ABSTRACT
During the 1970s economic circumstances changed completely, dashing the previous decade’s optimistic expectations about the future. First of all, the system of stable exchange rates crashed when the US suspended the dollar’s fixed gold parity in 1971. This step created deep anxiety in currency markets and led to radical changes and continuing fluctuations in the rates of exchange. Then in 1973 the first oil shock generated high oil prices and strong fluctuations in commodity markets, slowing down economic growth. Unemployment rates began to creep up, raising concern about a possible return to the dismal unemployment of the 1930s. Apparently, Keynesian recipes were not able to ban economic recession permanently. The efforts of governments to encourage the economy through government spending only worsened the situation. The obligations of the welfare state formed a further burden on government, though the benefits helped in keeping up consumption. Deficits threatened to spiral out of control. Companies in Western countries felt burdened by high taxes, high wages and interfering government bureaucrats. Finally, the second oil shock of 1979 heralded an economic slump. Many Third World countries struggled with huge debts, partly caused by high oil prices. The prospects of sharing the fruits of economic growth in due course receded. The world turned out to be much more chaotic than many had thought or hoped. The managed economy had failed.
