WTF Happened in 1971?

I suspect a lot of this is to do with the effective doubling of the full-time workforce.

To be clear, I'm NOT saying women being able to work full-time is a bad thing. But I DO think that average people have been totally fucked by the transition to 2 person incomes economically.

Prior to the 1970's, one middle class partner could bring in enough money to support a family, own a home, pay all the bills etc. Whilst at the same time having one person at home meant cost of living was lower and everyone had SIGNIFICANT amounts more free time.

Now, the average middle class family struggles to survive on two incomes and once mum and dad have both completed their 40hrs a week each at work, they both have another 20hrs a week of domestic responsibilities to complete in "their own time" that originally would have been done by the stay at home partner.

Women entered the workforce in large numbers almost doubling the labor pool across the 1970s. This instantly stagnated wages. Meanwhile, all the things those women were doing at home weren't free, so cost of living also skyrockets. Pretty soon the reasonable "right to work from home" becomes "go to work or go broke"

Welfare state kicked off in earnest and corporate taxes were increased to compensate while it was removed from your pay via wages not keeping up with inflation.

Related to welfare, 60% of people pay ZERO or NEGATIVE income taxes. Rich people are paying for all those negative taxes and taking it out of YOUR paycheck. Then, because they are paying most of the taxes, they are the people politicians actually listen to.

You are outright lied to about inflation. The calculations were changed in 1980 by the incoming Reagan administration to make it look like their policies were more effective than they actually were. CPI indicates that inflation from 2000 to 2020 was right at 50%, but if you look at price comparisons for stuff in 2000 and stuff now, they've generally gone up 100% or more. You can see these shenanigans represented in things like how the wholesale inflation index is currently 2-3% higher than the CPI rate. When your employer says "we're giving you a 2% cost of living because that's the CPI" and real inflation is actually 4%, this adds up over the years.

Finally, even after accounting for everything, almost everyone is STILL getting screwed relative to inflation. We as devs think we have "the good life", but we're generally making LESS than median salary adjusted for inflation compared to programmers 30-50 years ago despite being massively more productive.

My best hypotheses for the origins of the trends are (1) the change to how the US nominates presidents following the 1968 presidential election, (2) the aging of people who went through WWII together and felt a debt to the working-class people who fought the war, or (3) the SAT test, which allows smart working-class children to move into the professional class, rather than having them running unions and working-class social organizations.

My best guess is #1. The nominees for higher office are now chosen by popular primaries rather than by the party machine in a “smoke-filled room”. The party machine wasn’t perfect by a long shot, but it nominated qualified centrist candidates who could win the general election. Now, we have a “popular” election where only a small segment of the population votes, It is easier for special interests to influence. (Listen to the “No Compromise” podcast for how they do it.)

Theory #1 doesn’t explain everything, but it does explain how the US’s unfair healthcare system can cost almost twice as much as other developed countries and we struggle to fix it. The lack of a gold standard does not.

Since the debate at the end of WW2 that led to Bretton Woods, which currency or the Bancor would handle reserve currency functions, in addition to the petrodollar, the U.S. bond and treasuries specifically have been closely tied to this system. Also during the 70s, you had China begin opening up, then as a way to kind of solve the trifflin dilemma, the U.S. would grow the world economy being an importer, so long as the money found its way back with treasuries and other foreign investments. Japan began playing a bigger role here too and as everyone continued industrualizing and globalizing, the U.S. economy grew along with it because of this system. It was also a great way to sort of export inflation along the way too. A big problem in the 70s that we are seeing again today.

So if a big crash is coming, expect another Bretton Woods type agreement first with an attempt to control the strength of the dollar.

The difference this time is that there really isn’t another China to bring into this system, and in fact, many foreign countries have looked to avoid using USD all together. Just ask Russia about that.

Of course, these are just a few reasons for all of this. There are many factors, like the increase in productivity from computing, and advances in other industries that increased productivity and output.

Historically you will see patterns like this, similar ones exist between 1929-1945, 1864-1918, and so on.

Unfortunately, everytime this system is challenged, a sort of global reordering, there are economic crashes, and often large wars. We might be seeing another example of this now…

https://www.federalreservehistory.org/essays/gold-convertibi...

Probably related to this was US domestic Peak Oil was predicted to occur in 1970. Peak Oil merely means that 50% of a finite reserve has been used: there's another 50% still left but production will get more expensive and eratic. That was the year we largely switched to Saudi oil and the Arab Oil Embargo came only 3 years later. Before 1970, the US modulated the US dollar value with increasing or decreasing oil production/exports. In 1970 that strategy ended. Some believe that Saudi Arab and the countries that became OPEC realized they were now in control of the US dollar as reserve currency. Both the Six Day War and the Yom Kippur war combined with Arab nationalism led to flexing this power by OPEC doing the oil control the US had.

https://en.wikipedia.org/wiki/Hubbert_peak_theory

Here's a data point on the inflation that caused: the in-store menu and prices of McDonald's in 1972. Nothing over $1.

https://imgur.com/a/2lubC0D

This is also related to how bread prices never changed FOR CENTURIES until the 20th century with the big rise happening in 1970.

A lot of this also came from having no effective industrial competitors after WW2 and then being lazy through the 1950s and then screwing up with a very expensive wars in Korea, Vietnam and other places that were NOT funded by war bonds as in WW2 but were funded with deficit spending with no equivalent back-stop. In the 1950s and 1960s we were still using industrial technologies from the 1920s in terms of fundamentals like steel, aluminum, cars, etc. Germany and Japan had lost all their legacy infrastructure and had the advantage of starting from scratch.

Basically a lack of monetary and fiscal self-discipline.

Edit: games, process control, the follow-on PDP—11 which redid the phone system, and enabled Unix to explode. The need to follow DEC which brought forth the minicomputer business, …

Go ahead, explain 44B being spent for Twitter to somebody from 1971.

> The Nixon shock was a series of economic measures undertaken by United States President Richard Nixon in 1971, in response to increasing inflation, the most significant of which were wage and price freezes, surcharges on imports, and the unilateral cancellation of the direct international convertibility of the United States dollar to gold.

https://news.ycombinator.com/item?id=25188457 (2021, 454 comments)

https://news.ycombinator.com/item?id=20811004 (2019, 44 comments)

Reference: [1] Huff, Darrell. How to Lie with Statistics. Reissue edition. New York: W. W. Norton & Company, 1993.

"The time has come to ask what level of population growth is good for the United States. There was a period when rapid growth made better sense as we sought to settle a continent and build a modern industrial Nation. And there was a period, in the 1930's, when a low birth rate was cause for concern. But these are new times and we have to question old assumptions and make new choices based on what population growth means for the Nation today. Despite the pervasive impact of population growth on every facet of American life, the United States has never developed a deliberate policy on the subject. There is a need today for the Nation to consider population growth explicitly and to formulate policy for the future."

"The difference [between two-child and three-child American families] is important not simply because of the numbers but because it bears vitally upon a fundamental question about the Nation's future: Do we wish to continue to invest even more of our resources and those of much of the rest of the world in meeting demands for more services, more classrooms, more hospitals, and more housing as population continues to grow?"

Around that time Hunter S. Thompson was writing for a magazine and had just attended an oil industry conference where the attendees were terrified that the United States was about to experience an "oil peak" for domestic production.

His editor killed the story because it seemed too alarmist.

We know the story now that the whole world economy was reorganized around this event

https://www.imf.org/external/about/histend.htm

But Milton Friedman's editorial about the primacy of the shareholder's interest in business decisions -- what has become known as the Friedman Doctrine -- was published in The New York Times in September 1970 and immediately had an impact in the first quarter of 1971 and eventually lead to the rise of 1980s-style venture capitalism and the plundering/asset-stripping of successful companies by private equity firms after sweetheart buy-outs or hostile takeovers that continue to this day.

When we place the value of a business purely on the amount of money it can make for the shareholders/stakeholders/owners, all other considerations -- including fair and livable wages, environmental concerns, and even the well-being of the communities in which the businesses are located -- go out the window.

You will see, that approx in 1975 was finished trend of exponential grow of world population.

Why this is important - from ~1920s, Western countries conduct politics of use Poncy scheme to feed governments budgets and because of rapid grow of population, it was possible to fulfill promises.

But in 1970s, with end of exponential grow, this bubble collapses, and now next generations of politics have to work in new world, where they cannot fully avoid to pay for their predecessors claims, but have much more limited resources.

There many theories in other comments that essentially boil down to “it was no one’s fault”, but I’d first like to see the data for other countries, particularly those not too interdependent with US.

1) It was women.

2) It was abandoning the Gold Standard

The first is absurd on its face, and I will prove it to you with counterexample: ridiculous as it sounds, imagine there were no women, only men, and procreation occurred by some other means, and instead of women entering the workforce in 1971 and toppling the economy, it was just a previous population boom coming to age, a bunch of men, the exact same number of men as there were women in reality, entering the work force. I'm not even going to spell it out, but it should be obvious that women entering the workforce only benefitted the US economy and GDP.

The second reason given is more complicated, but it is offered like it is a simple fact, like "duh! It was the gold standard!" But it really is not so simple and I strongly suspect there is a lot of bias. I'm not an MBA, so I'm just going to paste some of the wiki article, only to show that it really is not at all as simple as those claiming such, and I also suspect leaving the Gold Standards is not a boogyman, as some of its advantages are really disadvantages, and some of its disadvantages are somewhat compelling. But my only point here is it is not as simple as that.

Advantages

According to Michael D. Bordo, the gold standard has three benefits: "its record as a stable nominal anchor; its automaticity; and its role as a credible commitment mechanism."

A gold standard does not allow some types of financial repression. Financial repression acts as a mechanism to transfer wealth from creditors to debtors, particularly the governments that practice it. Financial repression is most successful in reducing debt when accompanied by inflation and can be considered a form of taxation. In 1966 Alan Greenspan wrote "Deficit spending is simply a scheme for the confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists' antagonism toward the gold standard."

Long-term price stability has been described as one of the virtues of the gold standard, but historical data shows that the magnitude of short run swings in prices were far higher under the gold standard.

Currency crises were less frequent under the gold standard than in periods without the gold standard. However, banking crises were more frequent.

The gold standard provides fixed international exchange rates between participating countries and thus reduces uncertainty in international trade. Historically, imbalances between price levels were offset by a balance-of-payment adjustment mechanism called the "price–specie flow mechanism".Gold used to pay for imports reduces the money supply of importing nations, causing deflation, which makes them more competitive, while the importation of gold by net exporters serves to increase their money supply, causing inflation, making them less competitive.

Disadvantages

The unequal distribution of gold deposits makes the gold standard more advantageous for those countries that produce gold. In 2010 the largest producers of gold, in order, were China, Australia, the U.S., South Africa, and Russia. The country with the largest unmined gold deposits is Australia.

Some economists believe that the gold standard acts as a limit on economic growth. According to David Mayer, "As an economy's productive capacity grows, then so should its money supply. Because a gold standard requires that money be backed in the metal, then the scarcity of the metal constrains the ability of the economy to produce more capital and grow."

Mainstream economists believe that economic recessions can be largely mitigated by increasing the money supply during economic downturns. A gold standard means that the money supply would be determined by the gold supply and hence monetary policy could no longer be used to stabilize the economy.

Although the gold standard brings long-run price stability, it is historically associated with high short-run price volatility. It has been argued by Schwartz, among others, that instability in short-term price levels can lead to financial instability as lenders and borrowers become uncertain about the value of debt. Historically, discoveries of gold and rapid increases in gold production have caused volatility.

Deflation punishes debtors. Real debt burdens therefore rise, causing borrowers to cut spending to service their debts or to default. Lenders become wealthier, but may choose to save some of the additional wealth, reducing GDP.

The money supply would essentially be determined by the rate of gold production. When gold stocks increase more rapidly than the economy, there is inflation and the reverse is also true. The consensus view is that the gold standard contributed to the severity and length of the Great Depression, as under the gold standard central banks could not expand credit at a fast enough rate to offset deflationary forces.

Hamilton contended that the gold standard is susceptible to speculative attacks when a government's financial position appears weak. Conversely, this threat discourages governments from engaging in risky policy (see moral hazard). For example, the U.S. was forced to contract the money supply and raise interest rates in September 1931 to defend the dollar after speculators forced the UK off the gold standard.

Devaluing a currency under a gold standard would generally produce sharper changes than the smooth declines seen in fiat currencies, depending on the method of devaluation.

Most economists favor a low, positive rate of inflation of around 2%. This reflects fear of deflationary shocks and the belief that active monetary policy can dampen fluctuations in output and unemployment. Inflation gives them room to tighten policy without inducing deflation.

A gold standard provides practical constraints against the measures that central banks might otherwise use to respond to economic crises. Creation of new money reduces interest rates and thereby increases demand for new lower cost debt, raising the demand for money.

The late emergence of the gold standard may in part have been a consequence of its higher value than other metals, which made it unpractical for most laborers to use in everyday transactions (relative to less valuable silver coins). [1]

[1] https://en.wikipedia.org/wiki/Gold_standard#Advantages

If that never happened then you could still buy an ounce of gold today for $35 instead of $2,000. The dollar has lost so much value in the last 50 years..

Allowing the government to have control of the currency has allowed them to low key flat tax us with most people not realizing it.

Maybe crypto can save us, but it will take probably 1000x the adoption for it to begin to stabilize it.