The following are excerpts from Tony Judt's book, Postwar, which relate to the economic crisis in the 70s:
"The combination of structural unemployment, rising oil import bills, inflation and declining exports led to budget deficits and payments crises all across Western Europe."
"In Keynesian thinking, budget shortfalls and payments deficits--like inflation itself--were not inherently evil. In the Thirties they had represented a plausible prescription for 'spending your way' out of recession. But in the Seventies all Western European governments already spent heavily on welfare, social services, public utilities and infrastructure investment. As the Brisitish Labout Prime Minister James Callaghan glumly explained to his colleagues, 'We used to think that you could just spend your way out of a recession...I tell you, in all candour, that that option no longer exists.'
"In the course of a generation, Western Europe had undergone a third 'industrial revolution'; the smokestack industies that had been so much a part of daily life just a few years before were on their way out...the venerable manufacturing economy of Western Europe was disappearing."
"The recession of the Seventies saw an acceleration of job losses in virtually every traditional industry."
"In the past, the social cost of economic change on this scale, and at this pace, would have been traumatic, with the predictable political consequences. Thanks to the institutions of the welfare state...protest was contained."
"The decline in the number of workers in old industries had shifted the balance of strength in the trade union movements to the service-sector unions...teachers and civil service unions grew in size and militancy."
"There were national variations in these responses to economic downturn. The French authoriies pursued a practice of micro-economic intervention, identifying 'national champions' by sector and favoring them with contracts, cash and guarantees...social transfers for those out of work and cash subsidies for ailing employers in private and public sector alike."
We are going through a transformation, but not the one Obama envisioned looking backwards. No we are faced with the unpleasant reality that Keynesianism doesn't work any better now than in the Seventies, and the State is our biggest obstacle to allowing new industries and a new direction to emerge.