WTF Happened in 1971? (2019)
wtfhappenedin1971.com
wtfhappenedin1971.com
1. The moving off the gold standard
2. A large number of women started entering the workforce essentially doubling the supply of labor.
3. The rise of MBAs and downsizing really became big.
4. Outsourcing and off shoring started to be introduced during this time
5. The 70's stagflation where we say inflation and high interest rates.
These all seem to be plausible factors to me.
Could be a combination of all of them, could be that a few root causes. Not entierly clear imo.
https://www.congressionalresearch.org/TransparencyProblem.ht...
As someone with an econ degree, people advocating for a return to the gold standard are so weird to me. I totally understand people having objections to how central banks manage the money supply and the impacts that has on the economy, but that doesn't mean we should give up control of it completely.
It reminds me of the 2008 housing crisis when people saw a regulation failure and their proposed response was to remove even more regulation. It would be like your home being broken into and deciding the solution is to stop locking your doors instead of trying to find a better lock. It is both defeatist and it does nothing to actually improve the situation.
Advocate for better policy. Don't advocate for no policy. The gold standard is effectively no policy because it gives control of the money supply over to control of the gold supply and gold can be both lost and found which won't happen in ways that actually support the economy.
I mean, I understand. People really like simple things they can understand. And people hate inflation. It's clearly a bad idea, but I understand the appeal if you were raised in a blue-collar household and think debt is evil.
I think you're probably thinking about it wrong. It's not a conventional policy proposal. I think the main factor is just naked mistrust of people like you (people with an econ degree, etc), leading people to seek out simple solutions you have no control over.
Another factor is people just getting high on pure ideology, and losing interest in solving actual problems in the pursuit of that ideology.
>The gold standard is effectively no policy because it gives control of the money supply over to control of the gold supply.
Hayek (he too had an econ degree I believe) could argue that advocating for the gold standard isn't necessarily advocating for "no policy." It is advocating for a different kind of policy, one that places more trust in market mechanisms rather than central planning.
>Advocate for better policy.
No matter how good of a policy you have for predicting Roulette numbers, your policy will be just as good as choosing at random, and most likely worse. Hayek would argue that there was a "knowledge problem" and no amount of econ degrees can solve it.
I don't think Hayek had an economics degree, but in 1974 he did earn the Sveriges Riksbank Prize in Economic Sciences in Memory of Alfred Nobel:
https://www.nobelprize.org/prizes/economic-sciences/1974/hay...
Yes, this was why I said "effectively no policy" and compared it to removing regulation in the wake of 2008. It isn't literally "no policy" in the same way that anarchy is still technically a governing philosophy. But it is still effectively the same as no policy by taking a laissez-faire approach.
>No matter how good of a policy you have for predicting Roulette numbers, your policy will be just as good as choosing at random, and most likely worse. Hayek would argue that there was a "knowledge problem" and no amount of econ degrees can solve it.
This is what I described as defeatist. The economy isn't roulette. In roulette, it is impossible to observe, react, and predict. I don't believe that is true of the economy. It seems borderline silly to suggest we can't observe an economic trend and react to it.
Oh, yeah, we can react. The same way you start betting on red after you see 3 reds in a row.
That isn't true with the economy. For example, unemployment numbers in one month are strongly correlated with the numbers in both the previous and next month. This is obvious just looking at a graph of the unemployment rate[1]. I can say with a high level of confidence that the rate for September will be in the 3.5%-4% range because it has been that way since 2022. Can you honestly look at that data and tell me it is as random as roulette?
[1] - https://www.bls.gov/charts/employment-situation/civilian-une...
These couple of articles are a good starting point:
- https://en.wikipedia.org/wiki/Economic_calculation_problem
- https://en.wikipedia.org/wiki/Austrian_school_of_economics
Because it can?
Because it should?
Why does the Fed not fix the price of bread?
That is roughly in line with BTC inflation at the moment, and also, as it happens, central bank inflation targets (expectations of anything more would lead people to buy gold, or BTC, or just warehouse cash).
However, the real discipline of a gold standard is to restrict debt (credit). The market for lenders and borrowers (investors) sets the (Wicksellian) interest rate, as any market should.
Governments cannot just print money to run indefinite deficits, to curry favor with the electorate. The democratic desire for low taxes and infinite subsidies cannot be consumated. There has to be fiscal discipline. That is the value of the gold standard.
And if the primary remaining benefit of the gold standard is to rein in government spending, I would simply argue there are other ways to do that. It seems like throwing the baby out with the bath water to give up control of monetary policy in order to better control fiscal policy.
- People ran productive economies for hundreds (thousands?) of years on the Gold standard and it worked.
- It's credibly neutral and no one gets the exorbitant privilege of printing money.
- The supply expands randomly when new deposits are found but this actually works pretty well. As the economy grows we get better at finding gold so prices stay relatively flat in real terms.
- On a gold standard people will waste real resources trying to extract gold to sit in a vault but people waste real resources trying to get printed money too.
The Gold Standard (paper currency backed up rocks) only started in 1870. While gold (and silver) coins were used for some monetary needs, most (local) economies actually ran on credit:
* https://en.wikipedia.org/wiki/Debt:_The_First_5000_Years
> - The supply expands randomly when new deposits are found but this actually works pretty well. As the economy grows we get better at finding gold so prices stay relatively flat in real terms.
No it does not:
* https://en.wikipedia.org/wiki/Great_Bullion_Famine
Neither does it add to financial stability:
* https://www.theatlantic.com/business/archive/2012/08/why-the...
As stated in a comment below: > The post-war growth in America was largely driven by cheap and abundant domestic oil... The oil crises of 1973 and beyond were the proximate result. But our economy as a whole never really recovered;
While lots of things contributed, this is almost certainly the case. Energy is an input into everything. Our current standard of living exists mainly due to energy and figuring out productive/efficient ways to consume energy.
For example if we retained all of our knowledge, all of our productive know how, but were banned from using fossil fuels and electricity we'd be essentially back to pre-industrial standards of living. When you think about it, it's self-evident, but we can't do anything modern without consuming enormous amounts of energy. Transportation, shipping, computing, agriculture, communication, heating manufacturing all of these are essentially energy consumption endeavors.
More expensive energy means all of these factors because significantly more expensive. The cost of your food goes up if every input is now paying more for energy. If maintaining a standard of living is now more expensive then cost of labor goes up without any improvement in standard of living. This drives inflation. Increasing the price of energy probably is likely a more broad economic driver of inflation than lowering interest rates. Lowering interest rates drives asset price increases heavily, but much less so on commodity and day to day price increases. Eventually those asset price increases work their way back to housing and then drive labor, but it's not very direct. Increasing the cost of energy drives up the price of everything. The only thing that tops it is direct giving of money to people.
The 1970s oil shocks cost us an enormous amount in our standard of living and drove pure inflation. Just like the oil price increases of the past few years (along with supply/labor shortages) drove our recent bout of inflation. Oil dropped in early 2020 and so did inflation. Oil peaked in mid 2022 and so did inflation. Energy prices drive your economy - anything that notably increases the cost of energy will have ripple effects on the rest your economy.
I've found two interesting books so far: - Oil: A Beginner's Guide by Vaclav Smil - Energy and Civilization: A History by Vaclav Smil
https://www.youtube.com/watch?v=wGt4XwBbCvA
It meanders a bit for the first 5-7 mins, but does a decent job of making the argument. Min 40 also has another pretty good slide.
It does go into covering recommendations which I'm not necessarily recommending, but it does accurately summarize our economy as one of energy transformation.
The best analogy in it is this. Right now if we need to do construction and dig a 10ft x 10ft x 10ft hole we can pull out a backhoe and be done in a min. If we with all of our current knowledge had to do it without consuming energy we'd be digging by hand with a shovel, and no faster than someone pre-industrial would. When you start looking at every industry you come to the same conclusion. All of our technological know how boils down to just better ways to be more productive in converting energy. But fundamentally consuming energy to be productive is the modern economy.
... Rent-seeking administrative bureaucracies, which seriously dilute the effectiveness of education, healthcare, government, town planning, infrasfucture investment ... everything.
The trends for admin in universities and hospitals is literally off-the-charts exponential. Nothing exponential lasts forever.
Baby-Boomers will all die, eventually, but I hope their parasitic hippie socialism dies with them.
The trigger might have been the end of the gold standard on August 15, 1971. I suspect that we had been going too long without an increase in the gold backing our money supply, and after decades of temporary fixes to the Breton Woods system, things fell apart then. Afterwards, although we moved to a superior fiat currency, most people didn't really believe in the new system for at least a decade. (And the popularity of bitcoin seems to prove that some people still believe that fixed monetary supply is a good thing!)
This allowed the other factors, plus the shock of having to rely on foreign oil, plus the rise of reactionary tax policy, to really mess up the economy in ways that we haven't really fixed yet. Yes, we stabilized the dollar by the early 80s, and yes we have started to ween ourselves off of foreign oil, but the low income taxes on the highest earners remain in place, along with lots of loopholes that make it easy for billionaires to pay almost no taxes.
I don't know the long-term consequences of carrying so much public debt (relative to GDP), but it seems that the only possible way to reduce it (without making things worse) is to tax the rich, which is now going to be incredibly difficult since they have so much power at the moment.
Usually it is just a blanket pejorative, but if you mean decoupling of debt from reality, then you are correct.
The 1980s of Reagan & Thatcher saw important strides in handing back the economy to market forces, but at the same time, derisking (undervaluing) credit to fund the investment necessary to backfill for government negligence.
(Re)enabling market forces was good, unrestricted credit was bad.
In the television series, this is communicated in an interview with Gwin Follis, former chairman of Standard Oil of California, filmed in what appears to be a palace.
"We made an agreement with Ibn Saud that we would give him gold. For every ton of oil we took out of his country we would give him gold. And we did at first. Then we got to be producing more and more and more, and we would try to find more gold shillings to meet the requirements so we could ship another ton. And we had to tell him we couldn't find any more gold. There wasn't that much gold. We had now such an enormous business that we cleaned the world of gold shillings."
From The Prize, Part 5- Crude Diplomat at 31:24.
<https://yewtu.be/watch?v=k7g5UMxDZIg&list=PLYkO4hiKyrSRjZLQu...>
This illustrates a number of elements: the enormous scale of the oil business, the challenges of a gold-backed monetary system, and the challenges of an exceptionally one-sided trade.
Going off the gold standard and dollarising oil sales solved several problems:
- The US had an unlimited supply of dollars.
- Saudi Arabia (and other oil exporters) wouldn't see their own currencies appreciating due to an unbalanced inflow of payments.
- Global demand for dollars in trade meant that dollarised petroleum sales wouldn't lead to either appreciation or depreciation of that currency.
- Basing international trade on a managed rather than specie / gold-backed currency meant that monetary policy could be used to adjust money supply to economic conditions.
On TFA, the precipitous decline of US gold reserves beginning in 1950, the year in which the US became a net importer of oil, is illuminating.
I guess what I'm saying is there's probably no one factor that made '71 special, but a collection of factors; a "perfect storm" of economic sadness.
My assumption has been this page is part of a two-part propaganda trick: the first part is to use all these charts to raise a question, the second part is to provide a oversimple but satisfying propaganda-answer (either a return to the gold standard or cryptocurrency).
The second part may be meant to be an exercise for the reader (e.g. raise the question, and then prime them to search for the answer in a way that will lead them to material advocating the oversimple but satisfying propaganda-answer).
The stereotypical form of propaganda (yelling an answer forcefully at your face) isn't very effective because it's obvious and elicits resistance, so actually-effective propaganda has to have a trick to disarm that response.
If you want to see something fun, watch game shows from the 70's and 80's and note the prices of things like toasters and cars. Adjust for inflation to today, and especially for cars, compare the features. It's pretty amazing.
Anyway if someone is trying to tell you that one thing or one decision changed everything, they're at best telling you a partial truth, and more likely just lying.
I'm going to assume toasters and cars are far cheaper today than in the 70's and 80's considering all the features.
If anything, it agrees that "something happened" around 1971, and suggests multiple such things.
[1] Edit: to me, "freshman bad statistics" means something like "the supposed trend is an artifact of how it was measured or transformed", but the link doesn't say anything like that -- this label is misleading at best.
>>The change in the trade deficit (graphs 15 & 16) may be linked to the end of Bretton Woods indirectly. The end of the system created floating exchange rates. That allowed every nation to determine it's own monetary policy fully. When that happened many Central Banks behaved badly causing high inflation. The US stopped it's high inflation in the 1980s.
And other real phenomena account for other trends c. 1971:
>>Graph 3 is tricky. It shows how Real GDP per capita has moved away from real GDP per employee. The main reason for that is the introduction of women to the workplace.
And it also agrees that some of the trends did happen, meriting investigation, but 1971 wasn't the inflection point:
>>Take a look at graphs on inequality. Here I'm looking mostly at graphs 1, 6, 8, 9, 10. Notice that the inflection point isn't actually 1971. It's usually some time in the early 80s. Greater inequality between high income earners and everyone else started around then. It's a matter of debate why. A lot of economists believe it's because the modern developed economies rewards high skills more than they did in the past. Notice that the very first graph is misleading because it doesn't use total compensation.
I have a hard time characterizing any of that as a "freshman statistics error".
For example, the comment mentions that the the "Median Sale prices for new houses sold" is in dollars. Yes, he is correct. But looking up an inflation adjusted median price gives the same result, that house are more expensive than before. So yes, he is right that the graph can be technically misleading, but the point of "WTF Happened in 1971" still stands.
I think there are many midcurve takes, where one would argue how 1971 is wrong, but isn't it the case, in reality - that housing, college, wage, etc. have all been doing worse for a few decades now.
[0] https://www.supermoney.com/inflation-adjusted-home-prices/
There is no option to rent 500 square feet because it's illegal in most cities to have units smaller than 600-750 square feet.
Cui Bono
I think the takeaway isn't that material living standard in the U.S.A. have declined but that they've only increased a little.
Yes and no. A larger share of wages have been diverted to non-wage income, like health insurance especially in the US. There's also increased inequality and issues with trying to measure wages over several decades as the typical household changes -- see "where has all the income gone" [1]
> has house prices not been creeping up
Sure, but this is a separate topic. The dates line up by coincidence. There's a long history of urbanism (zoning, suburbanization, etc.) and migration (immingration and rural -> urban migration) as well as atomizing households (fewer nuclear families meaning need more housing units) that led to this.
The point is 1971 is nonsense even if a lot of the trends over 3-5 decades make sense, but for disparate explanations. And any topic has 2-5 separate subtopics that matter (eg. income is tied to healthcare costs, inequality of capital gains vs labor income gains, etc.)
1. https://www.minneapolisfed.org/article/2008/where-has-all-th...
1. Ditching gold standard - this obviously happened in 1971 and had a big impact. But there were other equally important changes.
2. Women entering workforce - this started in late 60's and continued throughout 70's and 80's. You can see "Dual-income working couples" graph, which plateaued in the late 80's
3. Reagan revolution - Reagan changed the discourse both culturally and from a policy perspective. He enacted tax cuts, deregulation, deficit funded growth etc . See the "income growth, from 1917-2012" chart. Income for top 1% earners starts ticking up from mid 80's. Or the "income share of top 1% relative to bottom 90%" starts picking up around 1980. Same with the uptick in "Income inequality in the United states" - starts in 1980.
4. Inflation - oil shock of 1973, with rest of the decade spent fighting it. Interest rates were jacked up to 18% or beyond at some point. Only in the early 80's did things stabilize (Reagan's "morning in America" campaigning). This is also reflected in many graphs with notable changes around mid-80's.
There has been a large decoupling of compensation from productivity. What happened was unions were neutered (Taft-Hartley), and businesses took advantage by stomping them out whenever they could. Businesses also merged and acquired their way to become the enormous behemoths that they are today. There is a large amount of inequality in productivity between the Fortune 500 and other US firms. The Fortune 500 is responsible for 60-70% of US GDP despite employing only 16-20% of American workers. All the bargaining power in the world isn't going to help the 80% of us working for non-F500 firms.
What we need is a combination of greater union power (wildcat strikes, closed shops, sectoral bargaining, heavy restrictions on employer interference in unionization efforts), and a greater antitrust effort to break up the monopoly firms.
I guess a better question would be if we consider employment the only valid source of income. There are plenty of examples of tax-and-spend welfare states that simply redistribute income from rich earners/gainers to fund public services.
Anytime someone just lists a bunch of graphs without telling you which graphs they left out and what their analysis is, you can probably ignore them. Even in many of these cherry-picked graphs, 1971 appears to be in the middle of some ongoing trend and is not an inflection point.
Something happened, for sure. Presenting raw charts is a Rorschach Test for what you might imagine is the cause.
The trend, in the US, was catastrophic deficits, caused by guns (Vietnam War, Apollo space program) and butter (Great Society and welfare).
An unsustainable trend is ... unsustainable. Something broke... The French raided the gold from Fort Knox, Nixon called it.
Not only is someone trying to get rich off of hashes, they're trying to convince you any theory which suggests burning fossil fuels to calculate hashes might not lead to increased productivity is heretical.
First, decreased consumer and investor confidence in the future after the combination of Watergate, removal from the gold standard, and the Nixon Shock policies [1].
Second, the Wharton MBA program's rise, and the Wharton view, as explained to me, that employees should be treated as renewable resources, not to some extent as family.
</snark>
I don't think there's any doubt the conclusion you're supposed to reach is that it supports an Austrian economics view about the negative effects of our current monetary regime, and de-linking the USD from gold.
Nixon was so bad that he won 1972 re-election with 520 out of 528 electoral votes. Or 60.7% of popular vote.
What happened after that, including both politically for Nixon and in terms of further information about the use of the national security apparatus for domestic political purposes during the Administration (including during the 1972 re-election campaign) that occurred after what happened personally politically for Nixon?
(While the question asks what happened in 1971, most of the graphs that show anything show something very minor separation for the first few years after 1971. I think “Nixon icky” is an…incomplete…hypothesis, to the extent that any of the graphs show something real, but I don’t think “but he was re-elected by a wide margin in 1972” is a sufficient dismissal, either.)
https://www.nytimes.com/2017/01/02/us/politics/nixon-tried-t...
In this case you are supposed to find out that that 1971 was the end of the Bretton Woods system (and probably, more importantly to the Bitcoin promoters who run this website, the final end of the Gold Standard in the US).
However, now that you know the purpose of the magic trick, it's easier to peak in and see the misdirection. There are basically two things going on:
- The end of the Gold peg changed a lot about how things were valued, nearly overnight. So a lot of graphs relating to real values based in currencies had enormous changes, even if the fundamentals underlying them did not substantially change. This even impacts inequality metrics - since the money supply was no longer artificially limited, you see high-earners holding on and collecting more of it - rather than, say, fine art or T-Bills. And graphs that mark depreciation against gold are obviously going to be slanted.
- The gold peg failed in the first place because of rapidly changing demographic and consumer trends. You can see this where the arrow was lazily plopped in the middle of sweeping curves or trends. Like the rising cost of chicken starting in 1934. Or the numbers of divorces. Or the rise of dual income families. For most the graphs on this page, 1971 is not a significant date at all.
The vibrant threads show many people have opinions.
Please unflag.
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)
But hey, you did have a Nazi invasion, which is not a good thing. I assume it took some time to recover.
>beginning of globalization, the decline of American manufacturing jobs, the decline of union jobs. The 70s were the beginning of the end for heavy industries in Pittsburgh.
This one reads off like BADGER-BADGER-BADGER-MUSHROOM, but it's GRAPH-GRAPH-GRAPH-HAYAK QUOTE.
The presumed culprit is the fed/fractional reserve banking.
It's a pretty good assumption, especially considering that all the other major 70's things that occurred were things that rectified in spite of the trend continuing.
The takeover of the political dialog by economism using the Freshwater/Chicago school of economics started in earnest around this time and was so remarkably successful that Democratic presidents were spouting the neo-liberal conservatism[0] hogwash by the time of Clinton.
I am a member of the Cory Doctorow school[1] of political thought.
[0] https://crookedtimber.org/2018/03/21/liberals-against-progre...
A correlation was graphed already, though it's comparing top 1% income share vs union membership:
https://en.wikipedia.org/wiki/File:United_States_union_membe...
This one includes graphs on the top 10% and also "middle-class" but i was only able to skim the article to make sure it didn't sound insane:
https://www.theatlantic.com/business/archive/2012/06/who-kil...
https://www.history.com/topics/vietnam-war/vietnam-war-timel...
..