What exactly (as if anyone can know) caused the wage growth and productivity to split in the 1970s?
Was Nixon's complete split from the gold standard a factor at all?
Was Nixon's complete split from the gold standard a factor at all?
Caveat: I have a degree in Economics and learned about this stuff, but I am not a historian and could probably do well to be corrected at some points below.
Pre-1971, the only way to create more currency was for the president to issue a new gold peg, which caused chaos when people would be trying to exchange USD for gold before the new peg came on. FDR literally made holding gold illegal because of the issues this caused.
What you see pre-1971 to post 1971 is a large increase in the money supply, allowing more investment and higher inflation, along with easier exchange with foreign currency (easier for them to invest here, too). Other factors are the advent of technology making human labor less necessary and a transition to a knowledge economy (fewer employees earning more money). On the other end, due to the end of gold convertibility, foreign steel and the oil shocks were also caused by a move toward free trade (the embargo had as much to do with Israel as it did with a change in oil pricing from USD to gold coupled with a surge in inflation of the USD).
The controls, liquidity of global capital, and action of the central banks that maintain price stability, end up suppressing wage growth.
So we have a world in which rather than the debtor’s paradise we had in the 70s, we have a creditor’s paradise now.
They need investment predictability, and can make up the difference with scale and global arbitrage.
From the other perspective, if your wages don’t rise, and your debts are there and your debts — particularly the student debts — are guaranteed by God himself that you can never default on them — you’re a debt peon.
A lot of people forget several billion people have been lifted out of extreme poverty over the past 45 years. These people compete against you in the global marketplace and affect the prices we pay for goods and services.
Productivity in jobs that are amenable to automation exploded, concentrated in fewer jobs than would exist without automation. Productivity in jobs that are't (or are less) amenable to automation didn't explode but there are plenty of people competing for them.
Without any strong, organized resistance to Capital owners, they were free to redirect more and more of the profits from productivity gains to themselves. The resulting disparity created a kind of feedback loop that further entrenched the power of Capital owners, as some of the excess wealth they now possessed could be put to use subverting the American political system to serve their interests.
And, if so, what is special about the American workforce in particular that they have such an effect on the entire world?
TL;DR 3 Things, in increasing order of magnitude:
- The increasing share of GDP going from labor to capital
- The "terms of trade", ie, how labor's share is measured, FTA: "the same growth in nominal, or current dollar, wages and output yields faster growth in real (inflation-adjusted) output (which is adjusted for changes in the prices of investment goods, exports, and consumer purchases) than in real wages (which is adjusted for changes in consumer purchases only)."
- a much bigger slice of the pie: inequality in compensation, ie, average compensation has risen dramatically, but median compensation has stayed flat. Basically executives have gobbled up a healthy portion of the income.
No, it wasn't.