It’s (Not Really Much) Different This Time

Refrains of, “It’s different this time,” are increasingly common today (as they typically are in the first few years of any economic recovery). Politicians are more rancorous than ever! Markets are more volatile than ever! The American public is more divided than ever! And we wouldn’t disagree with the suggestion this year’s witnessed its share of Sturm und Drang—both domestic and global—or that volatility can be quite uncomfortable.

But to claim it’s different this time is a bit misleading—regardless of what the “it” in question is. Markets are volatile this year—but volatility is itself variable year to year, and there’s no sign it’s predictive. Further, this year isn’t extraordinarily volatile by historical standards. Politicians aren’t more rancorous and the American public no more divided. Perhaps in a world of 24/7 news coverage and online brokerage account access, the fact we’re more attuned to markets’ every wiggle and politicians’ every murmur adds to the impression of heightened activity (for better or worse) and lends itself to proclamations, “It’s different this time!”

As another American election cycle draws near, many seem increasingly concerned about the level of divisiveness in American politics (including S&P, which cited it as the primary metric triggering their August downgrade of the US’s credit rating). And the camps are certainly clearly delineated. But a quick review of history reveals this is far from different. In fact, it’s more likely the norm.

• The country was born of division, many disagreeing whether the colonies should remain under the crown or form their own nation. In that sense, America was actually born of civil war. And once that war (in which not all Americans fought on General Washington’s side) was won, the debate continued—in a not always polite fashion—over how best to form and run the infant nation.
• The presidential election of 1824, commonly known as “The Corrupt Bargain” was one of the most hotly contested elections in US history. No candidate won a majority of electoral votes, throwing the election to the House of Representatives. Rather than selecting Jackson, who’d won a plurality of popular votes, the House selected John Quincy Adams. Many suspected Speaker of the House Henry Clay lobbied members to vote for Adams, who subsequently rewarded Clay with the position of Secretary of State.
• The presidential election of 1840 was similarly contentious as Americans debated who best would lead the country out of depression. The Panic of 1837 started largely as a banking panic, with 343 of 850 banks closing entirely and 62 partially failing. The banking panic was followed by a five-year depression and then-record-high unemployment levels. The credit crisis of 2008 cannot remotely compare.
• The Civil War hardly needs much elaboration. Over 600,000 Americans gave their lives to settle the debate.
• The presidential election of 1876 is, like the 1824 election, considered a corrupt bargain in which special interests likely helped determine the eventual winner (Republican candidate, Rutherford B. Hayes) in secret, back-room meetings.
• The Gilded Age, the era from roughly 1870-1900, was a particularly turbulent one as America entered the industrial era and struggled with the associated growing pains. The country was divided over the gold standard, William Jennings Bryan famously declaring, “You shall not crucify mankind upon a cross of gold.” (Rhetoric that today would no doubt have the media bemoaning his over-the-top tone.) Workers sought better working conditions, women began their quest for the vote, the South struggled to recover from the devastation of war and the country began a near-century long debate over civil rights. Oh, and class warfare rhetoric galore, what with the so-called “robber barons.”

And that just takes us through the end of the 19^th century—consider some more recent times of political uncertainty:

• Prohibition was so divisive many otherwise law-abiding Americans openly flouted the new law—frequenting speakeasies and the like to consume the beverage of their choice.
• The Cold War—a time of significant division over the best way to approach the USSR and “fight communism.” Remember McCarthyism and the House Un-American Activities Committee? The Bay of Pigs? The Cuban Missile Crisis? Star Wars?
• The Vietnam War, ancillary to the Cold War but no less divisive. Protests rocked a deeply divided country, torn between its desire to support the troops and its sense the US was mired in an unwinnable war.
• The Civil Rights Era, similarly fraught with protests and upheaval as the country struggled to bury vestiges of racial segregation. Remember: The National Guard had to be ordered into Little Rock to let young Americans attend school.
• Watergate rocked Americans’ image of the president as an unassailable leader not only politically, but morally as well.
• During Bill Clinton’s presidency, we again discussed the boundaries of presidential propriety in a number of ways. And the president was, in fact, impeached.
• Bush v. Gore—few seem to recall just a few short years ago, the nation faced what many referred to as a “constitutional crisis.” But it was hardly the first (see the previously referenced elections from the 19^th century). Regardless, the country was bitterly divided over the issue (remember hanging chads?) and how it should be resolved.
• The Iraq War—another example of a hugely divisive political event, one that continues to divide Americans eight years after it began.

And this list is by no means exhaustive. Open a history book to practically any page and you can read of the divisive issue of the day.

The reality is the nation’s been in a state of evolution and relative upheaval since its founding. And that it’s shuddered several times but held together—including through a devastating civil war no less—is a testament to the strength of its foundations and the wisdom of the Founders in creating a free, open society that can have contentious debates without ripping apart at the seams. Moreover, heated political debate and divisions don’t seem all that bad when you consider the extreme alternative: the relative uniformity of Nazi Germany or Soviet Russia.

For investors, this should be something of a comfort. Because when it comes to capital markets, all you need to do is overlay a chart of markets’ historic performance with a timeline of US (or even world) events to realize through thick and thin, markets have largely continued a long-term, though uneven, march higher. Not without volatility or likely fairly significant discomfort for investors at the time—but higher nonetheless. So the likelihood this time is different is incredibly slim. We may be light years ahead of our forebears in many senses, but to credit ourselves with the ability to completely derail in a few short years what’s proven one of the most resilient free market systems in the world’s history is likely to think a little too highly of ourselves.