‘X’ Marks The Spot – Wages Started Losing When The Dollar Delinked From Gold In 1971
By Tyler Durden
Submitted by Ralph Benko via The Pulse2016.com,
About a year ago, Stan Sorscher, Labor Representative, Society for Professional Engineering Employees in Aerospace, published a frighteningly important blog at The Huffington Post (where I also blog on a regular basis) headlined “Inequality — “X” Marks the Spot — Dig Here.”
It was as important for what it gets right as for what it misses.
Sorscher writes:
In 2002, I heard an economist characterizing this figure as containing a valuable economic insight. He wasn’t sure what the insight was. I have my own answer.
Figure 1. Something happened in the mid-70’s
The economist talked of the figure as a sort of treasure map, which would lead us to the insight. “X” marks the spot. Dig here.
This figure tells three stories.
First, we see two distinct historic periods since World War II. In the first period, workers shared the gains from productivity. In the later period, a generation of workers gained little, even as productivity continued to rise.
The second message is the very abrupt transition from the post-war historic period to the current one. Something happened in the mid-70’s to de-couple wages from productivity gains.
The third message is that workers’ wages – accounting for inflation and all the lower prices from cheap imported goods – would be double what they are now, if workers still took their share of gains in productivity.
[…]
This de-coupling of wages from productivity has drawn a trillion dollars out of the labor share of GDP.
Economics does not explain what happened in the mid-70s.
It was not the oil shock. Not interest rates. Not the Fed, or monetary policy. Not robots, or the decline of the Soviet Union, or globalization, or the internet.
The sharp break in the mid-70’s marks a shift in our country’s values. Our moral, social, political and economic values changed in the mid-70’s.
The author is exactly right regarding “X” and exactly wrong in getting cause and effect backwards. At “X” Marks the Spot, he notes “[s]omething happened,” and the wages of goods-producing workers flatlined, never to recover. He is right and perceptive in this too little appreciated fact.
Yet he attributes this to some kind of mystical “shift in our country’s values. Our moral, social, political and economic values changed in the mid-70’s.”
As it happens, “X” correlates with Nixon shutting down the Bretton Woods gold standard in 1971 and the epic failure to get it fixed and restored in 1973. The drag, after a modest lag, filtered into the working economy. The rest is persistent stagnation for median families.
It was the destruction of the (dilute) gold standard which precipitated the death, or at least long coma, of the American Dream. That, in turn, caused the ensuing degradation “in our moral, social, political and economic values” as America turned Hobbesian.
Keynes, the great economic icon of the left, understood how subtle and insidious the processes at work during an earlier instance of monetary disorder. In his 1919 …read more
Source: ‘X’ Marks The Spot – Wages Started Losing When The Dollar Delinked From Gold In 1971
