A Very Painful World Adjustment

The financial position is almost irretrievable: the country has lost its way. In the worst of the war I could always see how to do it. Today's problems are elusive and intangible, and it would be a bold man who could look forward to certain success.

--Winston Churchill, on returning as Prime Minister in 1951.1

Substitute "the Western world" or even "the whole world" for "the country" that "has lost its way" and Mr. Churchill's words would be equally applicable to the events of 1982. The strains which developed were neither foreseen nor particularly illuminated by any school of economic thought. Above all there was a lack of both the political and the economic leadership to find a constructive compromise-which would not have been just splitting the difference-between sheer immobilism and a return to the inflationary finance of the 1960s and early 1970s.

None of the world's economic problems began in 1982. The golden age of Western economic growth came to an end with the first oil price explosion in 1973. It was from then onward that growth rates slowed down, and unemployment and inflation both rose; and in many countries political instability increased as well. In some countries there seemed to be a swing to the Left; in others to the Right. The only common feature was a swing against the government which had the misfortune to be in power. The defeat in Britain of James Callaghan's Labour government in 1979 after a strike-ridden winter, of President Giscard d'Estaing's moderate conservative government in 1981, and of Chancellor Helmut Schmidt's Social Democrat-led coalition in 1982 were all clearly attributable to economic discontent. The economic situation was also important in the defeat in 1980 of President Jimmy Carter-the first President since World War I to be defeated after his party had had only one term in office.