As the economic outlook darkens, comparisons with the past are becoming increasingly frantic: are we seeing a return to the 1970s, or even the 1980s or 1990s? We are all familiar with the idea that ‘history doesn’t repeat itself, but it often rhymes’. And if we don’t learn from the past, are we doomed to repeat it? Not so fast: in difficult times, economics has a habit of transforming itself to come up with new answers. It looks as though 2022 will be no different.
On the surface, today’s parallels with the 1970s feel almost irresistible: industrial action, double-digit inflation forecasts and fears of a wage-price spiral. Added to this is stock market misery – the S&P 500 has just seen its biggest drop since 1970. But don’t be swayed by eye-catching headline figures. There are many more profound (and more boring) differences between that decade and today. Research from Oxford Economics stresses that while comparisons with the period feel ‘natural’, a 1970s redux is unlikely.
"If you dig below the surface, we think the current situation is very different," argues Andrew Goodwin, Oxford's chief UK economist. Firstly, the link between inflation and pay growth is much weaker than it was 50 years ago – despite high-profile industrial action. This makes the risk of a wage-price spiral much lower.