Tom Saler: 2018 has eerie resemblance to 1968

It’s not clear who first uttered the clever aphorism about history rhyming if not always repeating. Whoever it was, however, could have been referring to the eerie similarity between 2018 and 1968, the latter appropriately tagged America’s “annus horribilis” of the 20th century.   

 Actually, that Latin phrase seems only to have entered the popular lexicon after Queen Elizabeth II used it to refer to 1992. But having lived through 1968 and 1992, allow me to assure the queen that 1992 was no 1968.  At most, only a handful of years in American history can rhyme with those tumultuous 12 months.  

Sadly, 2018 might be one of them. 

Then as now, the country’s social fabric wasn’t just frayed, it was shredded. In rough chronological order, there was the Tet Offensive that put the lie to U.S. government efforts to portray the Vietnam War as winnable, the assassination of Martin Luther King Jr., race riots in major American cities, the assassination of Robert F. Kennedy, violent protests at the Democratic National Convention in Chicago, widespread campus unrest and the narrow election of Richard M. Nixon as president in November.

You will note that nowhere on that list of social, political and cultural dysfunction is there any mention of economic travails. That’s because, like in 2018, the United States in 1968 was about a decade into an economic expansion with low unemployment and rising household wealth. In fact, 1968 was one of those rare years when political strategist James Carville’s famous dictum, “It’s the economy, stupid,” did not apply.

Yet for all its apparent prosperity, the U.S. in the late 1960s was in the final phase of the immediate post-World War II era during which America dominated the global economic stage. With its major competitors still recovering from the war’s devastation — and today’s emerging markets still a good distance from emerging — businesses could offer low-skilled workers generous compensation packages that now would make their products uncompetitive.

Fifty years ago, one-third of American workers belonged to a union; in 2018, that number is about one in 10. In 1968, the percentage of pre-tax national income going to the bottom 50% of income earners was about 21%; today, that number has fallen by half while the percentage earned by the top 1% has doubled.    

The pace of economic growth is another major difference.

Over the 10 years through 1968, the U.S. economy grew by an average of 4.91% per year, with only a shallow recession in 1960 to spoil the good times. (Shallow or not, Nixon blamed the downturn for costing him the 1960 presidential election.) By comparison, the U.S. has grown by an average of only 1.42% over the last 10 years, and even excluding the drag of the Great Recession, that figure is just 2.1%, or less than half the rate of the 1960s.

Though the U.S. economy expanded by a whopping 4.9% in 1968, serious price imbalances were developing below the surface boom. Through a combination of high labor costs, overheated growth and President Lyndon Johnson’s “Guns and Butter” approach to financing the Vietnam War and Great Society programs, inflation had risen to 4.7% in 1968, about triple the current rate. 

The Federal Reserve, then led by the respected and long-tenured William McChesney Martin, responded by raising benchmark rates by 1.5 percentage points over the year — and still undershot what was required.

“The substantial slowdown in total spending expected by many analysts within and outside the Federal Reserve did not materialize, and it was not until December (of 1968) that the Federal Reserve adopted a policy of restraint,” according to a Fed policy review. 

When Martin finally slammed on the monetary brakes, short-term rates quickly shot up to 9%, and by the following November the economy was in recession.

Surprisingly, the social divisions that peaked in 1968 receded as the nation’s economic problems heated up. There would be three more recessions over the next 13 years, and stocks would not surpass their 1968 level on an inflation-adjusted basis for nearly a quarter-century.

If that seems like what could be on the current horizon, it’s because history may not always repeat, but it too often rhymes. 

Tom Saler is an author and freelance financial journalist in Madison. He can be reached at tomsaler.com.