Today, we turn our gaze to a year that, on the surface, might seem less dramatic than its tumultuous predecessors and successors, yet 1978 was a pivotal moment, quietly consolidating the profound shifts of the 1970s and laying crucial groundwork for the decade to come. It was a year where economic anxieties clashed with evolving social norms, and where the political landscape continued its conservative tilt, often beneath the surface of official pronouncements.
By 1978, the lingering effects of the Vietnam War and the Watergate scandal had taken a heavy toll on the national psyche. America was grappling with a diminished sense of pride and a pervasive distrust in government institutions. This broader “crisis of confidence,” as President Carter would later describe it, ran deeper than gasoline lines or inflation. It was against this backdrop that the events of 1978 unfolded.
The Economic Tangle: Inflation, Policy, and the Dollar’s Dance
Economically, 1978 was a year marked by persistent inflation and ongoing debates within the Federal Reserve. Consumer price inflation was a significant concern; by January 1978, the monthly rate had nearly doubled compared to the previous six months. Despite this, at his final Federal Open Market Committee (FOMC) meeting on February 28, 1978, Chairman Arthur Burns and the committee kept the projected rate of M1 money growth unchanged, a decision that essentially accommodated the excess growth of 1977. This reluctance to adopt a more restrictive monetary policy, despite warnings about accelerating inflation, highlighted a continued struggle within the Fed. Indeed, internal discussions indicated a desire for monetary policy to be more consistent with general price stability in the coming years, but actual actions often failed to align with these good intentions.
The economic challenges were compounded by a sense of drift. Unemployment rates during 1976-1978 hovered between 6 and 8 percent, while average consumer price inflation ranged from 5 to 8.5 percent, a performance widely regarded as unsatisfactory. Arthur Burns, on his last day as Federal Reserve Chairman, articulated his concerns, advocating for measures like pay cuts for government employees, energy conservation policies, and tax cuts to spur investment, alongside “massive intervention” to bolster the dollar. His concerns about currency depreciation were well-founded, as the dollar had seen a “sizeable nominal depreciation” in 1978 that alarmed European counterparts. The experience demonstrated that while a floating exchange rate offered the U.S. freedom for domestic policy, significant dollar depreciation still demanded a political response to exchange rates.
In March 1978, G. William Miller took the helm at the FOMC, stepping into a landscape of complex policy dilemmas. He acknowledged the challenge of large current account deficits and the difficult choices ahead regarding economic growth. Later in June of that year, the Federal Reserve Board took a step towards reform by recommending that all depository institutions with transaction balances of $5 million or more be required to hold reserves. This indicates a recognition of systemic issues, even as the larger challenge of controlling money growth and inflation remained elusive, with the focus often remaining on the short-term rather than longer-term objectives.
By the end of 1978, a significant economic shock was looming: oil-producing countries once again raised prices, with West Texas spot oil increasing from $14.85 a barrel in December 1978 to $32.50 a year later. This would, of course, have profound implications for the national economy and public sentiment in the years that followed.
Political Currents and the Rise of the New Right
On the political front, 1978 saw the continued ascent of conservative ideas, a trend that had been building since the mid-1970s, as a reaction against the New Deal and antimonopolism. The Republican Party experienced its “own Watergate Baby year” in 1978, as a new cohort of young, eager baby boomers, many radicalized by the affluence of the 1960s, entered politics under the banner of the “New Right”. These newcomers, some carrying Robert Bork’s influential The Antitrust Paradox, signaled a significant intellectual shift within the party.
The Carter administration, though having secured Democratic victories from 1974 onward, found itself navigating this conservative tide, often struggling to articulate a clear path forward. President Carter’s first budget director, Bert Lance, a fiscal conservative who opposed the proposed 1977 stimulus package, was forced to resign in summer 1977 due to an alleged scandal, though he was later exonerated. This further contributed to the administrative challenges. By the end of 1978 and early 1979, the administration’s policy was perceived by some, like Schultze and Blumenthal, as too expansive, leading to internal pressure on Fed Chairman Miller to tighten monetary policy.
Social and Cultural Transformations
Beyond the halls of power, American society continued its journey of transformation. The women’s liberation movement, which had seen significant gains in the 1970s, including advancements in anti-job discrimination and the establishment of rape crisis centers and battered women’s shelters, continued its cultural project of redefining women’s worth beyond traditional roles. This period also saw the growth and entrenchment of women’s studies as an academic field, actively challenging the historical erasure of women’s contributions.
In the realm of individual rights, 1978 also saw specific battles around LGBTQ+ rights, such as the Briggs Initiative in California, an attempt to ban openly gay and lesbian teachers and school administrators, which fortunately failed. These local struggles highlight the ongoing “culture wars” that permeated various aspects of American life, including education.
Intelligence and the Unseen Hand
The year 1978 also saw the continued reverberations of revelations about U.S. intelligence activities. Following congressional investigations into intelligence agencies that began in 1975, more information was coming to light. For instance, in August 1978, an “acoustical reconstruction” of the JFK assassination was performed at Dealey Plaza, further fueling the ongoing debates and calls for new investigations into historical events shrouded in secrecy. The CIA, still grappling with demands for greater transparency, remained a subject of public scrutiny, with agencies often “defiantly opposed to fully disclosing the information they are required to under federal law”.
In essence, 1978 was a year of consolidation rather than dramatic upheaval. It was a year when economic anxieties deepened, political ideologies hardened, and social movements continued their quiet but profound work of redefining American identity. The tensions evident in economic policy debates, the rise of the New Right, and the ongoing push for individual rights and government transparency all set the stage for the turbulent 1980s that were to follow. Understanding 1978 is crucial, not just for its own events, but for illuminating the complex, interconnected processes that continued to shape the American experience.