The "Forgotten Crash" (1966)

Syll shows this graph

and asks: "Time for another crash?"

Philip George replies: "Probably not yet", which makes me feel better. Why? Because the Q of M, Philip says. That makes me feel even better, as I'm also a Q of M guy.

On my second glance at the graph I noticed, right in the middle: Forgotten Crash (1966).


In a little red book called Stabilizing America's Economy, edited by George A. Nikolaieff, there is an article taken from the Atlantic Monthly of July 1971: "Nixonomics: How the Game Plan Went Wrong" by Rowland Evans Jr. and Robert D. Novak. I'll quote a sentence from it. You'll notice the confidence with which Evans and Novak assert Friedmanesque monetarism. Don't focus on that.

Having choked off the money supply as an anti-inflation device in 1966 so tightly that it produced a serious slump in housing and construction (called by some a mini-recession), the central bank started pouring out money too quickly and too generously in 1967 and thereby spoon-fed a new inflation.

I first read that sentence probably in the late 1970s. That was the first and only time I heard of a mini-recession or near-recession in 1966-67. The only time, until I came upon An Appraisal of Federal Fiscal Policies: 1961-1967 (first published in 1968) by Raymond J. Saulnier, who mentioned in passing a "near-recession in 1966-1967."

Syll's graph is only the third time I've seen that near-recession documented -- and the graph doesn't actually even mention recession. If you go looking, you can find Leonard Silk in 1974 saying

The Johnson Administration got away with only a minirecession, not formally classified as a recession, in 1966–67.

So the information is available. If you know what to look for, you can find it.

The forgotten slump appears on graphs all the time. It is significant: It was the Fed's attempt to crush the Great Inflation in its opening moments. Still, if you don't know about it, chances are you'll look at an awful lot of graphs before you notice that the low is always in 1966-67, and never explained.

If you know about it, you can find out more. Now you know.