Britain’s recent jobs record has been remarkable. The economy is chugging along but the last time the unemployment rate was as low as it is today was in the winter of 1974-75. Harold Wilson was prime minister, Derby County were on course to win the old first division, David Bowie was about to release Young Americans.

Back then things were about to take a turn for the worse. Prices were rising fast, and later in 1975 inflation would hit a postwar peak of more than 25%. Unemployment also rose, leading to the coining of a new term – stagflation. In 1976, there was the mother and father of a sterling crisis that ended with spending cuts being imposed by the International Monetary Fund.

The 1970s are still seen as the fright decade, even though they are as distant in time for today’s young adults as the early 1930s were for those who came of age when Wilson became prime minister for a second time in 1974. A regular barb aimed at Jeremy Corbyn is that he wants to return Britain to the “dark days” of the 1970s.

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In some ways, attempts to draw comparisons between now and the 1970s are ridiculous. The lights have not gone out. Industry has not been put on a three-day week. Ministers no longer live in fear of the National Union of Mineworkers. An unemployment rate of 3.9% sits alongside an inflation rate below 2%, not one heading for 20%-plus. Those were the days before mobile phones and social media. Bowie fans didn’t stream Young Americans; they bought it on vinyl.

Yet in other ways there are echoes of the 1970s. An economic system that was supposed to last for ever has fallen apart and the political class can’t find a way of piecing it together again. Britain is led by a centrist prime minister trying to keep happy warring factions in their own party at a time when the parliamentary arithmetic is unhelpful. The main opposition party has chosen a radical leader, challenging the conventional wisdom that elections can only be won from the centre. For postwar Keynesian social democracy, read neoliberalism; for Wilson read Theresa May; for Margaret Thatcher read Corbyn.

Facebook Twitter Pinterest Ebbw Vale high street. ‘The link between unemployment and unhappiness is strong: no other economic variable such as growth rates or inflation comes close to matching its impact.’ Photograph: Richard Jones/The Guardian

Just as in the mid-1970s, there are fears that the economy is a lot more fragile than it looks. Businesses are no keener on investing in labour-saving machinery than they were then, and the debates about how to tackle Britain’s abysmally low productivity have resurfaced. Prestige projects – then Concorde and the plan for a new London airport at Maplin Sands, now HS2 and Crossrail – have proved costly and controversial. There is a looming energy crunch, this time not caused by the oil producers of Opec but by the failure to plan ahead for the decommissioning of ageing power stations. Europe is a fraught political issue and there is political instability in the United States.

In the period between 1974-75 and today much has happened. The cure for high inflation in the 1970s was to create a reserve army of the unemployed, which helped break the trade union movement. There has been plenty of time to assess the implications of pushing the jobless total to 3 million twice, once in the early 1980s and again 10 years later, and the evidence is compelling. The link between unemployment and unhappiness is strong: no other economic variable, such as growth rates or inflation, comes close to matching its impact. If governments want to maximise wellbeing, their aim should be to get unemployment down and keep it down.

This is easier than it was in the 1970s because inflationary pressure is much weaker. The UK unemployment rate was double its current level when Mark Carney arrived at the Bank of England in 2013, and the new governor assumed that he would have to start pushing for higher interest rates when it dipped below 7%. But it takes much lower levels of joblessness to generate wage inflation than it did 40-odd years ago, which is why interest rates are still below 1% a decade after the financial crisis.

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Part of the reason is that there is more hidden unemployment than suggested by the official statistics. There are part-time workers who would prefer to work longer hours and people who are excluded from the jobless figures entirely because they are unfit to work. That is particularly the case in some seaside towns and the older industrial districts, which have never recovered from the pit and factory closures of the 1980s and 1990s, and where the real level of unemployment is considerably higher than the official rate. In the 10 years from the winter of 1974-75 to March 1985, when the NUM lost its year-long battle with Margaret Thatcher’s government, Britain was transformed. Manufacturing shrank, the City expanded. Unions were regulated, finance was deregulated.

All the necessary conditions for radical change were in place in the mid-1970s. There was a big economic shock triggered by Opec’s oil embargo in 1973 (followed by a secondary oil shock when the Iran-Iraq war began at the end of the decade). There were a series of weak prime ministers and a sense of political drift. The old model no longer seemed capable of delivering.

What’s perhaps more surprising is that, despite the similarities between then and now, there has been no radical recasting of the economy. That might be because central banks administered enough sticking plaster to hold the model together. It might be because a plentiful supply of jobs – even low-paying ones – has dulled the appetite for change. Or it could be that the left has failed – at least so far – to make a compelling enough case.

• Larry Elliott is the Guardian’s economics editor