Former UK Prime Minister James Callaghan - 1976 speech
We used to think that you could spend your way out of a recession, and increase employment by cutting taxes and boosting Government spending. I tell you in all candour that that option no longer exists, and that in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step. Higher inflation followed by higher unemployment. We have just escaped from the highest rate of inflation this country has known; we have not yet escaped from the consequences: high unemployment.
That is the history of the last 20 years. Each time we did this the twin evils of unemployment and inflation have hit hardest those least able to stand them. Not those with the strongest bargaining power, no, it has not hit those. It has hit the poor, the old and the sick. We have struggled, as a Party, to try to maintain their standards, and indeed to improve them, against the strength of the free collective bargaining power that we have seen exerted as some people have tried to maintain their standards against this economic policy.
Now we must get back to fundamentals. First, overcoming unemployment now unambiguously depends on our labour costs being at least comparable with those of our major competitors. Second, we can only become competitive by having the right kind of investment at the right kind of level, and by significantly improving the productivity of both labour and capital. Third, we will fail - and I say this to those who have been pressing about public expenditure, to which I will come back - if we think we can buy our way out by printing what Denis Healey calls ‘confetti money’ to pay ourselves more than we produce. I do not care what economic system we live in - at least, I do care very much - but the moral I want to draw is this that whatever system we live under these fundamentals are at the heart of the standard of life of the people of the country concerned, and we ignore them at our peril.
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