Also note this rebuttal:
https://singlelunch.com/2023/09/13/the-bad-economics-of-wtfh...
With related discussion here:
https://singlelunch.com/2023/09/13/the-bad-economics-of-wtfh...
With related discussion here:
Does it explain some of the divergence? Sure, but it doesn't even come close to making up the wage / productivity gap.
I imagine much of the other "debunkings" are similarly naive
A cursory search of how much of wages healthcare costs as a percentage of total compensation is in the US comes out to 7.6% in 2022. In 1971 it was 2.9%
> For employee-benefit plans in 1971, health insurance contributions equaled 2.9% of all wages and salaries.
> Insurance benefit costs accounted for 7.6 percent of total compensation and 26.8 percent of total benefits among private workers in September 2022. The component breakdown can be seen in table 1. Health insurance accounted for 7.1 percent of total compensation, with 0.2 percent for short-term disability insurance, 0.1 percent for life insurance, and 0.1 percent for long-term disability insurance. (See chart 1.)
https://www.bls.gov/ecec/factsheets/ecec-insurance-benefits-...
Why is the rebuttal 'naive' but the site not?
It's just that there are a lot things that point to a turning point since 1970. It's like looking at something like obesity. It's tied to heart disease, cancer, ED, million other things. Any one of those things could maybe be explained away but if you look at the aggregate and how many things there are I think its okay to say "obesity likely has health effects".
Cool.
There are a bunch of potential explanations for "WTF happened in the early 70s", but only one for "WTF happened in 1971".
Btw. if you don't believe this is what the site is about, check the quote at the bottom of a logo of the merch store.
We printed more dollars than gold [1]. The idea that we weren't printing more dollars than we had in gold until 1971 is total fiction.
[1]https://history.state.gov/milestones/1969-1976/nixon-shock
What's less simple is how any of this connects to the rise in the two-earner household. Prices went up, women enter the workforce to compensate, but demand for labor was stangnent? What then was everone spending on? There clearly are confounding variables that make this an interesting discussion, beyond "pretty rocks".
We also did this in the Revolution [1] and Civil War [2].
> how any of this connects to the rise in the two-earner household. Prices went up, women enter the workforce to compensate, but demand for labor was stangnent?
Why do you suppose labour demand was stagnant?
[1] https://en.wikipedia.org/wiki/Greenback_(1860s_money)
[2] https://www.amrevmuseum.org/collection/continental-currency-...
* https://www.yesigiveafig.com/p/what-really-happened-in-1971
Also:
* https://old.reddit.com/r/badeconomics/comments/i9ycy9/the_br...
Updated by the same author a few years later:
* https://old.reddit.com/r/AskEconomics/comments/sccs74/so_wtf...
E.g. apart from the end of Bretton Woods, the beginning of the 70s also had the ongoing civil rights movement and the protests against the Vietnam war, both events that caused large-scale change of social norms.
...but I also had to stop reading the rebuttal when he got to the wage growth chart: He argues that inequality was rising (no objection) which causes the average income, pulled up by a small number of extremely high earners, to be overestimated vs the median income (no objection), which means... we should ditch the median and rely only on the average (wtf). Because I guess then the wage stagnation doesn't look as striking as it does otherwise?
It also doesn't debunk the "what happened in 1971?" question: If he doesn't want to talk about wage growth, fine, let's talk about inequality. Why did that increase so much after 1971 then that it starts to affect other statistics?
It's much more effective to let a reader make their own conclusion from cherry-picked data than it is to state the conclusion outright.
Yeah it's clear the authors are talking about the War on Drugs.
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.
Governments were doing that before 1971. Hell, the reason we had to give up the gold standard in '71 was we'd printed too many dollars compared to the gold.
We've been trying to solve inflation for millenia. As frustrating as it sounds, we haven't found the solution. In the 19th century, British central bankers firmly on the gold standard were trying to find ways to deal with inflation, bank runs and credit crises, all amidst a burgeoning military-industrial complex and rising income inequality [1].
[1] https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_...
The root causes of the problem are right there in your sentence.
Of course the banks were facing bank runs, they literally accepted that risk when they lent out the deposited money. When people came and tried to withdraw, they didn't have the liquid funds. Coming off the gold standard just made it a little easier for the government to bail out the banks by literally printing money and giving it to them so that people can withdraw their funds. "Liquidity injection" they call it.
Credit and fractional reserve banking are the true origins of inflation. A thousand dollars can baloon up into tens of thousands, even hundreds of thousands of dollars through the magic of repeatedly loaning money. You can run a money printer 24/7 and you will never inflate the money supply more than banks do with their loans.
Credit is made up money. It just appears out of thin air when people get loans. It's not real until it's paid back. If too many people start defaulting on debts the whole thing comes crashing down.
Yes. Unfortunately, a society without credit is almost-always outcompeted by one that embraces it. We're thus stuck with managing it. Credit existed before 1971, before the Federal Reserve Act, before the signing of the Magna Carta, hell, before the Code of Hammurabi.
My cat demands my ham-and-cheese croissant, that doesn't mean he's getting it.
Credit grows the money supply exponentially. Defaults and taxes cause it to go down. There is nothing that makes credit incompatible with a steady-state economy; that was, after all, about the state of human civilisation for thousands of years.
Imagine a country with zero GDP growth. There will still be some businesses that grow on profit, and some that fail. There will be professionals that die and new professionals to take their place
Failure to do so means losing what little they already had. Worse: people spend money to make money. Spent money ends up getting deposited right back into the bank. Which means it gets loaned out once again. The same dollar gets loaned out a potentially unbounded number of times.
Banks attempt to recover lost loans by liquidating assets put up as collaterals. There are people out there who are leveraging everything they own into liquid assets they can spend. If they don't pay it back with interest, they are liquidated. They lose it all.
Liquidate enough people's assets and the losses become so extensive you literally crash entire markets if not the entire the economy. Crash the US economy and the entire world might as well follow.
Liquidations mean people are defaulting on their debts. Defaults mean the money which was created through loans could be lost if collaterals can't be liquidated. Banks would be in danger of being rendered insolvent were it not for government bailouts. The only difference between banks and the likes of FTX is the banks are able to get the government to erase the consequences of the failures of their risky investments.
It's still fractional-reserve banking. We just use better metrics than multiply reserves by number to get notional loan value.
https://www.federalreserve.gov/monetarypolicy/reservereq.htm
The Fed would absolutely still argue our banks are fractionally-reserved. There just isn’t a reserve requirement. (It’s replaced with capital requirements.)
America solved it in the 1800s with commodity money; the US dollar was worth as much at 1900 as it was at 1800, and there weren't any financial collapses in the 1800s comparable in magnitude to the Great Depression or Global Financial Crisis.
Oh yes there were. Go look up the Panic of 1837, Panic of 1857, Panic of 1873, and Panic of 1893.
What? No it wasn't. The value of gold relative to commodities or industrial products wasn't stable over that interval. It would be ridiculous if it had been. Not only were we in the throes of the Industrial Revolution, the California gold rush had just started a two-century boom in the quantity of gold [1].
> there weren't any financial collapses in the 1800s comparable in magnitude to the Great Depression or Global Financial Crisis
Free banking was a constant drumbeat of bank failures, inflation and scams [2][3]. (Also financial crises [4].)
If you want a country that didn't have a civil war in the 19th century to go off, grab a copy of Bagehot's Lombard Street [5]. It's written by arguably the world's first modern central banker. He battles credit crises, bank runs, inflation, et cetera. All while Britain was firmly on the gold standard.
[1] https://elements.visualcapitalist.com/200-years-of-global-go...
[2] https://en.wikipedia.org/wiki/History_of_central_banking_in_...
[3] https://en.wikipedia.org/wiki/Wildcat_banking
[4] https://home.treasury.gov/about/history/freedmans-bank-build...
[5] https://en.wikipedia.org/wiki/Lombard_Street:_A_Description_...
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://...
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.
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...
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.
What is the big bad lever?
If you're suggesting the Congress directly regulate monetary policy, one, Argentina. Two, do you remember the second-largest bank failure in the history of our republic two years ago [1]? What about the third and fourth? Would you prefer a depression every time some twat at Silicon Valley Bank forgets numbers can go down?
[1] https://en.wikipedia.org/wiki/List_of_largest_bank_failures_...
The Fed doesn't control the amount of credit in America. It influences it by influencing rates by controlling how many assets it owns.
You want the Congress dictating buy/sell orders for Treasuries (and whatever other assets they can think of) to the Fed? At that point just go full MMT [1].
I personally do not want a boom every 2 years just before the election, as congressmembers try desperately to make the economy look good, followed by a bust just after the election, as their medium-to-long-term-bad-ideas get shown to be bad.
Should the Congress also make play-by-play battle calls in war? Let's dissolve the DoJ, too, and have the Congress prosecute and investigate, à la Athens.
> If congress is being useless, vote them out
Again, Argentina. Electeds always want rates lower and spending higher. (Rich people who can store their wealth offshore, even moreso.)
No thats obviously the executive?
> Again, Argentina. Electeds always want rates lower and spending higher. (Rich people who can store their wealth offshore, even moreso.)
Yes this is how democracy works, if people are dumb, then things go bad. The point of democracy is that you have to take a leap of faith and hope people make good decisions. If you don't like this, we can just revert to totalitarianism. You might think I'm saying this tongue in cheek but I'm not, there's a real argument that modernity is too complex for democracy.
The President chooses the Fed chairman. The Fed is an independent agency [1].
> this is how democracy works, if people are dumb, then things go bad. The point of democracy is that you have to take a leap of faith and hope people make good decisions
Which is why America isn't a democracy (and hasn't collapsed the way democracies historically collapse, in mob rule and hyperpartisanship), it's a republic. (It's also why we have independent agencies and an independent judiciary.)
[1] https://en.wikipedia.org/wiki/Independent_agencies_of_the_Un...
Whether we have independent agencies is completely orthogonal to whether we are a republic or not. Even if all of these agencies were under the executive, we would still be a republic. And no, I don't support the independent nature of these agencies. The president and/or congress should be able to control these agencies directly. Knocking down the chevron deference is step 1 to eliminating statutory power.
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.
Trump fired Yellen.
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.