https://singlelunch.com/2023/09/13/the-bad-economics-of-wtfh...
With related discussion here:
Does it explain some of the divergence? Sure, but it doesn't even come close to making up the wage / productivity gap.
I imagine much of the other "debunkings" are similarly naive
A cursory search of how much of wages healthcare costs as a percentage of total compensation is in the US comes out to 7.6% in 2022. In 1971 it was 2.9%
> For employee-benefit plans in 1971, health insurance contributions equaled 2.9% of all wages and salaries.
> Insurance benefit costs accounted for 7.6 percent of total compensation and 26.8 percent of total benefits among private workers in September 2022. The component breakdown can be seen in table 1. Health insurance accounted for 7.1 percent of total compensation, with 0.2 percent for short-term disability insurance, 0.1 percent for life insurance, and 0.1 percent for long-term disability insurance. (See chart 1.)
https://www.bls.gov/ecec/factsheets/ecec-insurance-benefits-...
Why is the rebuttal 'naive' but the site not?
It's just that there are a lot things that point to a turning point since 1970. It's like looking at something like obesity. It's tied to heart disease, cancer, ED, million other things. Any one of those things could maybe be explained away but if you look at the aggregate and how many things there are I think its okay to say "obesity likely has health effects".
Cool.
There are a bunch of potential explanations for "WTF happened in the early 70s", but only one for "WTF happened in 1971".
Btw. if you don't believe this is what the site is about, check the quote at the bottom of a logo of the merch store.
We printed more dollars than gold [1]. The idea that we weren't printing more dollars than we had in gold until 1971 is total fiction.
[1]https://history.state.gov/milestones/1969-1976/nixon-shock
What's less simple is how any of this connects to the rise in the two-earner household. Prices went up, women enter the workforce to compensate, but demand for labor was stangnent? What then was everone spending on? There clearly are confounding variables that make this an interesting discussion, beyond "pretty rocks".
We also did this in the Revolution [1] and Civil War [2].
> how any of this connects to the rise in the two-earner household. Prices went up, women enter the workforce to compensate, but demand for labor was stangnent?
Why do you suppose labour demand was stagnant?
[1] https://en.wikipedia.org/wiki/Greenback_(1860s_money)
[2] https://www.amrevmuseum.org/collection/continental-currency-...
* https://www.yesigiveafig.com/p/what-really-happened-in-1971
Also:
* https://old.reddit.com/r/badeconomics/comments/i9ycy9/the_br...
Updated by the same author a few years later:
* https://old.reddit.com/r/AskEconomics/comments/sccs74/so_wtf...
E.g. apart from the end of Bretton Woods, the beginning of the 70s also had the ongoing civil rights movement and the protests against the Vietnam war, both events that caused large-scale change of social norms.
...but I also had to stop reading the rebuttal when he got to the wage growth chart: He argues that inequality was rising (no objection) which causes the average income, pulled up by a small number of extremely high earners, to be overestimated vs the median income (no objection), which means... we should ditch the median and rely only on the average (wtf). Because I guess then the wage stagnation doesn't look as striking as it does otherwise?
It also doesn't debunk the "what happened in 1971?" question: If he doesn't want to talk about wage growth, fine, let's talk about inequality. Why did that increase so much after 1971 then that it starts to affect other statistics?
At the same time, if you have rudimentary economic history knowledge, then you would be aware that 1973 was the Arab Oil Embargo, and that the 1970s were an era of economic stagnation and inflation whose principal cause was that economic event.
If you reevaluate many of these graphs knowing that the 1970s were a period of high inflation, and that there was a significant economic event in 1973, you end up finding that 1971 wasn't actually all that special: indeed, most of the time, when 1971 looks to be a key inflation point, it's because the graph isn't indexed for inflation and so the beginning of high inflation being around 1971 stands out. Where the graphs are indexed for inflation, there's no obvious inflection point around 1971, instead the inflection point shifts a lot more towards 1980.
Putting that together, the only reason you have to make an argument for a monocausal economic event that happens in 1971 is if you want to emphasize the importance of the gold standard, and the only reason you'd have to believe it is if you don't have the economic literacy to understand why the evidence just isn't there at all. Put that together, and the reasonable assumption is that the people who made these charts are goldbugs who want to convince you that we need to return to the gold standard.
It's much more effective to let a reader make their own conclusion from cherry-picked data than it is to state the conclusion outright.
Yeah it's clear the authors are talking about the War on Drugs.
Governments were doing that before 1971. Hell, the reason we had to give up the gold standard in '71 was we'd printed too many dollars compared to the gold.
We've been trying to solve inflation for millenia. As frustrating as it sounds, we haven't found the solution. In the 19th century, British central bankers firmly on the gold standard were trying to find ways to deal with inflation, bank runs and credit crises, all amidst a burgeoning military-industrial complex and rising income inequality [1].
[1] https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_...
The root causes of the problem are right there in your sentence.
Of course the banks were facing bank runs, they literally accepted that risk when they lent out the deposited money. When people came and tried to withdraw, they didn't have the liquid funds. Coming off the gold standard just made it a little easier for the government to bail out the banks by literally printing money and giving it to them so that people can withdraw their funds. "Liquidity injection" they call it.
Credit and fractional reserve banking are the true origins of inflation. A thousand dollars can baloon up into tens of thousands, even hundreds of thousands of dollars through the magic of repeatedly loaning money. You can run a money printer 24/7 and you will never inflate the money supply more than banks do with their loans.
Credit is made up money. It just appears out of thin air when people get loans. It's not real until it's paid back. If too many people start defaulting on debts the whole thing comes crashing down.
Yes. Unfortunately, a society without credit is almost-always outcompeted by one that embraces it. We're thus stuck with managing it. Credit existed before 1971, before the Federal Reserve Act, before the signing of the Magna Carta, hell, before the Code of Hammurabi.
My cat demands my ham-and-cheese croissant, that doesn't mean he's getting it.
Credit grows the money supply exponentially. Defaults and taxes cause it to go down. There is nothing that makes credit incompatible with a steady-state economy; that was, after all, about the state of human civilisation for thousands of years.
Imagine a country with zero GDP growth. There will still be some businesses that grow on profit, and some that fail. There will be professionals that die and new professionals to take their place
Failure to do so means losing what little they already had. Worse: people spend money to make money. Spent money ends up getting deposited right back into the bank. Which means it gets loaned out once again. The same dollar gets loaned out a potentially unbounded number of times.
Banks attempt to recover lost loans by liquidating assets put up as collaterals. There are people out there who are leveraging everything they own into liquid assets they can spend. If they don't pay it back with interest, they are liquidated. They lose it all.
Liquidate enough people's assets and the losses become so extensive you literally crash entire markets if not the entire the economy. Crash the US economy and the entire world might as well follow.
Liquidations mean people are defaulting on their debts. Defaults mean the money which was created through loans could be lost if collaterals can't be liquidated. Banks would be in danger of being rendered insolvent were it not for government bailouts. The only difference between banks and the likes of FTX is the banks are able to get the government to erase the consequences of the failures of their risky investments.
It's still fractional-reserve banking. We just use better metrics than multiply reserves by number to get notional loan value.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
The Fed would absolutely still argue our banks are fractionally-reserved. There just isn’t a reserve requirement. (It’s replaced with capital requirements.)
America solved it in the 1800s with commodity money; the US dollar was worth as much at 1900 as it was at 1800, and there weren't any financial collapses in the 1800s comparable in magnitude to the Great Depression or Global Financial Crisis.
Uh, no it wasn't. From the very first search result I got on Google, a rough CPI measure of inflation would indicate that the US dollar was worth twice as much in 1900 as at 1800, a total inflation of -50% [1].
Now, that's not the most accurate assessment of inflation because the very concept of a single number for "inflation" doesn't work out well when you start trying to compare monetary amounts across decades, and it especially breaks down when you're bracketing the Industrial Revolution. But the broader point here is that the US dollar wasn't some mythically stable thing during the 19th century that somehow galloped out of control in the 20th century.
> and there weren't any financial collapses in the 1800s comparable in magnitude to the Great Depression or Global Financial Crisis.
This is "never-cracked-a-history-book" levels of incorrect. Severe depressions recurred about every other decade, and practically every decade had some sort of Global Financial Crisis-esque financial meltdown. Back then, most of these were called "Panic of <year>" instead of "depression" or "recession", until you got to the Long Depression, which was called the Great Depression before the Great Depression itself actually existed.
If you're familiar with US economic history, far from being a century of economic stability, 19th century American history was an economic roller coaster of soaring heights and terrifying crashes and the transitions between them being sharp, sudden, jarring, and without warning; by those standards, 20th and 21st American economic history is tame. (Indeed, commodity money is one of the causes of the rollercoaster nature of the economy, far from being a moderating force.)
[1] Yes, the sign is right. Because, again, bracketing the Industrial Revolution.
This is all true. However, average economic growth rates for the American economy were dramatically higher in the 1800s than they have been in the last 50 years.
Nitpick: you're comparing two currencies that happen to both have been called the dollar.
A dollar in 1800 referred to "371+4⁄16 grain (24.1 g) pure or 416 grain (27.0 g) standard silver" [1]. (To drive home how confusing commodity money is, $2.50, $5 and $10 were defined in gold; cents and half cents in copper.) Because "silver prices rose relative to gold as a reaction to the California Gold Rush" [2], in 1873, the silver dollar was redefined at "371.25 grains" and the gold dollar at "23.22 grains" [3].
None of this, of course, has anything to do with the fiat greenbacks we printed during the Civil War [4] and the ensuing nonsense we had to deal with getting that to play with our metal standards [5], all of which culminated in the Gold Standard Act of 1900 defining a dollar at "25.8 grains of 90% pure gold" [6]. (94% the amount of pure gold per dollar as was in a 1792 Half Eagle per dollar. But again, we're comparing pre- and post-Gold Rush gold. And early industrial versus well industrialised economies.)
[1] https://en.wikipedia.org/wiki/Coinage_Act_of_1792
[2] https://en.wikipedia.org/wiki/Coinage_Act_of_1873
[3] https://en.wikipedia.org/wiki/Dollar_coin_(United_States)#Po...
[4] https://en.wikipedia.org/wiki/Greenback_(1860s_money)
[5] https://www.encyclopedia.com/history/united-states-and-canad...
Where are you getting your GDP numbers from? (Our economic metrics for 19th century America are notoriously shoddy. What with the civil war and frontier and all.)
You're correct if we look at GNP. But by that standard, we haven't had a real depression since 1971 [1]. Certainly not one that reduced e.g. steel production by 45% [2][3].
[1] https://fred.stlouisfed.org/series/GDP
[2] https://en.wikipedia.org/wiki/Long_Depression#United_States
[3] https://crsreports.congress.gov/product/pdf/R/R47107https://...
Oh yes there were. Go look up the Panic of 1837, Panic of 1857, Panic of 1873, and Panic of 1893.
What? No it wasn't. The value of gold relative to commodities or industrial products wasn't stable over that interval. It would be ridiculous if it had been. Not only were we in the throes of the Industrial Revolution, the California gold rush had just started a two-century boom in the quantity of gold [1].
> there weren't any financial collapses in the 1800s comparable in magnitude to the Great Depression or Global Financial Crisis
Free banking was a constant drumbeat of bank failures, inflation and scams [2][3]. (Also financial crises [4].)
If you want a country that didn't have a civil war in the 19th century to go off, grab a copy of Bagehot's Lombard Street [5]. It's written by arguably the world's first modern central banker. He battles credit crises, bank runs, inflation, et cetera. All while Britain was firmly on the gold standard.
[1] https://elements.visualcapitalist.com/200-years-of-global-go...
[2] https://en.wikipedia.org/wiki/History_of_central_banking_in_...
[3] https://en.wikipedia.org/wiki/Wildcat_banking
[4] https://home.treasury.gov/about/history/freedmans-bank-build...
[5] https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_...
This matters, because policies need to be more coherent than most legislation that Congress passes. Something like a Fed policy absolutely needs to be better thought out than what Congress can produce.
Do you really want a Fed "policy" that is the kind of 1500-page monstrosity that Congress creates?
Do you really want Marjory Taylor Green and AOC to be writing Fed policy? Bernie and Mitch McConnell? Do you think that's going to produce something better than an independent Fed? It won't.
No, the reason people want a political Fed is because they want their politics to guide the Fed. But a political Fed, at least some of the time, will have the other side writing its policy? Do you really want that? I don't think you do.
What is the big bad lever?
If you're suggesting the Congress directly regulate monetary policy, one, Argentina. Two, do you remember the second-largest bank failure in the history of our republic two years ago [1]? What about the third and fourth? Would you prefer a depression every time some twat at Silicon Valley Bank forgets numbers can go down?
[1] https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...
The Fed doesn't control the amount of credit in America. It influences it by influencing rates by controlling how many assets it owns.
You want the Congress dictating buy/sell orders for Treasuries (and whatever other assets they can think of) to the Fed? At that point just go full MMT [1].
I personally do not want a boom every 2 years just before the election, as congressmembers try desperately to make the economy look good, followed by a bust just after the election, as their medium-to-long-term-bad-ideas get shown to be bad.
One of the hallmarks of countries suffering hyperinflation/other monetary disasters is lack of a central bank because the legislatures fail to wield the power responsibly. It is another check and balance, and virtually ever economically stable country has one.
The original point of the Fed was to be a common reserve for banks which makes complete sense. Somewhere along the way, we told the fed to manipulate credit to fix inflation and unemployment and now we have a board that is virtually unfirable that can basically tax (inflate) you at any time and the theres nothing that the president nor congress can do.
Should the Congress also make play-by-play battle calls in war? Let's dissolve the DoJ, too, and have the Congress prosecute and investigate, à la Athens.
> If congress is being useless, vote them out
Again, Argentina. Electeds always want rates lower and spending higher. (Rich people who can store their wealth offshore, even moreso.)
No thats obviously the executive?
> Again, Argentina. Electeds always want rates lower and spending higher. (Rich people who can store their wealth offshore, even moreso.)
Yes this is how democracy works, if people are dumb, then things go bad. The point of democracy is that you have to take a leap of faith and hope people make good decisions. If you don't like this, we can just revert to totalitarianism. You might think I'm saying this tongue in cheek but I'm not, there's a real argument that modernity is too complex for democracy.
The President chooses the Fed chairman. The Fed is an independent agency [1].
> this is how democracy works, if people are dumb, then things go bad. The point of democracy is that you have to take a leap of faith and hope people make good decisions
Which is why America isn't a democracy (and hasn't collapsed the way democracies historically collapse, in mob rule and hyperpartisanship), it's a republic. (It's also why we have independent agencies and an independent judiciary.)
[1] https://en.wikipedia.org/wiki/Independent_agencies_of_the_Un...
Whether we have independent agencies is completely orthogonal to whether we are a republic or not. Even if all of these agencies were under the executive, we would still be a republic. And no, I don't support the independent nature of these agencies. The president and/or congress should be able to control these agencies directly. Knocking down the chevron deference is step 1 to eliminating statutory power.
WTF Happened in 1971? (2019) - https://news.ycombinator.com/item?id=37482646 - Sept 2023 (105 comments)
WTF Happened in 1971? - https://news.ycombinator.com/item?id=31471602 - May 2022 (102 comments)
WTF Happened in 1971? (2019) - https://news.ycombinator.com/item?id=25188457 - Nov 2020 (454 comments)
WTF Happened in 1971? - https://news.ycombinator.com/item?id=24135845 - Aug 2020 (5 comments)
WTF Happened in 1971? - https://news.ycombinator.com/item?id=20811004 - Aug 2019 (44 comments)
and:
The Bad Economics of Wtfhappenedin1971 - https://news.ycombinator.com/item?id=39144867 - Jan 2024 (42 comments)
The Bad Economics of WTFHappenedin1971 - https://news.ycombinator.com/item?id=37507749 - Sept 2023 (2 comments)
From Wikipedia:
>In 1971 more and more dollars were being printed in Washington, then being pumped overseas, to pay for government expenditure on the military and social programs. In the first six months of 1971, assets for $22 billion fled the U.S. In response, on 15 August 1971, Nixon issued Executive Order 11615 pursuant to the Economic Stabilization Act of 1970, unilaterally imposing 90-day wage and price controls, a 10% import surcharge, and most importantly "closed the gold window", making the dollar inconvertible to gold directly, except on the open market. Unusually, this decision was made without consulting members of the international monetary system or even his own State Department and was soon dubbed the "Nixon Shock".
Regardless, I see systems analysis as more productive here than root cause analysis.
(directed by Jonathan Demme!)
https://en.wikipedia.org/wiki/Executive_compensation_in_the_...
Well, executives are paid a ton because they need to compete in an environment where other executives of successful companies are already filthy rich. And why is that? Well, it's actually not because of compensation policy at all.
Those other executives are rich because they were founders who hit an exit. That is, it's all HN's fault (and the fault of the VC-based startup money engine more generally).
We created an environment where to staff a successful C suite you need to hire away senior people from FAANGs. And you can't do that unless you pay them crazy numbers. And that means the rest of your executive staff, and your board, need to see the same numbers. And so on, across the rest of the economy.
You can't have an economy producing huge numbers in the stock market without handing those dollars out, in proportion, to the senior staff, basically. The same analysis does not hold to the regular employees, who don't compete against people getting that exit money.
This explanation doesn't seem to explain why the CEO/staff comp ratio goes up. It just seems to say that comp should go up. If CEOs and staff both got their pay doubled by moving to one of these startups, the ratio would just stay the same.
There were very few executives rich from an exit.
In point of fact, ~1971 seems to be almost exactly when this started. For reference, the term "Silicon Valley" was first used in print in 1971!
I said salaries in competition trend to market price points, and market price points for executives are set by externalities like "IPO windfalls" that don't exist for workers.
Wages aren't set but effort or value creation, but by marginal benefits of salary
There are other reasons that might inspire, elicit or compel one person's labor at someone else's direction; but if you accept the idea of "salary" as a concept, then it exists to create value, by definition.
If I make a fixed $100 from some labor, that number is an upper bound for how much I would ever pay, but doesnt determine how much I actually do pay. That is set by supply and demand for someone that can do the job. Maybe it is $1, maybe it is $99.
For jobs with variable productivity, pay is set by marginal benefit. If paying $1 more nets $10 more profit, you pay more. Repeat until you dont get more profit from raising wages.
Wages are set by the derivative of profit, not profit itself.
Uh... yes it is? Are "benefit" and "value" not synonyms here? I think you're confusing "value" with "profit" maybe? They may not be equal, but the denominator in "cost/benefit" is exactly what I'm talking about.
The pre-cost benefit of having any worker might be $100. If you can get a worker for $10, the marginal benefit or paying $20 is negative $10.
That worked quite well prior to robber barons looting and pillaging, declaring bankruptcy, and screwing the workers out of their pensions.
How do you engineer this, do you think? If every burgerflipper at Wendy's owned stock, the performance of that stock isn't connected to performance of their job at all. They can fuck off completely, and the stock either rises or falls. Even if we tie it not to traded stock, but some sort of profit-sharing of that one franchise, there are 40 or 50 workers, minimum, all of whom have been trained to coast along and hope someone else has to do the real work. One could hope they (and the other workers) would learn that their contribution is essential before it goes out of business, but that's absurdly unrealistic.
>That's how it used to be "in the good old days" when folks had both pensions and stock tying them to the long-term success of the business.
It was never that way for any significant fraction of the workforce. Sure, if you worked for one of the Fortune 100 companies, already wildly successful. But anyone struggling at their city's papermill or textile mill or whatever, there wasn't stock and pensions. And at the biggest companies, unions managed to wedge their foot in the door to the point that you had UAW workers and the like quitting the week after lunch on Tuesday because they'd made quota. It was good for them, personally, of course, but to the long term detriment of the very businesses that employed them. They too, despite their stock and pensions and vested interest int he financial success of their companies and ownership stakes, just sort of coasted along and let it all fall apart.
The grunts, it turns out, are rarely all that interested in their own vesting.
That's not really true at all. If they fuck off completely, they're either getting fired, or if everyone at the store takes the same stance, the store closes entirely. If enough stores close, the stock dips.
I'd counter with: what's stopping them from fucking off right now when they don't have stock? Why would stock inherently make them more likely to fuck off? Just like executives, the stock would vest over a period of time. And clearly nobody is talking about giving $500k in stock to a person making $5/hr. It is commensurate to their salary.
>It was never that way for any significant fraction of the workforce. Sure, if you worked for one of the Fortune 100 companies, already wildly successful. But anyone struggling at their city's paperkill or textile mill or whatever, there wasn't stock and pensions. And at the biggest companies, unions managed to wedge their foot in the door to the point that you had UAW workers and the like quitting the week after lunch on Tuesday because they'd made quota. It was good for them, personally, of course, but to the long term detriment of the very businesses that employed them. They too, despite their stock and pensions and vested interest int he financial success of their companies and ownership stakes, just sort of coasted along and let it all fall apart.
This literally didn't happen, and I find it laughable you're portraying unions as a horrible blight on the working man. You might want to go a bit further back into history and look at what the factory conditions were like prior to unionization. If you think that would've just naturally occurred without unions, you're delusional, and need to look at all the non-unionized places we've outsourced manufacturing to, and what their work life looks like. Hint: exactly like it was in the US prior to unionization.
Then take a look at unionized manufacturing economies in Europe. Hint: they didn't get that standard of living because businesses just thought it was the right thing to do.
But in summary, your argument appears to be: people are lazy, and if you give them more they'll just stop trying. Which might be one of the most absurd takes I've ever heard on the subject.
Additionally stock based compensation creates incentives to work towards raising the stock price not actually performance.
All of that is why back when Hewlett-Packard was still run by Hewlett and Packard they banned stock plans and instead introduced profit sharing
So the beneficiaries of the money printer and big government are corporations who are now able to spend everyone's savings that have been converted into equities.
The "Celler–Kefauver Act is a United States federal law passed in 1950 that reformed and strengthened the Clayton Antitrust Act of 1914" [1]. It kicked off the conglomerate boom in the 1960s by incentivising buying "companies in unrelated fields" [2]. (Conglomerates were nudged along "thanks to low-interest rates and a market that fluctuated between bullish and bearish, providing good buyout opportunities for acquiring companies.")
That ended with Volcker's early 80s recession [3], which co-incided with (a) computers in finance enabling new entrants to (i) create new financial instruments, e.g. high-yield bonds [4], and (ii) circumvent banks to distribute them [4]; and (b) a multi-decade decline in rates [5].
Herego, my pet theory: since the 1960s we've been in a series of corporate regime changes, each which created demand for a new type of leader (about once a decade), said leader being scarce and thus valuable at the beginning of each shift. (The internet also gives executives unprecedented direct access to investors, customers and employees, current and potential.)
[1] https://en.wikipedia.org/wiki/Celler%E2%80%93Kefauver_Act
[2] https://www.investopedia.com/terms/c/conglomerate-boom.asp
[3] https://en.wikipedia.org/wiki/Early_1980s_recession
[4] https://www.thegentlemansjournal.com/article/story-michael-m...
Pick any public company and divide CEO pay by headcount and it'll come out to a dollar figure way, way, way too small to account for the reduced share that workers are getting. There's something (likely multiple things) else sucking up all the money that was formerly shared with workers.
Before the rise in CEO comp, CEOs were upper-middle class or borderline upper class. After the rise, CEOs are solidly upper class.
That aligns CEOs' interests much more firmly with the interests of capital and less with the interests of labor.
Most economists date the big breakdown in real gdp vs real median wages to have started in the 80s.
The website mainly lists economic factors, but if you look at obesity rates you see a similar trend in the 70s, where quite suddenly obesity rates start rising.
https://www.mdpi.com/1660-4601/21/1/73
I think that while there might not be a single common cause, it would be naive to deny that there could be a combination of events, which mark that time period in particular.
I'm actually curious if this continues through he 2020s. It could have gotten worse or better or been the yardstick by which people were fired or hired.
What makes 1971 truly special is that only goldbugs who really want the gold standard again are insane enough to believe that deviation from the gold standard single-handedly fucked over everything and have the chutzpah to tell you about it even when their own evidence clearly says they're wrong.
I'd highly recommend reading the book "Broken Money" by Lyn Alden for understanding the dynamics of what played out.
But I think you are also likely correct that one could create a similar website about, if not any year, certainly many different years.
I think this website is being rather disingenuous in the way it presents things. Not only in the way they cherry picked a bunch of charts which show drastic changes after 1971 (and which may or may not be related), but also in the way they leave it to the reader to "do their own research" while framing the question so as to ensure that 5 minutes of googling will yield the answer they want to plant in the reader's mind.
https://www.mdpi.com/sustainability/sustainability-03-01866/...
Almost none of them do. First chart: dot is before the dip and divergence. Second chart is a mess, but even then, the non-blue lines are bundled until 1975; the blue line doesn't meaningfully depart until 1973. Third chart: divergence doesn't start until 1980.
Did abandoning Bretton-Woods contribute to these changes? Probably. Is it the Mayan 2012 that this website tries to make it look like? No.
I don't think it's only the gold standard though, no.
For the 100 years prior, the price of energy dropped very dramatically every year, Moore's law like. Then we had the oil crisis of 1973 and the price of energy has been roughly flat since.
Energy is a huge component of the price of everything, directly and indirectly.
Note the global monetary system was completely reorganized, not least to enable large scale exports of oil from peripheral countries to the core:
Your source doesn't mention oil once, except when it links to an article about the 1973 Oil Embargo.
Bretton-Woods wasn't ended out of some grand strategy surrounding oil, it was ended because we didn't have enough gold to cover our dollars. Instead of playing the periodic-devaluation game, the monetary equivalent of a debt ceiling, we ended the farce and admitted it was fiat.
For example, if I have a guy digging holes with a shovel, but then I buy a backhoe with an auger, he is now maybe 100x more productive than he was before, but should he get paid more because of that? His life is actually easier now, maybe he should get paid less?
The whole point of this article we’re all commenting on is that it shows workers have been the ones left out in the cold since 1971 and that the high-wealth class in this country has been soaking up essentially the entirety of the resulting bounty from productivity increase.
I just don’t see anyone else claiming it or even mentioning it prior to that comment.
I wasn’t even talking to you.
If you believe I misread something, then quote or link the relevant comment.
You could do without the "should get paid less" part, as it puts part of your argument in the realm of subjectivity rather then objectivity for no real reason other than the tendency towards emotional responses I was mentioning earlier. ("Easier" life is completely subjective.) But the first part of this argument is really good.
And a socialist could have made the exact argument[1]. This is how capitalism progresses.
I’m happy with the conclusion that we’ve reached. Bravos to all involved.
[1] And maybe they are one.
In the original comment, the argument of "should be paid less" was based not on an objective evaluation of productivity components on the part of the employer, but rather on a very much subjective evaluation of the employee's now "easier life".
(It’s not based on how difficult it is either. It’s really based on the labor pool.)
Then automate the job completely? Don’t need to pay anyone for that particular job.
Then if you own the automization equipment to get rid of all the laborers? Don’t need to pay anyone.
Oh, you have automated protecting your property with robots? Well. Now you own your own fiefdom completely.
The big money is made by shuffling financial instruments around, it does not care about longevity or continued existence of a company, and the more the stock is part of ones compensation the more they are going to feel pressured to serve the goals of stock price not the company.
And that goes double for the big investors holding the stock - whose Excel sheets are ultimately the boss of the board members, with the bones and offal for your auguries being analyst statements.
So let's say that by great effort you got great profit this quarter. Hopefully through increased revenues, but often by scuttling efforts or otherwise cutting expenses. You beat EPS ratio.
...The stock price falls, with analysts saying that the higher EPS shows not enough growth, and that you are not good prospect because you need more clients of a specific kind.
So the management will push for expanding that class of clients, maybe expansion elsewhere where normal calculus would say it's ill advised.
But they are compensated according to stock price and resulting ROI when investors sell off that stock or use it as collateral, not according to how well the company is doing.
Then consumer capitalism obviously doesn’t matter any more.
You can see a corollary to this across the whole economy in the Baumol effect, where industries with no productivity gains see labor costs rise as a result of competition with more productive industries for scarce labor: https://en.wikipedia.org/wiki/Baumol_effect
Of course it turns out firms do have a lot of power over employees for various reasons which they use to suppress wages as much as possible but its still bounded.
Another perspective is that workers are also consumers and an economy that doesn't increase compensation will have limited ways to capitalize on increased productivity because there will be little increase in domestic consumption. You can't really export a hole you dug so its good for everyone if workers see benefits from productivity gains: https://en.wikipedia.org/wiki/Demand-led_growth
Simply, there isn't a good reason. That's why we strictly regulate the labour market--we don't like the true price of labour.
The broader reason: while there aren't fundamental reasons for the worker to capture that upside, there are great reasons for citizens to. (I'm using that term broadly.) For a variety of reasons, from Protestant morality to concerns about Communism, modern societies have preferred to reward citizens qua workers than citizens qua citizens.
If the real GDP growth is going to build, service, and maintain the backhoe, that doesnt result in more physical goods for consumers and additional compensation to workers is inflationary.
If true, much if the GDP growth is illusory, composed of busywork. We aren't producing 250% more physical goods like housing and hamburgers per capita than in 1971.
Well, time to extend the definition of what is real and what is not.
Where's all the schizos at? It's time ... your evolutionary purpose has been revealed.
I also like the ISO standardization of shipping containers explanation.
It ultimately led to the abolishment of the Bretton Woods International Monetary System which in turn led to the Oil Shock of 1973-1974 which in turn led to a prolonged period of high inflation in the United States (Americans from the late 70s would have loved Biden's inflation!)
Ronald Reagan "solved" the problem via massive tax breaks that resulted in profligate deficits, deficits which have continued nearly every year since to this day and via moving American manufacturing overseas.
It's unfortunate because Federal Reserve Chairman Paul Volcker had done and amazing job in reducing US inflation from 14% (!) in 1980 to 3% in 1983. The nascent neocons essentially pushed him out as Chairman and the rest, as they say, is history.
Anyway, what people are going to be asking 50 years from now is WTF happened in 2025? I'm fully expecting there's going to be a Trump Shock that has even longer-lasting impacts.
The Nixon Shock caused the Yom Kippur War that sparked OPEC's embargo of America [1]?
Absolutely. The Yom Kippur war was the straw that broke the camel's back, but the Nixon Shock was the force supplying the tension. The Nixon Shock sent the value of the US dollar in significant decline (high inflation), which was the currency being used to buy OPEC oil. From OPEC's perspective they were facing declining revenues due to dollar inflation and were suspicious the Western nations were manipulating the global economy to their advantage. The Yom Kippur war brought everything to a head since it was those same Western nations who were supporting Israel. OPEC decided they'd had enough.
More than the aftermath of the 1967 Six-Day War?
> From OPEC's perspective they were facing declining revenues due to dollar inflation
The real price of oil declined from 1948 until July 1973 [1]. You'd be hard pressed to find the Nixon shock on the international price of oil; it monotonically declined from January 2021 until July 1973. Bretton Woods ended on 15 August 1971; on 17 October 1973 OPEC embargoed the U.S.
> OPEC decided they'd had enough
OPEC cut production in 1973 and raised prices on everyone. They kept pricing their oil in dollars and selling it for dollars because this wasn't a dispute about dollars or Bretton Woods, it was a dispute over Israel between King Faisal and Nixon.
[1] https://www.macrotrends.net/1369/crude-oil-price-history-cha...
Yes. Those were Egypt and Syria's concern, not OPEC's.
> You'd be hard pressed to find the Nixon shock on the international price of oil
BINGO! That's the problem. The US dollar was tanking due to the Nixon Shock. OPEC was getting paid with ever more worthless pieces of paper.
OPEC already had soured relations with the West due to the Nixon Shock and believed they weren't being compensated fairly for their product, due to how the oil market was structured at that time. The West's support of Israel during the Yom Kippur War simply proved to be too much.
OPEC retaliated to these events with the Oil Embargo, which completely altered the oil market from then on and gave OPEC much greater financial power, and money.
At the end of the day, the Oil Embargo was mostly about money, solving a money crises created by the Nixon Shock. Its resolution resulted in OPEC getting more money.
Let me put it this way, if there had been no Nixon Shock, would the Yom Kippur War in and of itself have caused the Oil Embargo? Probably not. The Oil Embargo wasn't about ideology, it was about money. That's why the always say to follow the money.
Real means inflation adjusted. How you deflate is a methodological choice.
For a consumer price, you deflate by the appropriate CPI or PCU. For producers, PPI. For international comparisons, either PPP or a trade-weighted basket of currencies.
The Nixon shock did not have an effect on real oil prices for OPEC members. It’s comforting to think complex events like the Oil Embargo have singular causes. But switching to Bitcoin won’t stop foreign wars or inflation or any of the things every country on metal standards dealt with for thousands of years.
That's simply factually incorrect and I'm done arguing over a simple fact. And no, I don't agree to disagree.
> It’s comforting to think complex events like the Oil Embargo have singular causes.
You are the one who's been arguing the Oil Embargo has a simple cause, namely the Yom Kippur War. I'm the one who's been arguing there were multiple causes, and the Yom Kippur War was simply the straw that broke the camel's back.
While the ruling class had long-standing interests in undermining their “extracted duties” under the social contract, the oil crisis gave them a plausible narrative and a set of conditions that made such changes appear more justifiable and less resistible shifting the narrative from away from collective welfare solutions and toward individual responsibility and market-driven approaches.
I kind of view it as the oil crisis serving as a stress test that revealed the fraying unity and decreasing mobilization capacity of the general populace which occurred alongside broader cultural and political shifts in the 1970s that coincided with a decline in trust in institutions (partly due to events like the Vietnam War and Watergate).
But yeah, a reason, an excuse, I meant the same.
A lot of these charts also actually do seem to diverge at '73 rather than at '71.
It never quite happens.
E.g.,
* http://archive.is/https://www.theatlantic.com/business/archi...
It's not countries can't otherwise be fiscally conservative. Germany's debt to GDP ratio is about the same as it was 20 years ago.
Was there a law forcing the government to make gold coins? What it meant is that I would be able to give $2800 to the Fed and get the equivalent amount of gold at a valuation given by the number of dollars in circulation, divided by how much gold the Fed held.
> Germany's debt to GDP ratio is about the same as it was 20 years ago.
They also don't spend massively on their military.
The early seventies seems to have been a major inflection point in history. 50 years later, maybe it's time for another?
Edit: I wonder which part of my comment is responsible for the downvotes?
Could the microprocessor explain, in part, the divergence of productivity and wages?
The adding of arrows biases people to say everything happened in 1971 exactly.
I think there was a shift in national priorities and attitudes - roughly late 60s to early 80s. But, this bias is tricking people into thinking that one particular event was the cause of this shift.
> On 15 August 1971, the United States ended the convertibility of the US dollar to gold, effectively bringing the Bretton Woods system to an end and rendering the dollar a fiat currency
The dollar was convertible into gold at a fixed rate. We still printed more dollars than there was gold.
You have the causality backwards. We left the gold standard because we created too much currency and were facing a run [1].
[1] https://history.state.gov/milestones/1969-1976/nixon-shock
The point is it was always broken. I wrote a comment in response to someone describing the 19th century as some panacea of monetary stability. It wasn't [1].
The anomaly isn't the 70s or 80s. It's the post-War era of the 1950s and early 60s.
If you're wondering why everything in society outside of technology is getting worse and being replaced with cheap substitutes, you need to look at the money itself.
Read Walter Bagehot's Lombard Street, published in 1873 [1]. It's the treatise by arguably the world's first modern central banker. What makes it neat is it's entirely on the gold standard.
Britain, on the gold standard, still faced each of inflation, bank runs and credit crises. It was an imperial military power almost constantly at war. And yes, its contemporaries lamented its industrial consumerism and rising inequality. (And that's Victorian Britain, mind you!)
[1] https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_...
It turns out that interest rates are still manipulated by banks and governments whether it's gold or something else. The difference is that at least under gold there's constraints and a price to be paid for debasing.
The hippies made a choice in the 60s and humanity stuck with it.
Resistance is futile.
The world hit a limit in the rate of energy production, but governments wanted (depended on?) continued growth, so various mechanisms overspending were pursued.
The result was inflation, which surfaces everywhere and affects everything.
In other words, if I pick a random year since, perhaps, 1950 and try to find charts where that year is an inflection point, would it be different to 1971?
* Money valuation (vs. gold-backed value)
* Property valuation (vs. last transaction price)
* Stock market (speculation and perception)
* Individualism (perceived self-worth)
* Sexual revolution (vs. stable atomic family)
* Birth control (vs. unplanned family)
Everything got fluffy.
The US ended its trade embargo with China. The US dollar flooded European markets. The Vietnam War. The 26th amendment to the US constitution was passed, lowering the voting age. Women really entering the workforce.
Also, president Nixon announced that the US will no longer convert dollars to gold at a fixed value, and with this, froze wages, prices, and rents for 90 days.
Many things can point to this crucial economic change that all culminated around 1971.
"James D'Angelo (Winner 2014 MIT Climate CoLab, ex-NASA scientist) uncovers a crucial flaw in American democracy. Incredibly, the solution – which lays at the heart of all current social concerns (inequality, the recession, political division, government disapproval, Citizens United, civil rights and corruption) – costs under 5 dollars.
James presents a breathtaking new look at congressional transparency and the troubles it has wrought by opening the doors to special interests and the wealthy.
So, welcome to the world of Martin Gilens' 2014 paper and flatline graph. Also welcome to the world created by electronic voting machines and the Legislative Reorganization Act of 1970 (passed on October 26, 1970). Unheard of in any current political discussion, this act of Congress has produced endless avenues for lucrative lobbying of special interest groups."
The Cardboard Box Reform - Nixon's Ghost Bill & A Crucial Flaw in Democracy
Those two events disenfranchised the working man in the US.
There’s a clear through line from what that cruel, despicable man put to paper that year, to the incoming presidential administration in 2025.
The 2010 Citizens United decision cited a case with precedence that Powell wrote the majority opinion on (First National Bank of Boston v. Bellotti).
And it worked really well.
In short it was probably mainly the neoliberal turn.
TLDR: wages in 2025 are roughly comparable to wages in the early 80s
But yeah, it was the "gold standard" and not the collapse of the labor movement, there's nothing stopping us from taking back the value of labor except it comes out of the pockets of our oligarchs.
How are you cutting it off that cleanly? How about this: pick a chart and I'll find the data. We can then look at the numbers and see if something significant happened in '71.
However, what is seen in these graphs is several data series diverging after 1971-1981.
The only suspicious thing is pinning it on 1971 specifically.
Note that all the divergence charts cut off at WWII. (The lines that don't show regressions to a mean.)
The charts highlight a problem. They just finger the wrong cause.
"Scare quotes"? Random Italic for emphasis?
