WTF Happened in 1971? (2019)

So, if the productivity-wage divergence is simply a reflection of US healthcare costs, how does that chart look for other countries where healthcare doesn't glue itself to employment?

So the rebuttal is basically agreeing to everything except from exact timing.

Cool.

See also this analysis that brings up trends that (e.g.) started in the 1960s:

* 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...

Another "inflation good, deflation bad" repeater robot. Opinions, meet garbage.

Websites that want to push a narrative should spell out their narrative (the WTF one). This website cannot have been up for this long without having a narrative.

Weren't there a bunch of discussions about what happened in other years, or is it all 1971's fault?

Meta question: is there a name the the psychological impact of putting an arrow on a random line where it really does make it look like that's an inflection point? Does this generalise beyond charts, e.g. to a narrative techique?

All sorts of inputs and outputs were disconnected from each other around that time. Executive compensation is just yet another thing to put on the list.

> executive compensation became wholly disconnected from worker compensation

The "Celler–Kefauver Act is a United States federal law passed in 1950 that reformed and strengthened the Clayton Antitrust Act of 1914" [1]. It kicked off the conglomerate boom in the 1960s by incentivising buying "companies in unrelated fields" [2]. (Conglomerates were nudged along "thanks to low-interest rates and a market that fluctuated between bullish and bearish, providing good buyout opportunities for acquiring companies.")

That ended with Volcker's early 80s recession [3], which co-incided with (a) computers in finance enabling new entrants to (i) create new financial instruments, e.g. high-yield bonds [4], and (ii) circumvent banks to distribute them [4]; and (b) a multi-decade decline in rates [5].

Herego, my pet theory: since the 1960s we've been in a series of corporate regime changes, each which created demand for a new type of leader (about once a decade), said leader being scarce and thus valuable at the beginning of each shift. (The internet also gives executives unprecedented direct access to investors, customers and employees, current and potential.)

[1] https://en.wikipedia.org/wiki/Celler%E2%80%93Kefauver_Act

[2] https://www.investopedia.com/terms/c/conglomerate-boom.asp

[3] https://en.wikipedia.org/wiki/Early_1980s_recession

[4] https://www.thegentlemansjournal.com/article/story-michael-m...

[5] https://fred.stlouisfed.org/series/FEDFUNDS

But that's a "be careful what you wish for" observation. I mean, obviously it prompts the question of why executive compensation grew so fast.

Well, executives are paid a ton because they need to compete in an environment where other executives of successful companies are already filthy rich. And why is that? Well, it's actually not because of compensation policy at all.

Those other executives are rich because they were founders who hit an exit. That is, it's all HN's fault (and the fault of the VC-based startup money engine more generally).

We created an environment where to staff a successful C suite you need to hire away senior people from FAANGs. And you can't do that unless you pay them crazy numbers. And that means the rest of your executive staff, and your board, need to see the same numbers. And so on, across the rest of the economy.

You can't have an economy producing huge numbers in the stock market without handing those dollars out, in proportion, to the senior staff, basically. The same analysis does not hold to the regular employees, who don't compete against people getting that exit money.

This was a direct consequence of asset-backed currency being converted to fiat currency unleashing the stock market and the creation of new money at will.

Sorry, but the numbers for that simply don't work out.

Pick any public company and divide CEO pay by headcount and it'll come out to a dollar figure way, way, way too small to account for the reduced share that workers are getting. There's something (likely multiple things) else sucking up all the money that was formerly shared with workers.

How would that work practically if executives are getting paid in equity at various points in time? All the employees get options and RSUs too when the executives get them?

Looks like among other things this one is leaning on a lot of economic trends that started in the 80s and hoping if you draw an arrow to the 70s no one will notice.

Most economists date the big breakdown in real gdp vs real median wages to have started in the 80s.

It's not exactly what you're suggesting, but Spurious Correlations is great fun: https://www.tylervigen.com/spurious-correlations

If you limit the analysis to the context of the USA then it’s definitely true that some years are more consequential than others. 2007 was more consequential than 2002, even though there were huge geopolitical machinations ongoing in 02. I imagine this discourse would turn into a “well actually” circus though lol

This author didn't even pick ones where there was a change in 1971. A lot of them have an arrow pointing to nothing special.

What is definitely true that there are many, significant indicators which see similar behavior.

The website mainly lists economic factors, but if you look at obesity rates you see a similar trend in the 70s, where quite suddenly obesity rates start rising.

https://www.mdpi.com/1660-4601/21/1/73

I think that while there might not be a single common cause, it would be naive to deny that there could be a combination of events, which mark that time period in particular.

The divorce of wages and productivity is real. You can pick any year in the last 40 and the trend will be very evident.

I'm actually curious if this continues through he 2020s. It could have gotten worse or better or been the yardstick by which people were fired or hired.

Considering the number of graphs on this website where it's immediately clear that 1971 wasn't the inflection point (in many cases, it's actually around 1980), it's not hard to make this for any other year, especially if you don't care to make it all that convincing.

What makes 1971 truly special is that only goldbugs who really want the gold standard again are insane enough to believe that deviation from the gold standard single-handedly fucked over everything and have the chutzpah to tell you about it even when their own evidence clearly says they're wrong.

I mean, the whole point of the site is to highlight what the Nixon shock left in its wake since 1971. It truly was special in that regard.

I'd highly recommend reading the book "Broken Money" by Lyn Alden for understanding the dynamics of what played out.

What's more, even without this embargo the era of cheap energy was largely over by the mid 60s, as oil's Energy Return on Investment fell to a fraction of what it used to be:

https://www.mdpi.com/sustainability/sustainability-03-01866/...

Which has nothing to do with this, since all the graphs show divergence in 1971, 2 years prior.

> the global monetary system was completely reorganized, not least to enable large scale exports of oil from peripheral countries to the core

Your source doesn't mention oil once, except when it links to an article about the 1973 Oil Embargo.

Bretton-Woods wasn't ended out of some grand strategy surrounding oil, it was ended because we didn't have enough gold to cover our dollars. Instead of playing the periodic-devaluation game, the monetary equivalent of a debt ceiling, we ended the farce and admitted it was fiat.

Are you saying wages should be tied only to the difficulty of the work and not the value the labor produces?

Working the backhoe requires more skill than shoveling and can command a higher wage. You want to more carefully vet and care for the person driving your expensive equipment. Also you had an engineer to design the backhoe and factory workers to assemble it who are getting paid during this process. It's possible that the net wage per hole dug goes up as a result.

> If productivity increases are driven by capital investments, why should the workers capture any of those benefits?

Simply, there isn't a good reason. That's why we strictly regulate the labour market--we don't like the true price of labour.

The broader reason: while there aren't fundamental reasons for the worker to capture that upside, there are great reasons for citizens to. (I'm using that term broadly.) For a variety of reasons, from Protestant morality to concerns about Communism, modern societies have preferred to reward citizens qua workers than citizens qua citizens.

This is actually a coherent and legitimate argument rooted in objective data. Often you don't really get that when supporting what is not a popular position. People who support unpopular positions generally ignore data. (As do many others. At least most people ignore any data that disagrees with them.) You've taken the basis of the supposition, productivity, quantified it. Attributed it. And argued that income should follow attribution. Bravo.

You could do without the "should get paid less" part, as it puts part of your argument in the realm of subjectivity rather then objectivity for no real reason other than the tendency towards emotional responses I was mentioning earlier. ("Easier" life is completely subjective.) But the first part of this argument is really good.

The US left the gold standard well before 1971. Central banks do not create currency, they create bank reserves. There is no indication that it drives money creation. Let me know where I can spend bank reserves to buy goods and services. Money is created from banks, and mostly done so off-shore away from the purview of the central bank. https://en.wikipedia.org/wiki/Eurodollar

> the US left the gold standard which meant currency could be created by the central bank

You have the causality backwards. We left the gold standard because we created too much currency and were facing a run [1].

[1] https://history.state.gov/milestones/1969-1976/nixon-shock

The gold standard disincentivizes consumption, and incentivizes savings. Plain and simple. Of course corporations love consumerism, and that's what the central bank fiat regime has enabled: wanton consumption and dwindling away the wealth of society.

If you're wondering why everything in society outside of technology is getting worse and being replaced with cheap substitutes, you need to look at the money itself.