“It’s Déja Vu All Over Again”

Chris Waller - 22nd September 2021
Mensa emblem

... to quote Yogi Berra.

Watching the television news the other evening I had the feeling that we had been here before – back in the early 1970s to be precise. There was, at that time, a confluence of events that would these days be seized upon by conspiracy theorists.

In 1971, Richard Nixon announced that the US dollar would no longer be convertible into gold at a fixed rate. This ushered in the era of floating exchange rates and the de facto demise of the Bretton Woods agreement, which had been concluded in July 1944. Nixon’s move was a response to the inflation which was afflicting the US economy and began a train of events which was to affect the global economy over the next few decades.

In taking the dollar out of the Bretton Woods system, the US effectively exported its inflation and it soon washed up on British shores. Edward Heath, who had won the election in 1970, attempted to deal with the inflation by limiting public sector pay rises and imposing a cap on the private sector also. Against this backdrop of rising prices, the National Union of Mineworkers in 1973, under the leadership of Joe Gormley, pressed for a 35% pay increase for miners. No agreement could be reached, a strike resulted and led to a shutting down of power-stations and the introduction of the 3- day week to conserve coal stocks.

In October 1973, OPEC suddenly raised the price of oil, forcing it up almost fourfold in a matter of weeks. The economic effect was so severe that it caused a major contraction in global activity for the next 4 years, during which time the price of oil dropped slightly, though never back to pre-1973 levels. In 1978, there was a second increase in oil prices as the world economy began to recover, taking it to over 6 times the 1970 price. This, once again, ushered in a period of inflation.

To cap it all, during this same period there was a global decline in stock markets, but nowhere was more heavily affected than Britain. Industrial action by unions, property price crashes, secondary- banking crises all converged. The more hysterical of commentators were declaring Britain to be ungovernable.

In February 1974, Edward Heath called an election but lost his majority and thus Harold Wilson brought Labour back into power, albeit in a minority government. A second election in October 1974 succeeded in giving Labour a majority, but of only 3 seats.

In 1970, following the discovery of gas fields in the North Sea, Britain began to extract gas commercially. Gas appliances all over Britain were converted to run on North Sea gas, which was heavily promoted to industry by offering it at very low prices. Oil from the North Sea began to extracted around 1976, this now being commercially viable given the global price of oil and the cost of coal, which had previously been the principal source of energy for the British economy.

The bounty of the North Sea was unfortunately squandered when the government of Margaret Thatcher used the revenues from oil and gas to finance a socio-economic experiment which resulted in a huge rise in the value of sterling and the concomitant loss of manufacturing industry.

Today, we have the convergence of Brexit, the Covid 19 pandemic, gas prices rising six-fold and more in a year, a dearth of lorry-drivers and a shortage of vital supplies for industry – particularly the food industry – and fertiliser plants (US-owned) closing down.

For too long now, the British economy has been running on a wing and a prayer, which brings me nicely to a quote from the 1928 Book of Common Prayer: “We have left undone those things which we ought to have done.” We have neglected investment in productive capacity and have relied too much on foreign capital to provide us with the daily necessities. It is now time to call upon indigenous resources. We can no longer rely on the good graces of foreign interests for our daily bread.

Felix Somary, known as ‘The Raven of Zurich’ for his prescience in matters economic, said that the two principal factors to be considered in the performance of a country’s economy were history and culture. History cannot be changed but culture can, and this might be the moment for such a change.

Chris Waller - Permission granted to freely distribute this article for non-commercial purposes if attributed to Chris Waller, unedited and copied in full, including this notice.

Members can discuss this and other articles on the economics forum at International Mensa.

About Us

Economania is the website of Mensa's internationally recognised Special Interest Group dedicated to economics, trade and finance.