After that came a pandemic. Just as the threat of Covid-19 appeared to be receding along came a European war. Welcome to the era of incessant crises.
Comparisons are often made between today and the 1970s, and in some respects they are appropriate. A global economy already exhibiting plenty of inflationary pressure has been hit by an oil price shock, just as it was in late 1973.
Almost half a century ago, the Opec oil cartel ratcheted up the price of crude during the Yom Kippur war. The sanctions imposed on Russia’s energy exports are having a similar – albeit so far less dramatic – impact. The cost of crude climbed to almost $140 (£107) a barrel at one point last week but it would need to rise a lot further – to $180 a barrel – to beat the 2008 record, once allowance is made for inflation.
Even so, higher energy prices are something western governments could do without. US inflation has already hit 7.9% and will rise further over the coming months. Pretty much each month since last summer UK inflation has been higher than expected and it would be no real surprise to see it rise above 10% this spring. That’s still someway short of the peak in 1975, when inflation climbed above 25%.
The first oil shock marked a turning point in postwar economic history because what followed was the transition from an approach based on demand management and full employment to one focused on liberalised markets and control of inflation. This took time: it was not really until the early 1990s – two inflationary shocks later – that the new system was fully established and seemingly all conquering. It was a period in which crises were punctuated by brief
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