The trouble is, things are back to normal

WHAT IS the real reason for the 'feel-bad' factor? It has been widely observed that the economic recovery in this country has failed to benefit the party in power, but the malaise goes deeper than that.

Much analysis focuses on the new insecurity of the middle class, job insecurity in particular. But I think the reasons are more complex and interesting than this.

I suspect that when future economic historians analyse the Nineties, they will attribute great significance to the fall in inflation that has taken place since the Seventies and early Eighties and which may well lead to zero inflation by the early part of the next century. For many people - those buying personal computers, making a lot of phone calls, flying across the Atlantic, buying a new car, or even buying this newspaper - zero inflation has already arrived.

The problem is that the instincts and training of many people now in their thirties and forties are not appropriate to this new world of low inflation. To caricature the way we were: the correct, prudent way of organising one's affairs in the Sixties or Seventies was to obtain qualifications, join a large employer, borrow as much as possible to buy a home, and devote energy to getting the best out of state-run services.

It was a world of considerable job security for anyone who had reasonable skills, but of great monetary instability. There was no particular need to save; saving out of income was virtually impossible because of a combination of high taxation and pay freezes, and it was also stupid because high inflation eroded the value of most forms of saving.

So a whole generation of people was taught to behave in a particular way. Many became very adept at it: buying houses that were bigger and more expensive than they needed, then trading up every five or so years; persuading companies to reward them with 'perks' of various kinds - pension provision and time off in lieu of salary - using connections to see their children into good, or at least fashionable, universities. The world of their grandparents or great-grandparents, who worried about being unemployed - who believed, as my grandfather put it, that 'a large house has a large mouth' - and who saved (like Anthony Trollope) a third of their income, was a million miles away.

Now there is a completely different set of rules. To caricature again: people should try to acquire marketable skills which they can not only transfer from one employer to another but use during periods of self-employment. Many people, instead of looking to a single employer, will acquire a portfolio of customers to whom they will sell services. Because they may well be employed on short-term contracts they need the presentational skills to seek new jobs, rather than the political skills required to advance up a large organisation.

Instead of borrowing more than they can afford and buying larger houses than they need, people should save in order to acquire financial as well as property assets. It is easier to do so now because tax rates on income from work and savings are lower, and real pre-tax salaries in most professional or managerial jobs are higher. One example: the average starting salary for a university graduate is roughly twice the real level of 30 years ago. But personal savings are needed to a much greater extent than they were, because many of the services that were funded by general taxation are now less comprehensively funded, and some may not be funded at all in the future.

All this is pretty shattering to the self-confidence of people in their thirties and forties, all the more so because it is so hard to divine why such large shifts have taken place. The need for something or someone to blame explains the way in which so much change here - frequently regarded as adverse - is attributed to Baroness Thatcher. She was certainly influential but not that influential: similar social and economic changes are taking place in every developed country in the world.

When there is a war or a revolution, there is something or someone to blame and people expect to have to make radical revisions to the way they need to behave: it is part of adapting to new leaders and new circumstances. Those of the generation that was middle-aged in the Fifties and Sixties could at least understand why their instincts might no longer be appropriate, even if they found somewhat galling the insouciance with which the young walked into jobs and assumed the state would (and could) cope with all their problems.

The present thirty- and forty-somethings have no experience of war, or even a deep economic depression. Yet they are living through a revolution, albeit an invisible one.

What we do not - and cannot - know is whether low inflation will be sustained in the long term. I happen to believe it will, but the bond markets around the world certainly do not think it will, and it would be perfectly reasonable to expect some rise in world inflation next year.

If the long-term trend since the early Eighties continues, however, we will have to become accustomed to stable, or even falling, prices - as happened during the last century. Indeed, prices in Britain were more or less stable between 1650 and 1939. On a long historical view, the exceptional period is the one we have just experienced: the explosion of inflation between 1960 and 1990 in which prices rose tenfold. In other words, the attitudes that prevail today have been shaped by a very unusual experience.

So, too, have our attitudes to job stability. The 1950s and 1960s, when unemployment fell, at times, to 1 per cent, were historically unique decades. I cannot think of any period in this country's history when unemployment was so low, or when most people could sensibly assume that once they were employed, they could continue in that employment until retirement age.

So now things have gone back to normal, or at least to something that our ancestors would have recognised as normal. We have price stability but not job stability, instead of the other way round. There should not really be a 'feel-bad' factor at all, just a 'feel-normal' one. But because we cannot remember normality, we are very uncomfortable. We lash out, and the politicians are there to be kicked.