Yale University Press 1992. ISBN 978-0300057287
|This is not a particularly easy
book to read and I suppose that it mostly has an appeal for people who (like this
reviewer) lived through the events which the authors recount in great detail.
Nevertheless, it was a major national crisis with interesting features taking a wider view of the choices available in national political and economic policies.
There's no doubt that there was a crisis. In the first 6 months of 1975 British inflation was running at 30% p.a. with widespread economic dislocation and Sterling bondholders getting wiped out (along with the debt itself). From 1971 to 1979 British debt was reduced from 76% to 56% of national income despite record new issues, with bondholders essentially covering government deficits and losing their "investments".
The hard left Labour central planner governments of Harold Wilson and Jim Callaghan were not going to lose any sleep over the bankruptcy of bondholders but they were very anxious to please their key militant Socialist/Marxist trade union block supporters. Basically they admitted that they were frightened of them and felt obliged to include them in key decision making, eg "Beer and Sandwiches at Nš10" or the "Social Contract " that was supposed to award pay rises in line with the cost of living but always provided higher settlements with unionists claiming that high pay would get the economy moving. As the authors say, "It has ben estimated that in the first 15 months of the labour government average earnings in the public sector rose 12% faster than consumer prices and 4.5% faster than in the private sector.
Marxist style central planning required the appropriation of private resources by the government and as the authors say, "It (Chancellor Dennis Healey's 1976 White Paper) pointed out that in three years public expenditure had risen in real terms by over 20% while output was up less than 2%. Taxation had risen to the point at which a married man on average earnings was paying a quarter of his income in income tax whereas in 1961 he would have paid only a tenth."
However, the interesting point is that the government was still not getting anything like enough taxation money to fund its spending, . (top)
|generating a continual growth in
the PSBR (Public Sector Borrowing Requirement) that itself became increasingly difficult
to fund with the authors showing that this was the eventual trigger for the 1976 crisis.
Basically foreign investors no longer wanted Sterling Bonds. They
took account of the massive losses inflicted on existing bondholders. They questioned the
role of Sterling as a reserve currency with OPEC balances tending to migrate to the
Dollar. They saw that the Socialist /Marxist Labour British government supported the
massive inefficiency of central planning with ever rising taxation and an ever growing
PSBR and they essentially decided to pull out.