Last updated on December 30, 2021
1960 saw a 10-month long economic recession in the U.S. with unemployment levels of 7,1% at the peak of the recession.
The Recession of 1960
Although there are a number of theories around the detail behind the 1960 recession, there is little argument that this occurred after a period of monetary tightening in the late 1950s.
In a typical business cycle, and economy will go through a period of expansion, reach a peak and will then contract to a trough before it recovers and tends toward positive growth once again. Indeed, much of economic theory is concerned with precisely why and how this takes place. In general, during a phase of expansion, investors take undue risk, and asset bubbles stand to be created, where the price of an asset will increase to well above market value, increases which cannot be sustained.
In 1960, however, the recession seemed to occur more as a direct result of the Federal Reserve Bank of the time trying to quell inflation, and smother any “irrational exuberance” before it lead to a problem.
No Inflation – A Remarkable Aspect
What is remarkable about this recession is that there was no inflation, no price bubble, no panic. Yet the levels of unemployment were as high as 7,1% at the peak of the recession. It was through excessively tightening the monetary system that the economy was forced into a state of recession (Romer).
Although unemployment skyrocketed, the expected post-war inflation, which was to be avoided, actually never happened until after the recession of 1960. In fact, inflation in the 1950s had been well targeted and maintained. Post WWII inflation levels, as well as lessons learnt about asset price bubbles, had created some alarm around letting inflation continue unchecked, yet there was a kind of irony that in trying to avoid inflation, thought to be a major driver of recessions, that the recession happened anyway.
One argument is that alongside this aversion to inflation, the Fed in early 1960 were concerned about a rising balance of payment deficit, and it was this that led to the monetary tightening, and the recession which followed (https://www.dallasfed.org). Either way, the evidence tends to show that the Federal Reserve Bank may have been over-cautious in this period of otherwise smooth economic growth.
Psychological Background of The Recession of 1960
Recessions and panics are largely psychological. It is frequently human interpretation and reaction which leads to the real financial devastation (https://blogs.cornell.edu). Seeing other liquidate their assets creates feedback loops, which some argue could have been avoided with a little faith in the system.
But in this case of the recession of 1960, it was the psychology of the Fed rather than of the populace which sent the economy into decline.
End of The Recession of 1960
The recession ended soon as John Kennedy acted swiftly. Ten days after taking office, he saw that the economy was heading toward financial difficulty, and quickly sent a 12-point economic growth and recovery package.
It was just as JFK began his presidential election campaign that the 1960 recession set in. Hence the famous campaign promise to ‘get America moving again’ (http://elcoushistory.tripod.com/economics1960.html).
These measures included increasing the minimum wage and those who qualified for it, a focus on vocational education, and various other fiscal mechanisms for improving education and welfare. Indeed, the stimulus package pulled the economy rapidly out of the 10-month recession. Unemployment however, remained high.
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