Some economists are convinced that the 1970s should act as a blueprint for how policymakers and investors should handle the 2020s. Others say the 1990s are more appropriate, or in a bull market even the “roaring” 1920s.
Goldman Sachs says it’s time to scrap the tactic altogether and focus on the here and now.
Speaking during a Goldman roundtable focussed on the outlook for 2024, the firm’s chief economist Jan Hatzius said that although history provides useful context for the present day it’s rarely a roadmap to be replicated.
Responding to a question from Fortune, Hatzius said: “Historical analogy and saying ‘This is just like the 19XX’ has a long history [and] is almost always too simple. The reason is that history never repeats, but in some cases it rhymes, as the saying goes.”
Throughout 2023 experts have attempted to understand a cocktail of economic factors through the lens of previous markets. Deutsche Bank, for example, said the U.S. is currently seeing a return to the 1970s on account of geopolitical risks, rising inflation and a number of oil shocks.
UBS has a far more positive outlook, saying the economy is actually headed back to a Clinton-like era of the bustling 1990s.
In specific markets, experts are saying housing, for example, is returning to the 1980s while the tech industry has been warned to mind the lessons of the 1990s.
However, Hatzius warned against using such comparisons as a roadmap for investment or economic strategies moving forward: “Some periods are more helpful than others but I don’t think any [should be used] as a full blueprint.”
Welcome to 1918
Overall, Goldman Sachs’s outlook is significantly more optimistic than many of its Wall Street peers.
For example, while the rest of the market is predicting a recession next year at around a 50% likelihood, Goldman is standing firm that it will be just 15%.
The market will continue to be strengthened by strong performances in mega-cap tech stocks, and further stability will be brought about by eventual cuts to the base rate by the Fed.
On the call with members of the media, Hatzius and colleague David Kostin—the firm’s chief U.S. equity strategist—said they expect the Fed to cut rates next year following similar moves by other major central banks.
As a result, Hatzius rejects the doom and gloom narrative proposed by Deutsche Bank, saying: “I certainly don’t think that the 1970s are a great blueprint, that’s probably the period we’ve been arguing against the most. This is not like the 1970s [with] other serious overheating inflation expectations, getting out of control cycles.”
Hatzius, who is also head of Global Investment Research at Goldman Sachs, said if anything a late 1910s era could hold some useful inspiration.
“I think there’s some elements of post-war dislocations or post-pandemic dislocations,” he explained. “You can go back to the 1918 flu, there are some elements there. The problem with the post-1918 flu period is that there’s very little high-quality economic data but I think there are some elements there.”
In 1918 the Spanish flu pandemic killed anywhere between 20 million and 40 million—resulting in more deaths than the number of people who died in World War One.
Similarly to COVID, Spanish flu was more contagious than previous similar diseases and resulted in the average lifespan of U.S. adults decreasing by 10 years.
A 2020 study of the Spanish flu estimated—as best it could—that the impact of the outbreak was a reduction in real per capita GDP of 6% and a fall in private consumption of 8%.
Following this came the 1920s—a period of great social and cultural dynamism and a booming economy.
However, despite recognizing the relevant similarities between the periods, Hatzius added: “I would generally not overstate the extent to which you can use one period as a blueprint.”