The year 1973 marks a watershed in the economic history of most industrialized countries: for at least one and a half decades to come, economic growth did not recover its prior speed, and unemployment became a persistent rather than a merely cyclical feature of the macroeconomic picture. For West Germany, the time after 1973 was a particularly bitter period of awakening: until the early 1970s, the country had been spared any major economic crisis, and the only sharp recession, in 1966/7 – albeit frightening – had seemingly been cured with a strong dose of Keynesian medicine. Although everybody knew that the happy days of the German miracle had passed long ago, the macroeconomic performance – especially the state of overemployment – still looked quite satisfactory by the international standards of the day. Clearly, warning voices from academia could be heard early on, but the public was not yet ready to listen. All this changed dramatically after 1973: as all could now see, West Germany gradually turned into a laggard in the international growth race, with the lowest real GDP growth of the six largest industrialized countries. While the unemployment record remained better than in most other economies of Western Europe, the shift from general labour shortage in the 1960s and early 1970s to chronic labour surplus thereafter was very disquieting.

In the following two sections, we shall ask which economic forces can be held responsible for this change for the worse, and what economic policy did about it in the past and could do about it in the future.