Article points out one thing (moving away from the gold standard) that happened in 1971, but ignores all other cultural and social changes. If you believe the economy takes time to change, then you might as well blame the voting rights act in 1965, or Loving vs Virginia in '67, or the proliferation of terminals in mainframe computers in the early 70s.
Very incomplete analysis, and lots of graphs with questionable predicted values - given the persuasive nature of the site.
The one graph missing from this is the workplace participation rate for women which increased rapidly from an average of 47% to 65% between 1972 and 1984 for OECD countries.
A large number of households would have gone from having a single breadwinner to two as more women entered the workforce. The expansion of the pool for workers would have had a supply-side impact on wages.
Initially many households would have seen their joint income increase substantially but most likely resulted in downward pressure on wages that saw that gain eaten away.
Two wages then became the new normal for later generations.
Not for the US which started earlier after the Equal Pay for Equal Work Act was signed.
The graph for OECD countries on average which includes the US turns in the early 70s. From a report on Japanese women participation going the opposite direction.
A priori, one wouldn't expect those things to have such a dramatic and sudden effect. If you start from the mysterious graphs of many different financial metrics all going berserk at virtually the same instant - like someone snapping their fingers - you start to ask yourself "what seismic shift happened in the financial world at this point? What fundamental change was made here?"
And if you ask this question in good faith, the answer bubbles right up.
If the removal of the gold standard caused economic issues as the OP is suggesting then it could have been an indirect cause of divorce. Money is one the largest causes of divorce after all.
Economic issues leading to money issues, yes - maybe. The leading cause of relationship stress is money. The two most frequently cited causes of relationship stress and divorce are money and sex.
What triggered this investigation? I agree that it does look like a phase-change. But did you throw out any graphs that didn't have a phase-change appearance?
I'm genuinely curious. Seems like there are different arguments below-the-surface in this thread.
For me, what triggered it was noticing several startling graphs that all seemed to show a) something sudden, b) at the same time. I started collecting such graphs. It appears the author of this website has done the same. Note that all the "commentary" is embedded in the images - there's no indication that the webmaster has any agenda beyond mine (although the various graph publishers might).
I don't really understand your question about throwing out graphs that don't show a phase-change. There are infinite unrelated graphs. "But, your honor, consider all these photos of my client not murdering the deceased!"
> I don't really understand your question about throwing out graphs that don't show a phase-change. There are infinite unrelated graphs.
Unrelated in what sense? Your example seems a bit of a straw man. What other graphs of economic activity and change do not show a significant and sudden shift at ~1971 (is what I think the parent is asking)?
The data sets are mostly confined to the US but it's describing a global (developed world anyway) issue. In that sense it seems like cherry picking rather than an honest look at the data trying to find a cause.
> but ignores all other cultural and social changes
Also, plays with the x-axis as convenient. And selective sourcing.
Talking about income inequality? Cut it off around WWI. Chart showing banking crises? No source showing how they're counting crises. (Surprising lack of them in the 19th century, given multiple empires collapsed in that period.) Savings rate? Post-GI bill only.
To say nothing of the liberal mis-use of nominal versus real dollars, et cetera.
Note that this is just a disorganized collection of graphs made by third parties, not an article or indeed an attempt to make any sort of a point beyond "hey check this out". There's no commentary of any kind, beyond that which the original graph authors put in themselves.
There is quite an in-depth analysis regarding this piece of legislation's effect upon the nation. It's diabolically counter-intuitive why we really don't want to know how our congressmen vote on legislation. Transparency in voting is poison to democracy.
Very interesting! I had never heard of that. That definitely satisfies the twin criteria of sudden change and obvious link to magnifying inequality. It also suggests an explanation for why the incarceration rate began to skyrocket at the same time (wanting to be seen to be "tough on crime").
When looking at what happened (but not causation) one cultural change in the 1970s (in the US, at least) is that many more women began entering the workforce (for multiple reasons). This created a big jump in two-earner families, greatly enlarging the number of potential employees as well as the middle-class. (Another impact, latchkey kids.)
Having independently come to this same conclusion, I am glad someone did the compilation on a single page.
I'm not against the gold standard per se but I have come to believe that money supply controlled by credit expansion is simply not efficient. It distorts who gets the first bite at money in circulation. It also keeps everyone forever in debt.
Humans are not supposed to be indebted forever. Money as credit has monetary system backwards af.
He seems to be using data to point to the gold standard, but in reality the gold was eliminated by FDR in 1933, not Nixon in 1971. There is one shock people love to ignore, cheap energy. In the early 70s energy prices skyrocked due to well documented reasons. So, companies had to pay more for and maybe discovered they could keep pay low once prices stabilized.
A version of the gold standard with the dollar pegged to gold for international trade partners was reintroduced in 1945 post WWII and that's what's Nixon suspended. Just like a true gold standard, it put a check on how much dollars the government could print
Nixon also reopened relations with China in 1972.
I'm having a hard time finding trade information from the 1970s (a quick search turned up: https://apjjf.org/2013/11/24/Dong-Wang/3958/article.html). You could argue that arbitraging cheap labor overseas has been happening for 40+ years. On the other hand, you could also argue that this has helped make the US richer than otherwise would have been the case.
That definitely seems like something that would conceivably exacerbate the inequality effects, in the USA at least. But it feels to me to be too gradual a shift to explain the elbows in some of those curves - it's not as if Nixon reopened relations with China, and then companies instantly started outsourcing. Is it?
There was a tax cut that took effect as-of January, 1971. Actually, the government sold it to the public as repeal of a 5% tax surcharge effective 30 June 1970, but they did not change form 1040 to identify which income and/or deductions were in which half of the year, so it actually worked out to be a 2.5% reduction in tax rates as-of 1 January 1970, and a 2.5% reduction as of January 1971. With these 2 pay raises from the government a year apart, employers may have felt less pressure to raise wages.
In addition, note that the first year of very high birth rates during the baby boom was 1952. The non-college bound high-school graduates would all be entering the labor force in 1970 and 1971. As the draft lottery numbers were drawn late in 1969, those who got the high numbers felt free to leave college and enter the work force without fear of the draft, most often at the end of the school year in June 1970, and thencefrom a large fraction of high school graduates could make their decisions about whether or not to attend college without any need for ways to avoid the draft.
What about computerization of white collar work as a factor? Minicomputers, such as DEC, started spreading into medium-sized businesses and departments. The wealthy got the benefits of such but it didn't trickle down to those laid off or who had to go back to school after their job was automated away. Offshoring of manufacturing to Asia also began increasing around that time. Thus, it could be a combination of offshoring and automation.
The Powell Memorandum, the declaration of war by the Republican Party against the continued existence of a Middle Class. The war is going swimmingly (for them), and they have persuaded their victims to vote for it all. Look up "managed population".
It has nothing to do with fiat currency, and everything to do with deliberate policy to concentrate wealth in fewer hands.
Anyone else see the 80s as the real turning point? Eyeballing the graphs ‘71 seems a stretch.
Friedman, Reagan, Thatcher, were surely much more impactful. In the UK, Thatcher was the first PM to have a major impact on the country since the 1940s.
Regressive moves in taxation, privatisation, deregulation, etc are also more appealing to me as an explanation for rocketing inequality etc.
Thatcher's era saw the breaking of union influence and control over employment in many industries. The few jobs that have seen year on year increases since then were those that managed to retain strong union membership such as teaching and nursing in Australia.
Deregulation, market liberalisation and financial globalisation were then factors enabling the offshoring of manufacturing to lower labour cost countries.
We've been talking for years now how technology and automation will be the next job destroyers but I think the flood of cheap capital is having a bigger effect. Even shareholders are getting left out due to share buyback schemes that's leaving the means for wealth in fewer hands.
OK, I think the author is making some vague point about the collapse of the Bretton Woods system leading to the surge in inequality.
On a superficial level that looks to be what happened. And indeed something big happened that created an economic regime very different than the post-War regime of rising GDP and rising wages.
What happened in the early 1970s?
I think that's the wrong question because it pinpoints the last 40 years as in some way exceptional. I don't think they are. It's more interesting to ask what happened in the immediate post war era to allow increasing shared prosperity.
Well, the US won a major near apocalyptic war with its home territory completely unscathed permitting the US to utterly dominate the capitalist world order.
Maintaining that dominance required appeasing American workers who agitated heavily before the war and could credibly threaten to shut down strategic parts of the economy in the midst of a Cold War that could turn hot at any moment. Furthermore, that same Cold War created a polarity between capital and labor and forced the hands of the American elite to give way more concessions to labor than they would otherwise.
So in the years following WWII, there was about two decades of relatively pro-labor policies (or at least tolerance of labor). This allowed American workers to share in the gains from productivity.
What happened in the late 1960s?
American power started to diminish as the rest of the capitalist world became more competitive. The US could no longer just print dollars to fund its war machine and a new social welfare state (Great Society).
International capital became more aggressive in pursuit of profits. Why invest in American businesses when they could invest in lower wage, more efficient, up and coming economies. That put more pressure on American wages and American labor power.
With high levels of war spending and social spending without commensurate increases in taxes inflation was an ever present threat. Another reason capitalist became less interested in holding dollars.
The inflation threat was finally stomped out by the Volker Federal Reserve policies that generated a crushing recession. This recession and the Reagan administration's anti-labor policies crushed any hope that American labor would have of regaining its share of productivity increases.
The massive Reagan tax cuts further precluded building a social welfare safety net that could have helped workers weather economic calamities. Desperate workers work for cheap and are more willing to give up gains from productivity.
So, I don't think anything magical happened in 1971. Rather it was a collection of events that spanned into the 1980s culminating in the early 1980s recessions that both ended inflation and severely weakened American labor. On top of that right-wing policies further weakened the power of workers, making it less likely that they could share in gains from productivity increases.
>I don't think anything magical happened in 1971. Rather it was a collection of events that spanned into the 1980s...
How can you look at those graphs and not see the unmistakable, virtually overnight phase change? There are lines that run together until 1971 and then diverge. There are lines that cross axes in 1971. There are lines than run flat, and then begin a meteoric ascent in 1971.
The whole point of putting these graphs together is to show that something sudden happened then.
>The whole point of putting these graphs together is to show that something sudden happened then.
Yes, it appears that way.
Not all the graphs show a total change in 1971, but around it. Perhaps what happened was a multifactor process begun in the 60s and finished in the 80s? Cultural as well as financial?
It was a fundamental change to the most basic unit of economy we have (money). This was the date the financial system separated from reality and became based on... nothing!
I'm intrigued by the consumer price index graph. Does it mean that a 1910 dollar bought you about the same goods and services as a 1790 dollar? Mindboggling.
Milton Friedman introduced the Shareholder Theory in 1970, where he argued that a company has no responsibility to society and that its only responsibility is to the shareholders. As good a source as any...
