Stagflation and Malaise:1968-1981

Many historians record that the period of post-war prosperity lasted until the recession of 1973; however the CEPPI Index records that the economy began deteriorating in the late 1960’s as inflation and budget deficits grew while GDP growth decelerated. After hitting a high of 100.1 in 1965, the index dropped slightly the next year to 99.3, but then fell significantly to 94.5 in 1967, where it hovered for three years before falling to 89.3 in 1970. Overall, the CEPPI Index trend during this period was down as the overall trend in inflation, unemployment and budget deficits was up. While real changes in economic growth were considered good in a number of years, the overall average annual rate of growth slowed to 3.1% vs. 4.1% during the previous “Golden Age.”

To make matters worse, the political leadership and economic policies of Presidents Nixon, Ford and Carter were particularly weak and misguided. Examples include the detachment of the dollar from gold resulting in the collapse of the “Bretton Woods” international monetary regime, wage and price controls, the rapid expansion of social insurance programs (which would later prove to be actuarially unsound), the unsuccessful WIN (Whip Inflation Now) initiative, a presidential PR effort to “talk” prices down, “windfall” profit taxes on energy and increased taxes resulting from inflation-led “bracket creep.” At the same time, there was a rise in costly environmental and consumer movements which included new regulations and regulatory agencies such as OSHA (the Occupational Safety and Health Administration), the Consumer Product Safety Commission, the Nuclear Regulatory Commission and others. These policies were accompanied by an excessive increase in credit by the Federal Reserve leading to further economic turbulence exacerbated by oil price shocks led by OPEC.