The Political and Economic Climate in 1977
With Jimmy Carter’s election in 1976, his presidency officially commenced in January 1977. This brought a new dynamic to Washington, as the nation continued to grapple with significant economic issues.
Persistent Inflation and Monetary Policy Debates: The specter of rising inflation continued to loom large in 1977. The Federal Reserve’s monetary base growth, measured as a twelve-month average, notably increased from 6.7 percent in December 1976 to 8.7 percent by February 1978, indicating a financing of inflation despite frequent strong statements against it from Chairman Arthur Burns. In fact, the Society of Professional Forecasters predicted a 3 percent inflation rate when Burns took office in February 1970, but this forecast doubled to 5.9 percent by the time he left in March 1978.
For the period covering 1976 to 1977, the Federal Reserve had set a target midpoint for M1 growth at 5.5 percent, yet the actual growth rate soared to 7.9 percent. This excess growth from 1977 was later accepted by the FOMC (Federal Open Market Committee) through a rebasing of their projected M1 growth rates. Velocity growth, which measures how often money changes hands, averaged 3.7 percent in both 1976 and 1977, a phenomenon that was considered “a puzzle” by John Paulus in a retrospective memo from January 1978, limited primarily to that one year.
Internal discussions within the Federal Reserve in 1977 reveal ongoing debates about the appropriate policy stance. In February 1977, there was a brief discussion on the need for the FOMC to adopt a longer-term policy framework, a departure from their usual short-term focus. However, this proposal did not lead to a change in action, as Burns remained cautious, citing concerns about the unemployment rate, the new administration, and potential misinterpretations of anti-inflationary measures as attempts to hinder employment expansion. Burns also opposed “anticipatory movements” on interest rates in March 1977, neglecting the impact on “maintained anticipations” of inflation. In April 1977, he even eliminated a proposed reduction in M1 growth rates, influenced by uncertainty surrounding President Carter’s energy policy, despite recognizing the long-term necessity of such reductions for the economy’s future.
Furthermore, the FOMC demonstrated a willingness to intervene in international currency markets. In January 1977, the committee unanimously voted to lend up to $1.5 billion in foreign currencies to the Exchange Stabilization Fund for periods up to twelve months, an action referred to as “warehousing”. By December 1977, the FOMC authorized its account manager to consider “unsettled conditions in foreign exchange markets” in their operations, in response to the relatively sharp depreciation of the dollar.
Shifting Economic Ideas: The year 1977 also falls within a broader period (starting in the mid-1970s) characterized by a “softening” of America’s ideological stance regarding the Cold War and the ascent of more conservative economic ideas. This shift marked a move away from the Keynesian policies that had dominated American economic policy since the end of World War II, eventually paving the way for the Reagan era. There was also a notable increase in the budget deficit, with deficits in 1977 and 1978 being comparable to those in 1975. This period also saw significant structural changes in American capitalism, with large oligopolies beginning to “teeter” and the rationale for their existence steadily disappearing, contributing to a productivity slowdown that began in the 1970s.
A minor but notable event within the Carter administration’s early economic team was the resignation of Bert Lance, Carter’s first budget director and a fiscal conservative, in the summer of 1977 due to an alleged banking scandal. The sources provide a conflicting statement regarding Paul Volcker’s appointment. Source implies Volcker was appointed soon after Lance’s resignation in 1977, stating “Soon afterward, President Carter appointed Paul Volcker, a known anti-inflationist.” However, other parts of the same source clearly state Volcker was appointed in August 1979. The latter date is consistent across these mentions within the provided text, indicating a potential error in the earlier phrasing.
Social and Cultural Dynamics
The year 1977 was a vibrant point within the larger countercultural shifts of the 1970s:
Exploration of Consciousness and Reality: Robert Anton Wilson’s influential book, Cosmic Trigger, was published in 1977. This work delved into a range of esoteric and scientific concepts, including the Sirius phenomenon, UFOs, and alternative perspectives on reality. It was noted for its humor, openness of mind, courage, understanding, and tolerance. The broader context around this time saw continued exploration of consciousness and “reality tunnels” by figures like Wilson, even as the political climate became less permissive for such experimentation.
Shifting Perceptions of Drugs and Counterculture: Conversations surrounding LSD were notably shifting by 1977. While earlier years allowed for “scientifically, objectively, rationally” discussions, by 1977, such discourse faced “neo-Inquisitorial fury”. This suggests a tightening societal stance on mind-altering substances. However, efforts to control drug use were complex and ongoing. In Wisconsin, for instance, efforts in 1977 and 1978 focused on reducing the supply of licit amphetamines, with investigations into physician prescription practices. One February 1976 memo even highlighted the “inability to say no” to dangerous requests, suggesting challenges in curbing misuse.
Continuing Cultural Debates: The enduring work of C. Wright Mills on “the new men of power” and the flourishing scholarship surrounding him continued to resonate, offering critical perspectives on power structures that appealed to countercultural figures. The “punk in pop music” genre also began around 1977.
Politically, the “culture wars” of the 1980s and ’90s had their roots in this period, affecting public opinion. Discussions on “What’s Left of the U.S. Left” were still occurring, as seen in a Vancouver Sun article in October 1977, and Kenneth Arrow delivered a lecture titled “A Cautious Case for Socialism” in the same year. The women’s liberation movement in the 1970s continued its push for a “wholesale transformation of American institutions and society toward a fairer, more egalitarian order,” focusing on anti-job-discrimination and raising awareness about violence against women. Conversely, Christian conservative figures like Anita Bryant were actively contributing to the anti-gay movement in Florida during this decade, with one publication from June 1977 referring to a “Hopeful Symptom”.
In Czechoslovakia during the 1970s, a counterculture flourished, including bands like the Plastic People of the Universe, who opposed the communist regime through music. These groups would gather for rock concerts in barns, and Paul Wilson, a Canadian English teacher, became their lead singer due to his unique position as one of the few native English speakers in Czechoslovakia at the time. This period was marked by a sense of stagnation and powerlessness under communism.
International Relations
While the Cold War was ongoing, 1977 was part of a period experiencing a “softening” of America’s ideological stance, characterized by thawing relations between Washington and Moscow. However, full diplomatic relations between the United States and Beijing were not established until 1979.
In essence, 1977 was a year of ongoing economic struggle and evolving monetary policy under a new presidential administration, coupled with a lively, if embattled, continuation of countercultural and social movements.