Another issue is that the troubles that beset the Keynesian model in the 1970s have not disappeared. While the oil embargo in 1973 was the immediate trigger for the lethal combination of high inflation and high unemployment ('stagflation') that Keynesian policies were almost powerless to counteract, problems with the system had been mounting for years. Falling productivity and rising cost-push inflation (wages and prices pursuing each other upwards) were already beginning to erode support for Keynesian economics. Most importantly, perhaps, the programme had buckled in response to the political demands of capital.

Strong financial regulations and controls on the movement of money began to weaken in the 1950s, as governments started to liberalise financial markets. Richard Nixon's decision in 1971 to suspend the convertibility of dollars into gold destroyed the success of fixed exchange rates on which much of the success of Keynes's policies depended. The capital controls introduced to prevent financiers and speculators from sucking money out of balanced, Keynesian economies collapsed. [...]