1973–75 recession

In the parlance of recession shapes, the Recession of 1973–75 in the United States could be considered a U-shaped recession, because of its prolonged period of weak growth and contraction.^[1]
      Percent Change From Preceding Period in Real Gross Domestic Product (annualized; seasonally adjusted);       Average GDP growth 1947–2009
Source: Bureau of Economic Analysis

The 1973–75 recession in the United States or 1970s recession was a period of economic stagnation in much of the Western world during the 1970s, putting an end to the general post-World War II economic boom. It differed from many previous recessions as being a stagflation, where high unemployment coincided with high inflation. The period was also described as one of "malaise" (ill-ease; compare "depression").

Among the causes were the Vietnam War, which turned out to be costly, economically, for the United States of America, the 1973 oil crisis and the fall of the Bretton Woods system.^[2] The emergence of newly industrialized countries increased competition in the metal industry, triggering a steel crisis, where industrial core areas in North America and Europe were forced to re-structure.^{[citation needed]} The 1973-1974 stock market crash made the recession evident.

The recession in the United States lasted from November 1973 to March 1975,^[3] although its effects on the US were felt until mid-term of Ronald Reagan's first term as president, characterized by low economic growth. Although the economy was expanding from 1975 to the first recession of the early 1980s, which began in January 1980, inflation remained extremely high until the early years of the 1980's.

During this recession, the Gross Domestic Product of the United States fell 3.2 percent. Though the recession ended in March 1975, the unemployment rate did not peak for several months. In May 1975, the rate reached its height for the cycle of 9 percent.^[4] (Three cycles have higher peaks than this, the current cycle, where the unemployment rate peaked at 9.7 percent in August 2009 (currently 9.3%) in the United States, the Early 1980s recession where unemployment peaked at 10.8% in November and December 1982, and the Great Depression, where unemployment peaked at 25% in 1933.)

United Kingdom

The recession also lasted from 1973–75 in the United Kingdom. The GDP declined by 3.9%^[5][6] or 3.37%^[7] depending on the source. It took 14 quarters for the UK's GDP to recover to that at the start of recession.^[5]

The oil crisis was largely to blame for the downturn in the United Kingdom just as it was for the similar crisis in the States, although the real crisis came in the form of the Three-Day Week which was the result of fears over power shortages as a miner's strike was announced in December 1973. The three-day week was a state of emergency imposed by Conservative prime minister Edward Heath, which came into force on 1 January 1974, meaning that commercial users of electricity were limited to three specific consecutive days' consumption of electricity, and forbidden to work longer hours of those days, although services deemed essential were exempted from these regulations. Electricity blackouts across the country were widespread.

There was also double-digit inflation during this period, which peaked at more than 20%. The trade deficit was massive and national debt was rising sharply.

Edward Heath's offer of a 13% pay rise was rejected by the miners, and he then responded by calling a snap election on 28 February 1974 in what he saw as an opportunity for the electorate to show the miners that the government - and not the miners or the unions - were responsible for running the country. Most opinion polls suggested that the Tories would be re-elected with a majority, but when the election results came through on the morning of 1 March 1974, no party had an overall majority. The gap between Ted Heath's Tory government and the Labour opposition led by Harold Wilson (who had been prime minister for nearly six years until his surprise defeat by Heath's Tories in the 1970 election) was so narrow that the Tories had the most votes but Labour had slightly more seats.

Heath fought to keep the Tories in government by attempted to form a coalition with the Liberal Party and offering a cabinet post to Liberal leader Jeremy Thorpe, but this attempt to remain in power proved unsuccessful for Heath and he was forced to resign as prime minister on 4 March, paving the way for Harold Wilson's Labour to return to power as a minority government^[8] before winning a second election on 10 October by a majority of just three seats.^[9]

Economic growth was re-established in 1975 as the recession's end was declared, but Britain's economy remained shaky. Inflation remained high, strikes continued to cripple manufacturing and public services, unemployment continued to rise above the 1,000,000 mark, and just after the resignation of Harold Wilson as prime minister in March 1976, his successor James Callaghan was forced to call on the International Monetary Fund for a multi-billion pound bail-out in an attempt to bolster Britain's flagging economy.

The Labour government's tiny majority was wiped out by early 1977 as a result of by-election defeats, and Callaghan managed to form a coalition with the Liberals to hang onto power. The pact concluded in the summer of 1978, by which time economic growth had picked up (although unemployment now stood at a postwar high of 1,500,000), and opinion polls suggested that Labour could form a majority government if a general election was held. However, Callaghan ruled out an election in September 1978, and within weeks a series of strikes began which would spark the Winter of Discontent in which Britain came to a virtual standstill with numerous strikes in the public sector. In March 1979, a vote of no confidence issued by Tory opposition leader Margaret Thatcher sparked the collapse of the Labour government and in the election in May that year, the Tories returned to power, with Labour's failure to oversee a strong economic recovery following the earlier recession seen as one of the key factors in their electoral defeat.^[10]

The two major factors of the 1973–75 recession - inflation and strikes - were conquered during the first term of the Thatcher-led Tory government, with inflation falling to a 15-year low and strikes to a 30-year low by the time of their election win of 1983, but the monetarist policies designed to curb inflation saw unemployment rise from 1,500,000 to 3,200,000 during that time and it was not until the turn of the 21st century, by which time Labour had been re-elected as New Labour under Tony Blair that unemployment fell below the level that it had risen to as a result of "Old" Labour's failure to sustain economic recovery after the 1973–75 recession.^[11]

The economic recovery in the UK and the US coincided with the election of conservative governments. In the UK, Margaret Thatcher reversed the trend of the 1970's and went on the win 3 landslide elections. In the U.S. the Reagan-Bush Republicans likewise won three straight landslide electoral victories. After Reagan retired due to term limits in 1989 and Margaret Thatcher resigned in 1990, their perspective successors, George H.W. Bush and John Major reversed the trend of lower taxes and government regulation. The economy soon stalled into recession and ultimately contributed to a return of Labour Government in the UK (finally coming in 1997,^[12]after a surprise Conservative win in 1992)^[13]and Democratic leadership in the U.S in 1992.^[14]

See also

• 1970s Energy Crisis
• List of recessions in the United States
• List of recessions in the United Kingdom
• Steel crisis

References

1. ^ Martha C. White (January 12, 2009). "This Recession Was Brought to You by the Letters U, V and L". The Big Money. http://www.thebigmoney.com/articles/explainer/2009/01/12/recession-was-brought-you-letters-u-v-and-l. 
2. ^ "Stagflation
3. ^ "NBER Business Cycle Expansions and Contractions". NBER. Archived from the original on 2007-07-17. http://www.nber.org/cycles.html. Retrieved 2008-10-01. 
4. ^ Labor Force Statistics from the Current Population Survey, Bureau of Labor Statistics. Retrieved on September 19, 2009
5. ^ ^{a b} Bank of England Feb 2009 Quarterly inflation report
6. ^ Office of National Statistics, IHYQ series, Gross Domestic Product: Quarter on Quarter growth: CVM SA, Seasonally adjusted, Constant 2003 prices, Updated on 23/ 1/2009, retrieved on 17 February 2009 Archived 29 March 2006 at WebCite
7. ^ ONS GDP ABMI series
8. ^ "1974 Feb: Hung parliament looms". BBC News. 5 April 2005. http://news.bbc.co.uk/1/hi/uk_politics/vote_2005/basics/4393301.stm. 
9. ^ "1974 Oct: Wilson makes it four". BBC News. 5 April 2005. http://news.bbc.co.uk/1/hi/uk_politics/vote_2005/basics/4393307.stm. 
10. ^ "1979: Thatcher wins Tory landslide". BBC News. 5 April 2005. http://news.bbc.co.uk/1/hi/uk_politics/vote_2005/basics/4393311.stm. 
11. ^ "1983: Thatcher triumphs again". BBC News. 5 April 2005. http://news.bbc.co.uk/1/hi/uk_politics/vote_2005/basics/4393313.stm. 
12. ^ [1]
13. ^ [2]
14. ^ [3]