Flower Power Investors

Remember the “Flower Children”?

Photo: Rex Boggs. Source: Flikr. CC-BY-2.0

“Flower Power” was a movement in the mid and late ‘60s, part of the anti-Vietnam War movement. It was rooted in nonviolent ideology to transform war protests into peaceful spectacles. Young people embraced the flower-symbol by dressing in flowery clothes and decorating their vehicles with flowers and vibrant colors, wearing and singing about flowers in their hair, and distributing flowers in all kinds of situations, sometimes as a way to respond to potentially violent confrontations.

Photo: DOD/Sgt. Albert Simpson. Source: National Archives. Public Domain.

The flower children had a point. Defense spending was around 10% of the economy at that time. Mandatory military service, foreign deployments, growth in military technology, and spending on capital equipment like aircraft carriers and Minuteman missiles consumed a significant chunk of resources. It took a five-star general – and outgoing President – to warn the nation of the power of the “military-industrial complex.”

It wasn’t the protests that reduced defense spending, though. Defense spending actually increased in the late ‘60s as war efforts intensified. It was the end of the Vietnam war and – especially – the end of the Cold War that allowed Pentagon spending to decline as a percent of the economy, from 11% in 1960 to less than 4% today. Along the way, the economy enjoyed a “peace dividend,” where resources devoted to conflict were redirected into more productive pursuits.

Source: St. Louis Fed

The real peace dividend that came after the Cold War has been the end of inflation as a significant economic force. Inflation increases during wartime, as labor and materials are redirected (and destroyed) and the government creates money to pay for what it needs to carry on the fight (for the society’s survival). When peace breaks out, people use the technology developed during wartime for productive enterprises to provide more goods and services at lower costs.

In the light of this, we can see how the end of the Cold War helped inflation to fell in the ‘90s and ‘00s. The Fed wouldn’t have monetized the deficit in the ‘60s and ‘70s and push inflation higher if President Johnson didn’t want to have a “guns and butter, too” budget in 1966. Kind of makes you want to “Give Peace a Chance.”

Inflation was a major problem, now we don’t even think about it. Flower Power was controversial at the time, now it’s nostalgic. In many ways, investors today are all descended from the “Flower Children.”

Douglas R. Tengdin, CFA

Charter Trust Company

“The Best Trust Company in New England”

By |2019-03-15T11:33:46-04:00March 15th, 2019|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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