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MaxE
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03 Mar 2023, 10:04 am

In reference to this well-known (in some circles) website:

https://wtfhappenedin1971.com/

Here is a Reddit comment that delves into some theory:

https://www.reddit.com/r/badeconomics/comments/i9ycy9/comment/g1qr7z6/

I can't help noticing however that this is shortly after Richard Nixon became US President.

It's still worth considering that this is what Baby Boomers faced as they entered adulthood, which brings into question the generally held belief that Boomers had such an easy time of it compared to Gen-X and Millennials.


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Mona Pereth
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03 Mar 2023, 12:56 pm

Even if some of the graphs are inaccurate, and even if some people's claims about the causes of the economic trends of the past 50 years are wrong, it is nevertheless true that the U.S. economy is in some fundamental ways far worse now than it was in the 1960's and 1970's.

In particular: housing prices. The ratio of housing prices to median income was much, MUCH, MUCH lower back then than it is now. Back then it was common for ordinary middle class people to own two houses, a primary residence in a city or close suburb, and a vacation home out in the country somewhere. And a person earning minimum wage could easily afford to rent a small apartment, no problem.


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03 Mar 2023, 1:14 pm

It seems to be related to the replacement of the golden standard with fiat currency during the Nixon administration.

Before that, the foreign currencies were tied to the dollar but the dollar was tied to an amount of gold that was shiped to the U.S. by the other countries. During the Nixon administration fpreign countries noticed the large deficits that the US government was running and feared that they would cheat in the printing of money. So they began asking for their gold back. The introduction of the fiat currency cut all ties of the dollar to gold. The foreign currencies were still tied to the dollar but not to gold anymore.



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03 Mar 2023, 5:54 pm

Just wait until after the baby boomers have died off. There should be a glut of cheap housing available.


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stratozyck
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04 Mar 2023, 1:38 am

A lot of these are coincidences. A huge chunk of those graphs are things that happened "around 1971" and not on 1971. There is no reason to think that PhD physics degrees per capita is related to anything.

What really happened was this - keep in mind this is more like the weather in that it all contributes, there isn't a single one cause:

- Computer tech started to explode in the late 60s and 70s. We think of computer tech as personal computers, but the things that really impacted productivity were being done by mainframe computers. By the time personal computers came around, a lot of the low hanging fruit for computer tech optimization had already been done. Those gains went to educated few rather than the masses.

- Out of wedlock births skyrocketed around this time, probably due to loosing of social norms. In 1950 if a woman was married/dating/got knocked up by a guy that was beating her or had no prospects, she married him or stayed married due to social pressure. This decreases income for sure as now you have two cost bases for the same total income. The war on drugs really exacerbated the problem in black America. We see similar patterns in low income white neighborhoods by the way.

- health care costs started to skyrocket as well. We were spending like 8% of GDP on health care in 1980 and now its like 17%. Health care costs don't count as compensation in the employee wage calculation because a lot of that goes to other people (elderly). Depreciation has also gone up because computer tech depreciates faster. When you combine computer tech creating a "winner take all" gains to a few with rising health care and depreciation costs, you get stagnant median wages.

We have seen similar patterns of median wage growth happen in more recently industrializing countries. For instance, China and India have similar median wage growth curves. The fear is that India and China won't be able to grow the median wage to US levels and there will be hundreds of millions in poverty. It is very plausible because modern factories are being run more and more by robots instead of humans. We don't need 1000s of laborers anymore.

This was also a period of increasing foreign competition in labor markets. That alone will depress wages. You get to the point where today often you have teams with 1/2 the staff located in India (like mine...).

That webpage really bends over backwards to say it has something to do with the gold standard. The gold standard is a really bad idea. The graphs don't include the Great Depression era - you would see even more catastrophic graphs and that was all pre 1971.

Another way to look at the graphs is this:

From the end of WW2 to about 1971, the US had a unique position as being the only surviving strong economy left on the global stage. As a result of this, its workers enjoyed higher living standards than they would have had WW2 not smashed its competitors. After international competition strengthened, US worker living standards dropped back down to reality. However, this was made worse by changes in technology and increased health care cost burdens.



Dengashinobi
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04 Mar 2023, 3:46 am

stratozyck wrote:
A lot of these are coincidences. A huge chunk of those graphs are things that happened "around 1971" and not on 1971. There is no reason to think that PhD physics degrees per capita is related to anything.

What really happened was this - keep in mind this is more like the weather in that it all contributes, there isn't a single one cause:

- Computer tech started to explode in the late 60s and 70s. We think of computer tech as personal computers, but the things that really impacted productivity were being done by mainframe computers. By the time personal computers came around, a lot of the low hanging fruit for computer tech optimization had already been done. Those gains went to educated few rather than the masses.

- Out of wedlock births skyrocketed around this time, probably due to loosing of social norms. In 1950 if a woman was married/dating/got knocked up by a guy that was beating her or had no prospects, she married him or stayed married due to social pressure. This decreases income for sure as now you have two cost bases for the same total income. The war on drugs really exacerbated the problem in black America. We see similar patterns in low income white neighborhoods by the way.

- health care costs started to skyrocket as well. We were spending like 8% of GDP on health care in 1980 and now its like 17%. Health care costs don't count as compensation in the employee wage calculation because a lot of that goes to other people (elderly). Depreciation has also gone up because computer tech depreciates faster. When you combine computer tech creating a "winner take all" gains to a few with rising health care and depreciation costs, you get stagnant median wages.

We have seen similar patterns of median wage growth happen in more recently industrializing countries. For instance, China and India have similar median wage growth curves. The fear is that India and China won't be able to grow the median wage to US levels and there will be hundreds of millions in poverty. It is very plausible because modern factories are being run more and more by robots instead of humans. We don't need 1000s of laborers anymore.

This was also a period of increasing foreign competition in labor markets. That alone will depress wages. You get to the point where today often you have teams with 1/2 the staff located in India (like mine...).

That webpage really bends over backwards to say it has something to do with the gold standard. The gold standard is a really bad idea. The graphs don't include the Great Depression era - you would see even more catastrophic graphs and that was all pre 1971.

Another way to look at the graphs is this:

From the end of WW2 to about 1971, the US had a unique position as being the only surviving strong economy left on the global stage. As a result of this, its workers enjoyed higher living standards than they would have had WW2 not smashed its competitors. After international competition strengthened, US worker living standards dropped back down to reality. However, this was made worse by changes in technology and increased health care cost burdens.


Yes, anything but the introduction of fiat currency. Thats right. Computers in 1971 (?!) did it.



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04 Mar 2023, 9:34 am

In 1971 I got up in the morning and made myself a piece of toast. I set the toaster to threeee, medium brown...


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MaxE
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04 Mar 2023, 10:11 am

Well 1971 is just around the time that a lot of people, especially Silent Generation in the US seemed to be getting divorced. This added a lot of women to the work force. In the 50s and 60s stay at home mothers were considered the norm, if not so much in practice. Not the cause per se but possibly a factor.

In my experience many trends have multiple causes, despite certain people, such as YouTube pundits, insisting on there being a single underlying cause that explains everything.


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Mona Pereth
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05 Mar 2023, 12:45 am

Dengashinobi wrote:
Yes, anything but the introduction of fiat currency. Thats right. Computers in 1971 (?!) did it.

"Computers in 1971" are indeed a plausible contributing factor. Before the era of mainframe computers, banks and other corporations hired lots and lots of bookkeepers and "human computers." Many of these people lost their jobs with the advent of mainframe computers, although some of them become computer programmers.


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Mona Pereth
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05 Mar 2023, 12:50 am

To stratozyck: You didn't mention anything having to do with real estate. Seems to me that that's a big contributing factor.

The 1950's and 1960's were the era of the "Great Migration" of African-Americans from the South to various northern cities. A lot of urban white people panicked and sold their houses, thereby driving down urban property values. These white folks then bought houses in the suburbs, which were also cheap at that time because the suburbs were new.

Then, in the 1970's, when the white baby boomers grew up and decided to be less racist than their parents, a lot of them moved into the city to be nearer to their jobs and/or universities. This was the end of "white flight" and the beginning of gentrification.

Eventually the presence of more and more young white people made the cities more attractive to more and more rich people too, including (at least here in NYC) a lot of rich foreigners, resulting in more and more gentrification, worsened by zoning laws.

Seems to me that this is the single biggest economic problem we face.

IMO the most important things we need are: (1) a loosening of zoning laws and (2) higher taxes on luxury properties and on properties that are unoccupied for most of the year.

To stratozyck: What do you think about the above?


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Dengashinobi
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05 Mar 2023, 1:09 am

Mona Pereth wrote:
Dengashinobi wrote:
Yes, anything but the introduction of fiat currency. Thats right. Computers in 1971 (?!) did it.

"Computers in 1971" are indeed a plausible contributing factor. Before the era of mainframe computers, banks and other corporations hired lots and lots of bookkeepers and "human computers." Many of these people lost their jobs with the advent of mainframe computers, although some of them become computer programmers.


You could list a myriad of factors that contributed to the 1971 change. And I could list a myriad of factors of similar importance for every single year in modern history. What makes 1971 different though, is the introduction of the fiat currency that instantly impacted the entire economy in a profound way. It was called the Nixon Shock for a reason. But admitting that would prove the libertarians right.



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16 Mar 2023, 10:16 pm

The Bretton Woods System (est. 1944) ended because the dollar was no longer partially pegged to Silver. The U.S. went of the Gold Standard in 1933. Currency went Fiat and banking went Fractional Reserve. Don't let the gold bugs fool you though, metallic currency benchmarks weren't all they were cracked up to be. Also '71 is when the NASDAQ computerized stock exchange was established.



Dengashinobi
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18 Mar 2023, 3:44 am

RandoNLD wrote:
The Bretton Woods System (est. 1944) ended because the dollar was no longer partially pegged to Silver. The U.S. went of the Gold Standard in 1933. Currency went Fiat and banking went Fractional Reserve. Don't let the gold bugs fool you though, metallic currency benchmarks weren't all they were cracked up to be. Also '71 is when the NASDAQ computerized stock exchange was established.


The Bretton Woods System was still a form of Gold Standard called the Gold Exchange Standard. Other currencies were tied to the dollar with the dollar convertible to gold bullion at a rate of 0.88867 gram fine gold per dollar. There was no connection to silver. Also the claim that NASDAQ had anything to do with the drastic changes in the economy after 1971, is just irrational. NASDAQ was and is just a tiny part of the overal market, especially at the beginning. What happened in 1971 was a happening that affected the entire economy. Only the Nixon Shock can account for that.



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18 Mar 2023, 11:41 pm

I remember Mark Blyth bringing a similar chart up in his lectures, and mainly for the purpose of showing that the credit card bubble of the mid 00's directly covered the gap between wages and productivity.

While the switch from gold to fiat could explain some things I also know that there's an even more dangerous set of topics, and I'll organize them from least to most politically dangerous to discuss:

- Increased outsourcing of labor.
- Far more inclusive labor market at home.

I really don't know whether the second point represents an increase of the gap proportional to women's participation in the labor market but the quantity of total laborers may have increased as much as 10-15% along with other disenfranchised groups (might not have been an issue if demand for labor kept pace with this but it could be part of the equation of it didn't). It's not a problem that this happened but it sucks that it became then mandatory for pretty much everyone to work except for either the extremes of wealth or poverty and then even those women who wanted to stay at home and raise / home school the kids would find out that it was getting harder for any household to make ends meet on a single income.


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21 Mar 2023, 1:35 pm

Honey69 wrote:
Just wait until after the baby boomers have died off. There should be a glut of cheap housing available.

Doubtful.

Local Realtor/condo king Bob Rennie predicts developers will need to build "affordable condos," in the $1.1-1.5M range for Millennials to buy once they inherit the wealth from their parents.

So, big $ bets are on that housing prices stay sky high and only those who inherit large amounts of wealth from their parents' real estate holdings will be able to afford to buy any type of home at all.

Never know, something else could happen.. but this is likely. People who's parents didn't own their home will mostly be renters forever and kept poor for it.


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stratozyck
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21 Mar 2023, 7:04 pm

Mona Pereth wrote:
To stratozyck: You didn't mention anything having to do with real estate. Seems to me that that's a big contributing factor.

The 1950's and 1960's were the era of the "Great Migration" of African-Americans from the South to various northern cities. A lot of urban white people panicked and sold their houses, thereby driving down urban property values. These white folks then bought houses in the suburbs, which were also cheap at that time because the suburbs were new.

Then, in the 1970's, when the white baby boomers grew up and decided to be less racist than their parents, a lot of them moved into the city to be nearer to their jobs and/or universities. This was the end of "white flight" and the beginning of gentrification.

Eventually the presence of more and more young white people made the cities more attractive to more and more rich people too, including (at least here in NYC) a lot of rich foreigners, resulting in more and more gentrification, worsened by zoning laws.

Seems to me that this is the single biggest economic problem we face.

IMO the most important things we need are: (1) a loosening of zoning laws and (2) higher taxes on luxury properties and on properties that are unoccupied for most of the year.

To stratozyck: What do you think about the above?


Yeah all thats fine but my original point was fiat currency isn't the cause of all these things. People who repeat "fiat currency" are tin foil hat types.

The Great Depression of 1929-? (depending on when you want to call it the end) was made worse because at that time, monetary policy tightened in a recession.

If we had non fiat currency, that would happen again. Every recession, gold prices go up - so that would mean in a recession we'd be hit with even more deflation. Deflation is the opposite what you want in a recession.

I'll say it again - people who obsess about fiat currency are not to be taken seriously.