After I was born in 1971, the world went to shit. Wages stopped growing along with productivity, governments wasted trillions of dollars, saving became pointless and inequality spiraled out of hand. I'm so sorry! But what did I do wrong, exactly?
https://twitter.com/jack/status/1426892980749848579
- jack
"WTF happened in 1971?" is a successful meme. I saw it a dozen times on social media before I googled the phrase and saw where it came from. Even Jack Twitter-Square mentioned it today, 50 years after president Nixon closed 'the gold window' for foreign central banks. (There's a reason for that weird phrase - US citizens couldn't exchange dollars for gold since the 1930s and weren't even allowed to own gold. Nixon didn't end the gold standard, FDR did.)
https://wtfhappenedin1971.com/ is the source of the meme. It was created by two amateur Austrian economists, as they describe themselves, Ben Prentice and Collin Clown. (At least, we only know Collin's first name, while Heavily Armed Clown is his pseudonym on Twitter. It feels weird to cite a source by his first name.)
I'm impressed with this website - as someone who studied rhetoric and wrote a book about persuasion. It doesn't make an argument, it only posts a long list of graphs and invites you to do your own research. This way, they don't need to defend a position, while they can attack from every direction. The most prominent graph is this one:
The divergence doesn't even start in 1971, and doesn't become substantial until the late 1970s, but the narrative has been planted. Everything that happens later will be seen as a consequence of this fateful decision. We already know Nixon was a crook, so we don't need to wonder what his reasons were, or what the alternatives were, given the circumstances.
https://twitter.com/theRealKiyosaki/status/1426891350138556420
- theRealKiyosaki
Other graphs show problems that start much later. For example, this interesting metric, the number of hours worked needed to buy the shares in the S&P 500 index or earlier equivalents, remains under the average until around 1990.
One of the downsides of the Just Asking Questions approach is that it won't stop when it reaches absurdities or scapegoats. Even on their own website, Prentice & Clown include far-fetched consequences like the incarceration rate, education spending without results, the number of lawyers in the US, political polarization, the marriage age, the divorce rate, obesity etcetera. Obviously, the growing incarceration rate was the result of another Nixon policy, the War on Drugs. But that doesn't matter for the believers.
https://twitter.com/bitstein/status/1426876326917533699
- bitstein
If you'd mirror this approach, you could pick and choose graphs that show positive developments, especially when you cover the whole world rather than the US. Cars have become much safer, fewer people are smoking, fewer people are going hungry, more people have a phone, life expectancy is growing, diseases are being eradicated. Progress by Johan Norberg is a book that shows how life has gotten better.
From the top photo, you may have noticed I didn't exactly grow up in luxury. Our pavement consisted of random slabs from construction waste, including part of a granite kitchen sink. I lived in the house on the right here, a former chicken shed, although it was extended before I was born. The floor wasn't level and instead of stairs, I climbed up to my room using a ladder hand-built by my father. You won't find many houses like this in Western Europe today.
However, I agree with the WTF site that a few fundamental things have gone wrong in the economy:
Although Prentice & Clown's graphs are based on American data, I'm sure these three points apply to Europe as well as the US.
Prentice & Clown do give interviews and go on podcasts. This interview is better than I expected from Cointelegraph.
Prentice sighs: “Why did everything get worse after deregulation?” Collin expresses frustration: "You’ve always believed in capitalism, but now you’re seeing this system that they’ve called capitalism is broken."
Yes, it's shocking to realize the system you love isn't working. I know how it feels. But their answer is a fallacy, the mirror image of "Real communism has never been tried".
Collin also notes that my joke isn't original:
The one that we see the most is that someone says ‘I was born that year. This was all my fault’
Bretton Woods was a rickety price-fixing system that gave the reassuring impression of a gold standard without the budgetary limits of an actual gold standard. The goal was to prevent the competitive devaluations and tariffs that led to a negative spiral during the Great Depression. European currencies were pegged to the dollar while allowing a variance of 1%, as well as occasional devaluations in emergency situations. The dollar in turn was pegged to gold at a fixed price of $35 per ounce.
But only central banks participating in the Bretton Woods system were allowed to exchange dollars for gold at this guaranteed rate. The lion's share of the world's gold reserves was held by the United States and the Soviet Union, so it didn't matter much that the Federal Reserve issued more dollars than were backed by its reserves. Central banks could manipulate the gold price, which they did officially in the London Gold Pool since 1961.
As part of the Bretton Woods agreement, the IMF was founded in 1945 as an international lender of last resort, but with a smaller balance sheet than Keynes had proposed. It's still used to discipline small economies, but it could never control or rescue larger economies like France or the UK.
Money Week explains how the system started collapsing shortly after it became fully operational:
The full system actually became operational from 1958. (Up until then, countries had maintained exchange controls).
By 1965 the volume of dollars held by foreign institutions which could conceivably swap them for US gold reserves, outstripped the actual amount of gold the US had.
While America's share of the world economy was declining as Europe recovered from the Second World War, and the US was spending more and more on the Vietnam war, France started exchanging its dollar reserves for gold. The devaluation of the pound sterling in 1967 showed that the system was unstable and needed constant tweaking by governments. Not just with regard to exchange rates - European governments were also setting price and wage levels at times (as did Nixon in 1971).
It's surprising to see libertarians being nostalgic for a statist system where financial markets weren't free - just because money was theoretically pegged to gold. Shouldn't they be happy that US citizens got back the right to own gold in 1974, and that we can freely trade foreign currencies now?
While doing my own research, I found many alternative explanations for what went wrong around 1970, or 1980, or 1990. You can find them in comments on Hacker News and Reddit. I don't want to go into detail here, but some other shocks do play a role:
But the most insightful comment on Hacker News was from tryitnow:
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. ... 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.
The period after the Second World War was called the Wirtschaftswunder in Germany and Les Trente Glorieuses in France, referring to the years 1946-1975. A remarkable feature of the post-war period was conservative leaders who didn't turn back the clock, but supported the role of the state and trade unions in the economy: Eisenhower (1953-1961), de Gaulle (1959-1969), Audenauer (1949-1963), and even Churchill (1951-1955) who didn't abolish the National Health Service after opposing it ferociously.
The post-war period was unique for several reasons:
It wasn't a happy time in every respect. There were race riots in the US, while Western Europe recruited workers from Muslim countries rather than giving women equal access to a career. There was a different attitude towards safety. Both my father and one of our two neighbors had to stop working when they were injured.
Today's Twitter socialists would go mad if they had to wait months for a phone line, which was not unusual in Europe before telecom providers were privatized. At home, we were fashionable because we had a brown phone rather than a beige one, but of course it was the standard model supplied by the state-owned PTT. There was a coin box next to it, for the neighbors who couldn't afford their own phone line. Giving them free calls wasn't feasible.
In the end, the coddled corporations and nationalized industries did become lazy. This doesn't mean that privatization and deregulation are a fundamentally better approach, regardless of historical circumstances. Even the Bretton Woods system, which I disrespected here, wasn't so bad after all, since any monetary system requires believing in illusions.
Hard money appeals to nerds because it's a technocratic fantasy: everything will be better once we simply change one basic setting in the configuration file of reality. At the same time, these nerds are dreaming about Satoshi becoming the richest person who ever lived, even about building citadels to protect themselves from the nocoiners. If Bitcoin replaced the dollar, it would create violently disruptive wealth inequality.
Ironically, cheap money is great for the tech sector where many of these gold bugs work. Keeping interest rates artificially low is what you'd do if you wanted to encourage risky innovation.
I think a tragic world view is more realistic: capitalism is the best economic system we have, but it doesn't work well when it's the only system we have.