The Crucible of the 1970s

The twentieth century saw two great paradigm shifts in macroeconomics. We have told the story of the first of these, the development of Keynesian theories and models in the 1930s, the decade of the Great Depression. Now we turn to the second tectonic shift, the turn back toward microeconomic explanations that emerged out of the 1970s. It is interesting that this later decade would play such a central role, since it was not a period of crisis like the 1930s was. There was no mass unemployment in the developed economies, and economic growth was respectable or better most everywhere. There were no financial crises. Of course, there were serious problems as there always are. The Bretton Woods monetary system came unglued at the beginning of the decade, a story that was told in Chap. 8 . There were two oil price spikes, the first of which sparked a sharp global downturn. The United States experienced a rise in the rate of inflation, which reached disturbing proportions by the late 1970s. All in all, however, most policy-makers today would be happy to repeat the economic numbers from this decade.