Also note this rebuttal:
https://singlelunch.com/2023/09/13/the-bad-economics-of-wtfh...
With related discussion here:
So, if the productivity-wage divergence is simply a reflection of US healthcare costs, how does that chart look for other countries where healthcare doesn't glue itself to employment?
Yeah, I got up to here and stopped reading. Not really an honest attempt at debunking this data, just handwavey "it's all health care costs and its stupid".
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-...
I don't have the background to properly evaluate either the site or the rebuttal. My only feeling is that the rebuttal makes a good general point about "bullshit asymmetry" and cherry-picking statistics.
Why is the rebuttal 'naive' but the site not?
Oh, the site is definitely cherry picking and I wouldn't take any one chart or data point as meaningful.
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".
So the rebuttal is basically agreeing to everything except from exact timing.
Cool.
The timing is the whole point - original website is trying to blame everything bad on dropping the gold standard, which happened in 1971.
Are they really blaming it on that or is that what the typical (inferred) explanation is? Clearly things started going wrong economically around that timeframe.
Yeah I think the sites broader point is that a lot of indicators of the health of American society start trending definitively down with an inflection point around 1970. The fact that the U.S. went off the gold standard on 1971 might be related to that but it's clearly not the sole causal factor.
Yes, they are really blaming that. If they wanted to blame energy prices, they would have said "WTF happened in 1973?"
There are a bunch of potential explanations for "WTF happened in the early 70s", but only one for "WTF happened in 1971".
Something forced the US off the gold standard. We can all have a sensible discussion about that without getting hung up on the wisdom of collecting pretty rocks.
I think you're talking past each other. Yes, something happened. The website has a particular vision about what the root cause was (moving off the gold standard), and some people here disagree with it. That website is often quoted by gold and (even more often) bitcoin enthusiasts. In this context the exact year is important because it's fundamental to the thesis the website is trying to make.
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.
> Something forced the US off the gold standard
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
So the US government, for example, funded a war in the 1960s by simply printing dollars and not making a good effort to collect the same amount in revenue. This provoked currency market crises that led to suspension in dollar convertibility. That's simple and obvious.
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".
> the US government, for example, funded a war in the 1960s by simply printing dollars and not making a good effort to collect the same amount in revenue. This provoked currency market crises that led to suspension in dollar convertibility
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-...
The first email was sent in 1971
So what's the rebuttal blaming then?
The rebuttal is something like "things are complicated, large scale societal trends are always rough descriptions of reality at best and can never be reduced to a single 'cause'"
do you think that would be the case if you had a supercomputer with billions of GPU clusters trained on every single digital data ever generated by the people involved in the study?
See also this analysis that brings up trends that (e.g.) started in the 1960s:
* 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...
Unix epoch, everything before that is pre-cyberhistory.
I agree with the rebuttal that the site seems to conflate economical developments with changes to social norms without any reasonable connection.
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?
Websites that want to push a narrative should spell out their narrative (the WTF one). This website cannot have been up for this long without having a narrative.
My understanding is that it's meant to push the gold standard/anti-fiat currency, judging by the quote at the end of the website + link to Bitcoin whitepaper.
I think it's clear they aren't really sure; putting up a bunch of quasi related charts points to a desire to facilitate a discussion.
The site is titled as a question specifically asking about a particular year. If you have rudimentary financial history knowledge, then you would be aware that 1971 was the year Nixon took the US off of the gold standard.
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.
Stagflation in the 1970s was primarily caused by unforced domestic economic policy errors, not by the Arab Oil Embargo. There was never an actual shortage of crude oil. Those errors were largely related to failed attempts at economic central planning; the gold standard or lack thereof had little to do with it.
They are very sure. There are lots of different things that happened in the late 60s and early 70s through to the early 80s that substantially affected the economy. Focussing on 1971 makes it clear that they think only one of those is significant.
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.
> Focussing on 1971 makes it clear that they think only one of those is significant.
Yeah it's clear the authors are talking about the War on Drugs.
It's a classic way of pushing narrative without actually spelling it out - it's supposed to set up biases so you can later find out that Bretton Woods system reached it's inevitable collapse in 1971 and the bias will make you accept the narrative of "sound money" proponents so that you'll believe in bitcoin and similar "digital gold" (that term dates me, doesn't it?) systems as solutions for toot cause of all the woes around you.
Another "inflation good, deflation bad" repeater robot. Opinions, meet garbage.
No you don't get it, its totally cool to let the government unilaterally expand and contract the money supply by trillions of dollars with a single lever.
> its totally cool to let the government unilaterally expand and contract the money supply by trillions of dollars with a single lever
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_...
> inflation, bank runs and credit crises
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.
> Credit and fractional reserve banking are the creators of these problems
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.
That's also true. Society is addicted to it. Credit doesn't just enable exponential growth, it demands it due to its compounding nature. Without it, development is too slow and economic defeat is inevitable. With it, the planet's resources are consumed unsustainably. We are damned no matter what we do.
> Credit doesn't just enable exponential growth, it demands it due to its compounding nature
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.
Credit doesn't demand growth. It is completely viable in a steady state economy. You just need a loss elsewhere to offset it.
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
How could credit not demand growth? People are literally enslaved by it. They are driven to extract value from the world in order to pay back the debt plus interest.
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.
Im not sure we are speaking the same language. It seems like you are fixated on some specific situations outcomes, not the concept of credit itself.
The USA eliminated fractional reserve banking many years ago. Bank lending is limited by risk analysis and capitalization, not deposits.
> USA eliminated fractional reserve banking many years ago. Bank lending is limited by risk analysis and capitalization, not deposits
It's still fractional-reserve banking. We just use better metrics than multiply reserves by number to get notional loan value.
Perhaps we're just arguing over semantics but the Federal Reserve no longer uses the term "fractional". Their current policy seems to be qualitatively different (and better) than what is traditionally defined as fractional reserve banking.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
> the Federal Reserve no longer uses the term "fractional"
The Fed would absolutely still argue our banks are fractionally-reserved. There just isn’t a reserve requirement. (It’s replaced with capital requirements.)
>We've been trying to solve inflation for millenia. As frustrating as it sounds, we haven't found the solution.
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.
> the US dollar was worth as much at 1900 as it was at 1800
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 "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.
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.
The last 50 years have seen no new American territorial expansion.
Also, per-capita GDP was almost flat for the late 19th century. GDP grew because of massive immigration.
> 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%
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...
The Panic of 1873 and the Long Depression seem to directly contradict you on that. The crashes were maybe not as large but that's because the economy of 1873 was an order of magnitude smaller than the economy of 1929.
No, they were smaller in relative terms too (as a percentage of GDP). The Long Depression wasn't even a real depression in modern terms because GDP kept growing throughout it.
> they were smaller in relative terms too (as a percentage of GDP)
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://...
> there weren't any financial collapses in the 1800s comparable in magnitude to the Great Depression or Global Financial Crisis.
Oh yes there were. Go look up the Panic of 1837, Panic of 1857, Panic of 1873, and Panic of 1893.
> America solved it in the 1800s with commodity money; the US dollar was worth as much at 1900 as it was at 1800
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_...
I think if we need the big bad lever, it should at least require congressional approval.
The economy is enough of a mess as it is. Do you want to give Congress control of it? No thanks.
You mean the people we elect to create policies?
No, Congress is the ones we elect to create legislation. The executive branch hires people (hopefully experts) to create policies.
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.
> if we need the big bad lever, it should at least require congressional approval
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_...
Congress already manages the budget, another bomb, but year after year, they get over themselves and raise the debt ceiling, so yes I think they can handle approving changes to the amount of credit in America.
> they can handle approving changes to the amount of credit in America
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 don't understand your point, the Fed is a creature of congress and its members are selected by both the legislative and the executive, but we cede enormous power by giving board members giant terms which gives them defacto independence which is insane since they have the power to make me default on my mortgage tmrw. Monetary policy is policy and all policy should go thru congress. If congress is being useless, vote them out.
The Fed makes decisions for technical reasons, not political ones. That's a feature, not a bug.
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.
How can they make you default on your mortgage? Your payment is made of 3 things, the home loan, property tax, and home insurance. The Fed influences mortgage interest rates by adjusting the Federal Funds Rate. Even if it does impact mortgage rates, it would only affect the extremely small subset of people with variable rate loans.This still only impacts the home loan, not insurance/tax.
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.
> 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.
> a board that is virtually unfirable
Trump fired Yellen.
I assume they have a floating-rate loan [1].
Yeah, that's what I meant by variable rate, but ARM is the appropriate term. Thanks.
> Monetary policy is policy and all policy should go thru congress
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.)
> Should the Congress also make play-by-play battle calls in war?
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.
> thats obviously the executive?
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...
Ur obviously twisting my words, I'm colloquially referring to our republic by calling it a democracy, if I was for direct democracy, I wouldn't support congress.
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.
Frankly we don't even need currency to begin with.
Related:
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)
Weren't there a bunch of discussions about what happened in other years, or is it all 1971's fault?
I doubt that it's a single action that sustained four+ decades of impacts. More likely this is the concerted effort of capital to continually reign in threats.
Why not?
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".
Why not the Volcker shock? I think there's stronger evidence for persistent effects there.
Regardless, I see systems analysis as more productive here than root cause analysis.
Part of the population believes one of the other, with a split somewhat correlated to the market cap of bitcoin. The article is an advertisement for bitcoin as the solution to fiat, the cause of all the world's problems (sic).
This comment should be pinned at the beginning of the thread
You're missing one of the single greatest factors which is that shortly after that time, executive compensation became wholly disconnected from worker compensation. If executive compensation were tied to average employee compensation, I think you'd find a course correction in short order.
https://en.wikipedia.org/wiki/Executive_compensation_in_the_...
All sorts of inputs and outputs were disconnected from each other around that time. Executive compensation is just yet another thing to put on the list.
But that's a "be careful what you wish for" observation. I mean, obviously it prompts the question of why executive compensation grew so fast.
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.
Why doesn't this logic work for all the staff? You need staff for your VC-backed startup as well, don't you?
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.
Because good candidates for normal staff positions are not independently wealthy. Good candidates for executive positions tend strongly to be, having proven their value by bringing up some other startup. Hiring away someone with a net worth of $100M with a salary that is merely 10x or whatever of your employee compensation doesn't work. You need to cut a bigger check.
The VC-based startup money engine was much smaller in 1971.
There were very few executives rich from an exit.
So was the effect. The change in 1971 was an inflection point in the first derivative.
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!
You’re saying when executives compete, their average salary goes higher, but when workers like us compete, our average salary gets smaller?
I... said nothing like that at all? Not sure how you interpret that from what I wrote. (Also btw: average salaries for works are NOT GETTING SMALLER and I remain absolutely dumbfounded that people continue to believe this lie). Rephrasing:
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.
When companies compete to hire top executives, the cost of hiring those executives goes up. Just like with athletes or musicians.
I think that is a reasonable conclusion. We don't need state imposed minimum wage and benefit laws for CEOs.
Wages aren't set but effort or value creation, but by marginal benefits of salary
I'm not sure exactly what principle you're trying to cite here, but as I understand the words that's wrong. "Value creation" is the only point to paying anyone to do something in the first place. You pay people to do work from which you hope to get value.
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.
yes, you pay someone because you derive value from their work. How much you pay them is a question of marginal cost/benefit, not total value.
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.
> a question of marginal cost/benefit, not total value.
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.
Yes, value and benefit are synonymous, but in reference to different objects/choices. There is the financial benefit that doing the work provides, and the financial benefit of paying more.
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.
How would that work practically if executives are getting paid in equity at various points in time? All the employees get options and RSUs too when the executives get them?
Yes? Employees should have a vested interest in the financial success of their company, and an ownership stake. 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.
That worked quite well prior to robber barons looting and pillaging, declaring bankruptcy, and screwing the workers out of their pensions.
>Employees should have a vested interest in the financial success of their company, and an ownership stake.
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.
>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 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.
GP didn’t claim that the ownership of some stock caused the burger flippers to fuck off. They instead claimed that whether or not they individually did, that it didn’t make the stock move one way or the other.
You withhold the shares until after a waiting period. You stay a year and don't screw up royally, you get invited to the employee participation program. Imagine that? Give the poor something to look forward to? Preposterous, right?
And then they give that stock price is mostly vibes based had little relation to performance, and it's unreliable monopoly money unless you happen to own a lot of it so it can be collateral in a loan.
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
Sounds good to me.
Sounds fucking awesome to me.
So simple you solved it before you finished writing
This was a direct consequence of asset-backed currency being converted to fiat currency unleashing the stock market and the creation of new money at will.
And of course the reason is that when fiat currency is institutionalized, interest rates drop because money is plentiful since it's being freely printed to fund anything and everything. Interest rates reflect the scarcity of money. Now money is funneled into the stock market by people seeking yields.
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.
Well, most benefit by an enormous margin goes to real estate owners, since the money gets created with home purchase loans. The stock market is peanuts in comparison.
Sorry, but the numbers for that simply don't work out.
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.
It obviously can't explain where the actual money is going, but it potentially can change the way CEOs behave in a way that changes where money goes.
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.
A dollar is worth about 30 cents. That's what has happened.
> executive compensation became wholly disconnected from worker compensation
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...
Could someone replicate this feat by creating a "WTF Happened in 19XX" website for any year in the 20th century, then combing through thousands of charts and graphs, and picking only the ones where there was a change in 19XX? Or was 1971 truly a special year?
Looks like among other things this one is leaning on a lot of economic trends that started in the 80s and hoping if you draw an arrow to the 70s no one will notice.
Most economists date the big breakdown in real gdp vs real median wages to have started in the 80s.
It's not exactly what you're suggesting, but Spurious Correlations is great fun: https://www.tylervigen.com/spurious-correlations
If you limit the analysis to the context of the USA then it’s definitely true that some years are more consequential than others. 2007 was more consequential than 2002, even though there were huge geopolitical machinations ongoing in 02. I imagine this discourse would turn into a “well actually” circus though lol
This author didn't even pick ones where there was a change in 1971. A lot of them have an arrow pointing to nothing special.
What is definitely true that there are many, significant indicators which see similar behavior.
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.
The divorce of wages and productivity is real. You can pick any year in the last 40 and the trend will be very evident.
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.
Considering the number of graphs on this website where it's immediately clear that 1971 wasn't the inflection point (in many cases, it's actually around 1980), it's not hard to make this for any other year, especially if you don't care to make it all that convincing.
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 mean, the whole point of the site is to highlight what the Nixon shock left in its wake since 1971. It truly was special in that regard.
I'd highly recommend reading the book "Broken Money" by Lyn Alden for understanding the dynamics of what played out.
I'm not from the US but I looked up the presidents from that era and found that there's a period from 1969 to 1993, starting with Nixon, where the only Democratic term was Jimmy Carter. Twenty years of Republicanism and 4 years of Democraticism! The best us Brits could muster is 18 years of Conservatism between 1979 and 1997. Don't get me wrong though, we've managed to destroy our economy just as badly.
Congress was entirely controlled by Democrats for longer than that, I think 1956 to 1994. The US has liked divided government for a long time.
Wow, and Democrats controlled both houses for the entirety of Nixon's term. He must have been quite a diplomat for all his shortcomings. Makes sense why a lot of his key acts were actually quite progressive for the environment and workers' rights. I had it in my head that the US system allowed for more executive power than the UK's, but I guess it really depends on the outcomes of lots of different elections.
It was special in some respects, namely it marked the end of the gold standard in the US, which likely had an impact on many of the charts on the website. Undoubtedly other things happened during the 70s which also impacted on those charts but the quote at the end demonstrates that the gold standard is clearly what the website is trying to bring attention to.
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.
"In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Egypt and Syria launched a large-scale surprise attack in an ultimately unsuccessful attempt to recover the territories that they had lost to Israel during the 1967 Six-Day War. In an effort that was led by Faisal of Saudi Arabia,[1] the initial countries that OAPEC targeted were Canada, Japan, the Netherlands, the United Kingdom, and the United States."
What's more, even without this embargo the era of cheap energy was largely over by the mid 60s, as oil's Energy Return on Investment fell to a fraction of what it used to be:
https://www.mdpi.com/sustainability/sustainability-03-01866/...
Which has nothing to do with this, since all the graphs show divergence in 1971, 2 years prior.
> all the graphs show divergence in 1971, 2 years prior
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.
It's pretty common for a big event's effects only to show a bit later.
I don't think it's only the gold standard though, no.
I remember this was related to Reagan and Thatcher's policies. Essentially, it was more about concentrating funds and redistributing them. Those working on the distribution side, such as in finance and technology, benefited greatly.
My favorite theory for the leading cause of the inflection in the early 1970's is energy prices.
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.
My favorite theory is that it's related to zoning, permitting, and the urban built environment. What happened in the early '70s is that many of the US's major cities saw broad downzoning which compounded the effect of urban flight to suburbs, urban renewal, and the construction of freeways in cities which started the decade prior. This ensured that the traditional productivity gains of cities could not be shared as equally any longer. It led to a lower labor share of income (higher share to rent/land) and longer commutes for suburbs which effectively lowered their share of wealth. Productivity gains since have mostly went to increasing economic rents for land owners and monopolistic capital owners. After California's Prop 13 in 1978, many other states followed with their own property tax caps in the late '70s and early '80s which led to even more of the share of economic gains going to property owners.
Hunter S. Thompson went to a conference in the oil industry around this time where people were panicking that the US was about to experience an "oil peak" but was told by his editor to sit on the story.
Note the global monetary system was completely reorganized, not least to enable large scale exports of oil from peripheral countries to the core:
> 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.
There were not enough gold backed dollars to support greatly expanded trade. Increased trade in oil was the straw that broke the camel's back in my opinion.
If productivity increases are driven by capital investments, why should the workers capture any of those benefits?
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?
Are you saying wages should be tied only to the difficulty of the work and not the value the labor produces?
No, but if the auger doesn't require any kind of specialized training to use (is mostly just point and click), I'd imagine it would be easier to find someone to do the work for you, versus finding someone to dig an equivalent amount of holes with a shovel.
The value that the work produces is not necessarily a property of the worker.
It may also not be a property of the ceo who bought the auger. If it’s obvious to everyone that augers are the way to go, he didn’t bring any specific insight to the table. Why does he get all the reward?
Idk, because the company incentivized him to increase productivity?
Who said anyone would ‘get all the reward’?
We’re talking about the resultant profit gain from productivity improvement, and how GP didn’t think the worker necessarily deserved any of the share of the value returned from that increase.
So how does this relate to the notion of any party getting 100% of anything…?
The party that should get virtually all of the benefit should be the consumer.
Huh? I don’t think anyone should get 100% of anything. In fact that’s largely the point I’m hoping is self apparent through my line of questioning (that productivity gains should result in bounty for everyone — for the leaders who had the good sense to buy augers, sure, but also the workers using the new tool, and of course the share holders who provided the capital).
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.
Your questioning a point raised by yourself?
I just don’t see anyone else claiming it or even mentioning it prior to that comment.
Alright I feel like you joined a conversation late and then didn’t want to scroll up the page to see where it started.
I wasn’t even talking to you.
I believe I read all the prior comments.
If you believe I misread something, then quote or link the relevant comment.
This is actually a coherent and legitimate argument rooted in objective data. Often you don't really get that when supporting what is not a popular position. People who support unpopular positions generally ignore data. (As do many others. At least most people ignore any data that disagrees with them.) You've taken the basis of the supposition, productivity, quantified it. Attributed it. And argued that income should follow attribution. Bravo.
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.
“Should get paid less” is the obvious value judgement from the employer’s perspective. Nothing subjective about it if we assume self-interest.
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.
“Should get paid less” is the obvious value judgement from the employer’s perspective. Nothing subjective about it
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".
Working the backhoe requires more skill than shoveling and can command a higher wage. You want to more carefully vet and care for the person driving your expensive equipment. Also you had an engineer to design the backhoe and factory workers to assemble it who are getting paid during this process. It's possible that the net wage per hole dug goes up as a result.
Exactly. There is no reason to pay them more.
(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.
If all companies do that, who is going to buy their products?
It doesn't matter because the capital has grown and can be exfiltrated by then, periodically raising the stock price in the process as you "divest" the company of "unnecessary" parts.
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.
Once someone owns their fiefdom and can protect it with robots and everything is automated...?
Then consumer capitalism obviously doesn’t matter any more.
The basic Econ answer is that there is a limited supply of labor and firms will raise salaries in order to attract labor and capture more profit from the increased productivity. From that perspective your question is similar to "My product got 10x cheaper to make but customers still experience the same benefit so why should they pay less?" In both cases the simple capitalist theory answer is markets.
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
> If productivity increases are driven by capital investments, why should the workers capture any of those benefits?
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.
Also, I have a pet theory that an increasing ammount of labor is being used to produce and service capital and infrastructure itself, as we transitioned to a service and knowledge economy.
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.
That "Show GenAI's made-up explanation" option is one of the best application of LLMs since the hype train started chugging
> Reminder: This paper is AI-generated. Not real!
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.
Seems totally unrelated.
There are plenty of graphs on there that have nothing to do with the Bretton Woods Standard's end. Divorce rates are a good example which are a much more likely result of no-fault divorces becoming a thing in the US in 1970.
This crypto website somehow goes viral every 6 months and I have no idea how they do it
Basic screaming-at-your-face statistics, gets traction, specially coupled with the mental gymnasts trying to "disprove" facts, shouting "spurious correlation" when the implied causation is clear... Paper money is nothing new and this is nothing short of expected. The only surprise is people's surprise.
Given the scale and variety of transformations in the 20th century - technological revolution, mass urbanization, the integration of billions of new workers into global markets, nuclear weapons, mass media, environmental change, and unprecedented population growth – it would be very surprising if all the graphs just maintained linear trends the whole time. Many of these graphs appear to show continuations - though perhaps at inflection points of exponential growth – of trends already taking place.
Start of the unix epoch obviously.
I also like the ISO standardization of shipping containers explanation.
It's called the Nixon Shock - https://en.wikipedia.org/wiki/Nixon_shock
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.
> which in turn led to the Oil Shock of 1973-1974
The Nixon Shock caused the Yom Kippur War that sparked OPEC's embargo of America [1]?
> 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.
> the Nixon Shock was the force supplying the tension
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...
> More than the aftermath of the 1967 Six-Day War?
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 prices, which account for inflation, do not show the Nixon shock. Maybe you think the nominal prices should be adjusted some other way to show the Nixon shock?
Real prices account for CPI, not the dollar's fall against international currencies. From our perspective, the Nixon Shock appeared to have little effect. That wasn't true for our trading partners.
> Real prices account for CPI, not the dollar's fall against international currencies
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.
> The Nixon shock did not have an effect on real oil prices for OPEC members.
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.
What method of adjusting oil prices do you propose. What does the graph look like when adjusted with this method?
the end of bretton woods and the gold standard. Instead of Gold the the US could pay other countries with self printed paper.
More than that, the first oil crisis gave the ruling class the go to break the postwar consensus and start dismantling the social contract
How did the oil crisis give them "the go" to start dismantling the social contract? I don't see the connection at all. Unless you mean "a random unrelated thing that they could use as an excuse"? If that's the case, then it's just an excuse, not a reason.
It is fair to argue that the oil crisis acted as a catalyst rather than a root cause for dismantling elements of the social contract. The crisis illustrated vulnerabilities in the postwar economic order, provided a convenient pretext for shifting economic policies, and exposed a population that, for various reasons, was less unified and mobilized than in earlier decades.
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).
You see a constant growth, and then a plateau, and then divergence.
But yeah, a reason, an excuse, I meant the same.
Yeah, that makes a lot more sense than the end of the gold standard. Brenton Woods was hardly a real gold standard anyway. The real gold standard was abandoned in the 30s (for good reasons).
A lot of these charts also actually do seem to diverge at '73 rather than at '71.
The rebuttal says most economist (and charts, when you get enough resolution) place the break around 1978-1980
I can see that. I think it is difficult to actually pin down to an actual year. But definitely a bit after 1971.
The only people asking for the return of a gold standard are those who are hoarding large quantities of gold. Ironically, the only reason they were allowed to hoard this large quantity of gold was due to the end of Bretton Woods which also ended the government's incentive to control the price of gold.
How do we even go back to a gold standard correctly? I've heard it said that it would potentially ruin the economy, so how would one even do it? Do you just start printing bigger denomination bills as silver / gold certificates? I still have a "Silver Certificate" $5 bill somewhere...
Those who don't like something always say it'll ruin the economy. They probably did that with the 5-day week, the 40-hour week, vacations, parental leave, overtime pay, etc.
It never quite happens.
The gold standard era was full of crises
> The gold standard era was full of crises
E.g.,
* http://archive.is/https://www.theatlantic.com/business/archi...
America is still on the gold standard in that you can theoretically exchange an American Gold Eagle worth $2800 for $50 at a bank. What the end of the Bretton Woods is really means is that the government is unwilling to sell you an oz of gold for $50 anymore. A law that mandates the government to shoot itself in the foot is a bad law.
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.
> What the end of the Bretton Woods is really means is that the government is unwilling to sell you an oz of gold for $50 anymore
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 mechanics of it are pretty simple: Congress passes a law setting an exchange rate or causing the treasury to do so, then the treasury starts exchanging dollars for gold at that rate. I'll leave whether that's a good idea to people who actually study economics seriously; most of them seem to think it's not.
No, but there's a good reason they did this. The US would have run out of gold if they kept the gold standard. Due to the trade deficit, all the exporters would eventually drain the gold supply since gold is seen as better and the thing to be hoarded.
Also, the rise of zionism in america. And the opening of ties with china ( 1971 was when china joined the security council ).
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?
If you search for images of "moore's law history", the y-intercept of the vast majority of the charts is 1969-1971.
Could the microprocessor explain, in part, the divergence of productivity and wages?
I believe it is the most plausible explanation. Microcomponent electronics and later microprocessors made workers more productive.
I would like a study that presents all this graphs (separately) to people and have them choose the inflection point. They would not all be on 1971. Some are very clearly a different year or just a gradual change.
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.
These graphs depict indicators with varying lead and lag, so of course you'd get a spread. Doesn't mean they don't share a root cause or set of causes.
In the last paragraph, the author of the post you are replying to is saying something entirely consistent with what you are saying here. The title of the article, on the other hand, is suggesting something less nuanced, and ks2048's main point seems to be that putting arrows on the charts at 1971 does nothing to support the view that a singular tipping point occurred in that year.
Ah, but it does, if you just understand a single thing about economic indicators. Context matters. We could rehash every minor news story into a longform essay or we could use what we already know to interpret what's being presented here.
I agree, but the goal of the site (the title and the arrows) is to bias you AGAINST a "set of causes" and towards one particular event in a particular year.
Economically the US left the gold standard which meant currency could be created by the central bank. This caused inflation to rise but also meant that more capital could be raised in the economy, which wasn't as easy to do when the amount of dollars were fixed. Double edged sword kind of thing.
The US left the gold standard well before 1971. Central banks do not create currency, they create bank reserves. There is no indication that it drives money creation. Let me know where I can spend bank reserves to buy goods and services. Money is created from banks, and mostly done so off-shore away from the purview of the central bank. https://en.wikipedia.org/wiki/Eurodollar
What do you mean? I thought the US dollar was fixed to gold between WWII and 1971:
> 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
> thought the US dollar was fixed to gold between WWII and 1971
The dollar was convertible into gold at a fixed rate. We still printed more dollars than there was gold.
> the US left the gold standard which meant currency could be created by the central bank
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
Yes, and breaking that final gold-dollar link to fix the overspending issue caused productivity to be disconnected from the money supply, thus allowing more of the value capture to happen to those who could create equity or be loaned money.
> breaking that final gold-dollar link to fix the overspending issue caused productivity to be disconnected from the money supply
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.
The gold standard disincentivizes consumption, and incentivizes savings. Plain and simple. Of course corporations love consumerism, and that's what the central bank fiat regime has enabled: wanton consumption and dwindling away the wealth of society.
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.
> gold standard disincentivizes consumption, and incentivizes savings. Plain and simple
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_...
Thanks I came across Walter Bagehot in the book Price of Time which looks at interest rates and money throughout history.
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.
> which meant currency could be created by the central bank
... but note that most money was already at that time created by commercial banks through loans (a fractional reserve system).
From all charts, the most intriguing to me is the one comparing the median male and female income.
https://www.computerhistory.org/timeline/1970/
The hippies made a choice in the 60s and humanity stuck with it.
Resistance is futile.
First affordable commercial single-chip microprocessor?
I long ago noticed the early 70's divergence of income inequality. I didn't realize that there was a Breton-Woods angle that some were pushing. I have no comment on that. I have always thought this was more closely related to the clawing back of higher tax rates on high income, which certainly helped set the conditions for higher executive compensation.
The Heritage Foundation was started in 1973 and they've been pushing their stupid agenda ever since, so maybe that played into it.
This is why we have Bitcoin.
This is why we had Gold and this is why we now have Bitcoin.
"Energy and real GDP per capita, aggregate figures for G7 countries" seems the most telling to me.
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.
The end of the Bretton Woods system is basically the turmeric of macroeconomics.
I ran across this theory years ago about a piece of legislation in late 1970 allowed lobbyists into previously closed door committee meetings, thus allowing lobbyists to assert direct pressure on congressional members. The second video is from the same guy but is rather long and goes into this idea that transparency in congressional committees is a counter-intuitively bad idea because it allows lobbyists to proactively apply pressure before anything ever gets to a floor vote.
I don't understand a thing about most of the subjects depicted in those charts so I can't discuss their contents. But couldn't it be another case of confirmation bias and correlation not implying causation?
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?
was thinking the same. seems like a nice bunch of spurious cherries picked by typewriter-wielding bardmonkeys
End of the gold standard in the US
I mean, the early 70's saw some incredibly pivotal policy changes.
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.
WTF is up with that site, which is just a pile of charts with no analysis?
I think this group will appreciate this guy's analysis.
"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
Whether you agree with him or not, he makes a very strong case against transparency.
Basically, the world transitioned from “real value” to “perceived value”:
* 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.
In 1971, the US withdrew from the Bretton-Woods agreement. In 1973 we had the oil crisis: Net production in western countries had peaked and governments switched over to importing oil from OPEC.
Those two events disenfranchised the working man in the US.
That’s easy to answer, The Powell memorandum. https://en.m.wikipedia.org/wiki/Lewis_F._Powell_Jr.#Powell_M...
There’s a clear through line from what that cruel, despicable man put to paper that year, to the incoming presidential administration in 2025.
I'm really surprised more people don't know about the Powell memo, considering it literally describes the headlines we're seeing in the news now, attacks against higher education as 'liberal indoctrination' are all over the place, see what Chris Rufo is doing, and the reaction to the protests against the war in Gaza. Or look at book bans, or whatever.
The 2010 Citizens United decision cited a case with precedence that Powell wrote the majority opinion on (First National Bank of Boston v. Bellotti).
Too far down. That’s when business owners realize they couldn’t win votes for “hey vote for what the rich guy wants!” And switched tactics.
And it worked really well.
The NHTSA issued FMVSS 215, the 5 mph bumper regulation.
A lot of changed in the 70s. End of Bretton Woods, Nixon goes to China, oil shock, Southern strategy changes party politics, War on drugs starts, 1968 movements fail, FED turns to monetarism culminating in the Volker shock, Thatcher elected in UK (with Reagan shortly after).
In short it was probably mainly the neoliberal turn.
Dunno, but lots of these charts are really poor.
Hey, I was born in 1971!
So, this is all your fault?!
I was hoping you wouldn't see that connection.
I calculated historical American wages in gold terms if anyone's curious: https://github.com/argosopentech/American-Real-Wages
TLDR: wages in 2025 are roughly comparable to wages in the early 80s
The Pentagon Papers?
Grothendieck's disgust of the mathematics community also reached a breaking point in 1970!
Aid to Israel is mentioned as contributing to this supposed 1971 disaster. Combine this with the linked “discussions” referencing cryptocurrency and Zerohedge (a disinformation site) and yeah, no thanks.
Staggering charts.
In 50 years someone will make a website: WTF happened in 2020?
In summary: the capitalist class won the class war.
Capital class won and then convinced labor class that capital is more important for functioning economy even though you could create capital out of thin air in fiat era. then went on to divide, restrict and conquer labor. to me that about sums it up.
[dead]
Amazing that it all actually accelerates in the early 80s with Reagan who kicks it into overdrive with the collapse of unions.
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.
crypto fixes this /s
Meta question: is there a name the the psychological impact of putting an arrow on a random line where it really does make it look like that's an inflection point? Does this generalise beyond charts, e.g. to a narrative techique?
If your implication is that the red arrow is just random, are we not looking at the same graphs? I'll grant that it looks to be cherry picking on maybe a couple of the graphs, but clearly appears that something significant and non-random happened in the 1970-1972 period.
> clearly appears that something significant and non-random happened in the 1970-1972 period
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.
Sure, how about the first 2 graphs on the linked site?
In both cases the point of divergence appears to be ~1975.
Are we looking at the same graphs? To me, in both cases, there seems to be a clear change in the wage growth line right at 1971-72.
The only portion of the graph with divergence around 1971 in the first two graphs is the GDP line. The first graph is even worse -- the divergence is higher in the late 60's than it is in 1971.
Any graph of an exponential will look mostly the same regardless where you start on the horizontal axis, since it is scale invariant.
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.
> what is seen in these graphs is several data series diverging after 1971-1981
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.
Something like the Texas sharpshooter fallacy? (The idea being that the Texas sharpshooter proves he's good by shooting at the barn a couple of times, and then paints the target only after he knows where he hit).
Framing bias or perhaps attentional bias.
> Does this generalise beyond charts, e.g. to a narrative techique?
"Scare quotes"? Random Italic for emphasis?
