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Highway Robbery. For automakers, 1970 was the toughest year in at least a decade. Buyers spurned big models in favor of less profitable compacts, minicars and fast-increasing imports (now 15% of the U.S. domestic market). Restive dealers grumbled over what they considered to be excessive factory control, reductions in their price markups, and the "dumping" of unwanted cars on their sales lots. Discontented customers demanded more reliability and easier repair—at a time when management found it increasingly hard to maintain quality output in their plants, in great part because of worker unrest. The eight-week strike against General Motors made a weak year even worse. In 1970 the U.S. is expected to produce 6,550,000 cars, down from 8,219,000 last year.
There were many other causes of business distress. While consumer demand for goods and services softened, U.S. labor's demands for more wages and fringes hardened. The nation lost more working time through strikes—60 million man-days—than in any year in the past decade. Major union contracts negotiated in the first nine months of 1970 called for annual increases averaging 10%. In a modern form of highway robbery, the militant Teamsters imposed a 15% increase, thus setting a target for the rest of organized labor. To head off what could have been a nation-paralyzing strike, Congress voted to give a boost of 13½% to some 350,000 railway workers. Wage-push inflation got its strongest nudge in construction; union craftsmen wrung out raises averaging 17½%. As a result, many skilled workers will be earning about $20,000 a year by 1972. Building pay is so lofty partly because many of the 18 craft unions have for years resisted opening their ranks to newcomers.
On top of the economic problems, social and racial tensions aggravated businessmen's distress in 1970. Shoplifting has tripled since 1959. The trend alarms many merchants, who point out that pilferage now costs them—and their customers—2½¢ out of every dollar of sales. Insurance executives, defending themselves against the public outcry over mass cancellations of burglary and fire policies, argue that private companies can hardly be expected to absorb the cost of crime and urban violence.
Change in Psychology. Most of 1970's economic headaches, however, were caused by the deliberate action of Government. In its belated battle to control inflation, the Federal Reserve Board had set its monetary dial at "full stop" in mid-1969. Between then and February of this year, the board squeezed the nation's money supply so severely that it rose at an annual rate of only .2%. The effect was to throttle bank lending, drive interest rates to their highest level since the Civil War, and ultimately to slow down business in general.
Through the early part of the year, inflation psychology kept its grip on the minds of investors and businessmen. Then, in the space of a month, two events turned the mood from hope to gloom and brought the nation closer to financial panic than at any time since the 1930s.