“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 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 twenty years.”

— James Callaghan

Speech to the Labour Party Conference in Blackpool (28 September 1976), quoted in Labour Party Annual Conference Report 1976, p. 188 and James Callaghan, Time and Chance (Collins, 1987), p. 426. This part of his speech was written by his son-in-law, future BBC Economics correspondent Peter Jay
Prime Minister

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James Callaghan 37

Prime Minister of the United Kingdom; 1976-1979 1912–2005

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“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 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.”

James Callaghan (1912–2005) Prime Minister of the United Kingdom; 1976-1979

Labour Party Annual Conference Report 1976, page 188.
Speech at the Labour Party Conference, 28 September 1976. This part of his speech was written by his son-in-law, future BBC Economics correspondent Peter Jay.
Prime Minister

“A key element in all Keynesian models is a ‘trade-off between inflation and real output: the higher is the inflation rate; the higher is output (or equivalently, the lower is the rate of unemployment).”

Robert Lucas Jr. (1937) American economist

"After Keynesian macroeconomics" 1978

“In most Western economies, the general relationship is not in fact between the rate of inflation and the level of unemployment, but between the rate of change of inflation and the rate of change of unemployment.”

Paul Ormerod book The Death of Economics

Part II, Chapter 6, Unemployment and Inflation, p. 130
The Death of Economics (1994)

“Government spending cannot create additional jobs. If the government provides the funds required by taxing the citizens or by borrowing from the public, it abolishes on the one hand as many jobs as it creates on the other. If government spending is financed by borrowing from the commercial banks, it means credit expansion and inflation. If in the course of such an inflation the rise in commodity prices exceeds the rise in nominal wage rates, unemployment will drop. But what makes unemployment shrink is precisely the fact that real wage rates are falling.”

Ludwig von Mises book Socialism

Socialism (1922), Epilogue (1947)

“Let there be no doubt that our present rate of inflation is the main cause of our economic difficulties. There never has been a more mistaken piece of economic analysis than the view that we should accept inflation to avoid unemployment. Inflation today, so far from being an alternative to unemployment, is its main cause. If our rate of cost increase is allowed to continue close to twice that of the average for the developed world it will increasingly price us out of world markets. Employers…will have to restrict their activities and still more their labour force in response to mounting and uncontainable wage and salary bills.”

Roy Jenkins (1920–2003) British politician, historian and writer

Hugh Anderson Memorial lecture at the Cambridge Union (28 February 1975), quoted in The Times (1 March 1975), p. 2
1970s

“The best way to boost the economy is to redistribute wealth downward, as poorer people tend to spend a higher proportion of their income.”

Ha-Joon Chang book 23 Things They Don't Tell You About Capitalism

Source: 23 Things They Don't Tell You About Capitalism

“And since any inflation, however modest at first, can help employment only so long as it accelerates, adopted as a means of reducing unemployment, it will do so for any length of time only while it accelerates. "Mild" steady inflation cannot help—it can lead only to outright inflation. That inflation at a constant rate soon ceases to have any stimulating effect, and in the end merely leaves us with a backlog of delayed adaptations, is the conclusive argument against the "mild" inflation represented as beneficial even in standard economics textbooks.”

Friedrich Hayek (1899–1992) Austrian and British economist and Nobel Prize for Economics laureate

1980s Unemployment and the Unions: Essays on the Impotent Price Structure of Britain and Monopoly in the Labour Market https://books.google.com/books?id=zZu3AAAAIAAJ&q=%22only+while+it+accelerates%22&dq=%22only+while+it+accelerates%22&hl=en&sa=X&ei=HBhsUYjUGMv34QSW-YDgDg&redir_esc=y (1984)
1980s and later

“If inflation priced us out of world markets we should be back in the old nightmare of unemployment. What folly to risk throwing away all that we have gained. ... Our first duty at a time when there is more money about than goods to spend it on is to keep down Government expenditure. ... The second duty of the Government is to frame policies which encourage saving and discourage spending. ... in the long run there is only one answer to the 64,000 dollar question—to increase production. That is the answer. That is where the real hope lies.”

Harold Macmillan (1894–1986) British politician

Speech at Bedford (20 July 1957), quoted in "More production 'the only answer' to inflation", The Times (22 July 1957), p. 4
Prime Minister

“A tax cut means higher family income and higher business profits and a balanced federal budget…. As the national income grows, the federal government will ultimately end up with more revenues. Prosperity is the real way to balance our budget. By lowering tax rates, by increasing jobs and income, we can expand tax revenues and finally bring our budget into balance.”

John F. Kennedy (1917–1963) 35th president of the United States of America

Source: "Radio and Television Address to the Nation on the Test Ban Treaty and the Tax Reduction Bill" (18 September 1963) http://www.presidency.ucsb.edu/ws/?pid=9413

“Hayek’s blind spot with regard to politics was clear in the early 1980s when the first Thatcher government, in an attempt to reduce inflation and bring the public finances closer to a balanced budget, was raising interest rates and cutting public spending. As he had done during the 1930s, Hayek attacked these policies as not being severe enough. It would be better, he told me in a conversation we had around this time, if Thatcher imposed a more drastic contraction on the economy so that the wage-setting power of the trade unions could be broken. He appeared unfazed by unemployment, which was already higher (more than three million people) than at any time since the 1930s, and would rise much further if his recommendations were accepted.”

John Gray (1948) British philosopher

The Friedrich Hayek I knew, and what he got right - and wrong (2015)

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