“We used to think you could spend your way out of recession and increase employment by boosting government spending,” boomed Prime Minister Jim Callaghan, at the 1976 Labour party conference. “I tell you, in all candour,” he went on, “that that option no longer exists. And in so far as it ever did exist, it only worked on each occasion … by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step …”
The above words are among the most important uttered in the history of modern British politics. For a left-wing Prime Minister to have admitted that too much state spending is dangerous, while barracked by a rabble of bearded Trotskyists from among his own party ranks, marked a turning-point in Western economic policy-making.