I'm somewhat conflicted about what this site attempts to posit. Many of the purported correlations seem to be spurious. The premise that the increase in global vegetable oil production, a growth...
Exemplary
I'm somewhat conflicted about what this site attempts to posit. Many of the purported correlations seem to be spurious. The premise that the increase in global vegetable oil production, a growth in chicken consumption, usage of the words "peer review" and the nixon shock are correlated is absurd and is not remotely supported by the graphs the site presents. The charts are cherry picked and randomly switch between measuring by country and capita while axis change widely between graph or go unlabelled.
One of the most laughable inclusions is the graph of culminative inflation in the US since 1775. Inflation compounds, and therefore always forms an exponential graph. In an actual chart of the annual inflation rate (not culminative), there is no long term trend change in 1971. As with so many other purported changes occuring in 1971, a red arrow pointing at the bottom of an exponential graph can be made to look like the start of a trend.
When I first came across this site, it was promoting a scam-esque crypto site. That's gone now, and instead they ask for donations to support "research"--I'm skeptical.
With all that being said, there very clearly is something to be said for the decline of the middle class shown in the first few graphs. That is real. But that didn't happen from a magic spell cast in 1971. I cannot help but notice that the third chart shows that wealth moving the rich is more correlated with the 1980s decrease in marginal tax rates. But you can't include something that might contradict the cryptobro dream of the pre-Nixon shock gold standard, so the red arrow still points at the uneventful 1971.
this website is a gish gallop with graphs. i would expect this kind of bullshit to be posted on reddit, not here. and the top comment is someone espousing a conspiracy theory… sigh.
this website is a gish gallop with graphs. i would expect this kind of bullshit to be posted on reddit, not here. and the top comment is someone espousing a conspiracy theory… sigh.
Looks like the ad at the top of that archived page is for River finance… fwiw doesn’t come across as a scam to me. Haven’t used them before but they look regulated with money transmitter licenses...
Looks like the ad at the top of that archived page is for River finance… fwiw doesn’t come across as a scam to me. Haven’t used them before but they look regulated with money transmitter licenses in the US, allow self-custody, run their own infrastructure, even have a beneficiaries service etc…
Complete speculation, but... One possibility is that 1971 was when Nixon effectively killed the Bretton Woods system, an international agreement that tied currency values to the US dollar, which...
Complete speculation, but...
One possibility is that 1971 was when Nixon effectively killed the Bretton Woods system, an international agreement that tied currency values to the US dollar, which was in turn tied to gold. This led countries to transition to fiat currency, which basically means free-floating money not backed by any physical stuff. In turn, this gave countries more flexibility in their monetary policy, but also led to increased inflation and economic instability. (Cynically speaking, this also might have helped the rich, who had the knowledge and means to profit from these changes...) So, in conjunction with the social changes happening domestically in the US, maybe that might explain why 1971 showed such a visible change?
Of course, the fact that this change has continued unabated for 50 years is probably a lot more complex than that. It's just one factor that might have been part of it.
It’s simply incorrect to say it led to more economic instability. The past 50 years have seen more economic growth and a remarkably stable system for global financial trade that has been basically...
It’s simply incorrect to say it led to more economic instability. The past 50 years have seen more economic growth and a remarkably stable system for global financial trade that has been basically unprecedented throughout history.
There is nothing special about gold that makes it any more meaningful than fiat as a standard. Gold standards only had value when a hegemonic trading power exerted force to maintain them, which is functionally still a fiat system. That hegemon can still expand or contract the money supply by devaluing or it’s currency in comparison to gold reserves and this is functionally what they did before the standard was done away with because it’s a clumsy and inefficient way of managing the economy.
The fact is that inflation is actually good (in moderation) for anyone who works for a living or carrys debt. The only people for whom inflation is bad are people who inherit their wealth or live as rentiers because it devalues their idle wealth. But if you work your wages will grow to keep up with the cost of living (albeit at a lag) and your debts will only devalue because they are denominated in nominal dollar figures. The anti-inflation drumbeats from the financial press is entirely propaganda from the credit and financial markets.
Honestly, I don’t agree. If what you were saying was true, wealth would be more equally spread out. The wealthy could only afford one yacht instead of 3 and the working class would have much more...
Honestly, I don’t agree.
If what you were saying was true, wealth would be more equally spread out. The wealthy could only afford one yacht instead of 3 and the working class would have much more comfortable lives.
I think you are forgetting to take into account interest rates, and how people with generational wealth can game the system to get stupid rich on their “idle wealth” as you put it.
It’s a conplexe issue, with many parts that make up the whole picture. But the simple way of putting it is that the rich are getting richer and the poor are getting poorer. So no amount of one take/solution will solve that without huge changes to the system as a whole.
The system that exclusively caters to people who are already rich.
This is a very vague criticism. It's clear that you think inequality is a big problem, but I can't tell what you think is wrong with NaraVara's post and I'd rather not guess.
This is a very vague criticism. It's clear that you think inequality is a big problem, but I can't tell what you think is wrong with NaraVara's post and I'd rather not guess.
I know I'm going to come off sounding like a prick. This is a me problem of not knowing how to fix it, and not at all a you problem of reading into it the wrong way. Please keep that in mind as...
I know I'm going to come off sounding like a prick. This is a me problem of not knowing how to fix it, and not at all a you problem of reading into it the wrong way. Please keep that in mind as you read on, and know this isn't coming from a malicious place, trying to dunk on you or some shit like that. You asked, I'm trying to help, but I also suck at this. Here goes.
Here are your key points:
Wealth should be more equally distributed
Interest makes the rich richer
It's complicated
The system favors the rich
With the exception of the first point, which is a belief or value judgement (that I happen to agree with fwiw), the rest are essentially just truisms. After reading your comment I have no idea what exactly you disagree with or why.
If it helps form a clearer rebuttal, here are NaraVara's main points:
The past 50 years had considerable economic growth and financial stability.
Gold standards differ little from fiat currency when the relationship between gold and currency can be manipulated by the controlling entities.
Inflation is good for people who work or have debt.
Inflation is bad for old money, as it devalues their idle wealth.
(You can break down the above two points a little more:)
If you work, your wages will increase to match the rising cost of living.
Debts will devalue due to inflation since they are based on nominal dollar figures.
Warnings against inflation from the financial press are propaganda from credit and financial markets, who want to limit the devaluation of their wealth caused by it.
I hope the perspective of an outside observer helps clarify why why your argument was seen as vague, and maybe to form a clearer response.
Hey! I was hoping my comment would inspire discussion that I could learn from, so thank you for taking the time to reply. I'm only an interested outsider in finance. Let me know if I'm...
Hey! I was hoping my comment would inspire discussion that I could learn from, so thank you for taking the time to reply. I'm only an interested outsider in finance.
Let me know if I'm understanding your points:
The transition to fiat currency led to a period of unprecedented stability, not instability;
The gold standard may not have been a fiat system in name, but it was a fiat system in practice;
Inflation is good in moderation.
Looking over your comment and mine, I'm wondering if we're just using different semantics. The instability I was thinking of was just the fact that a lot of the graphs in OP's link start trending differently in the 1970's than they had before. From the perspective of the international financial system's stability, I'm quite sure you are correct. I also think you're right about the gold system, which I always thought was kind of silly on the face of it (what inherent value does gold have, anyway?), but I'm wondering if there are other dimensions to Nixon's decision or its consequences that might have left echoes beyond that.
In short, in the absence of a better explanation, I was thinking: What happened in 1971, indeed? Perhaps there's something to this? Bretton Woods was the first thing that came to mind.
The one thing I'm concerned about is the idea that
if you work your wages will grow to keep up with the cost of living (albeit at a lag)
Does the data bear that out in practice? I'm seeing the opposite trend in the graphs. Maybe I'm missing something.
You hit the nail on the head with what I was disagreeing with. In an ideal capitalist system the working man’s wages SHOULD keep up with the cost of living, especially when our money isn’t based...
You hit the nail on the head with what I was disagreeing with. In an ideal capitalist system the working man’s wages SHOULD keep up with the cost of living, especially when our money isn’t based off of the arbitrary price of a precious metal.
But we are definitely seeing the reverse play out now.
And realistically, it IS being caused by a thousand small things at once. But the whole system of how money works is needlessly complex, and hugely favours people who already have money.
It depends on the rate and the causes. The pandemic inflation rates that were caused by a supply chain backup then no not really (though wages did grow at the bottom of the economy and the service...
Does the data bear that out in practice?
It depends on the rate and the causes. The pandemic inflation rates that were caused by a supply chain backup then no not really (though wages did grow at the bottom of the economy and the service sector in particular). But if it’s the normal type of inflation due to high rates of investment then yes it should as long as it’s not so high that capital starts fleeing and credit dries up.
I would argue that decoupling currency from hard reserves has had little to no direct effect on the economy. However, to claim the effect has been positive is something you'll have to try harder...
I would argue that decoupling currency from hard reserves has had little to no direct effect on the economy. However, to claim the effect has been positive is something you'll have to try harder to convince me of. At the very least you lose the ability to rebase your currency if, say, you experience a period of severe hyperinflation. Just let me take this dollar that's worth a dollar and say it's now worth... what? If I can say it's worth an ounce of this rare metal rather than that other rare metal, well that's not super great but it's better than nothing. But you can only do that if your currency is backed by something- "turn this note in for $1 worth of silver" means a lot more than "this note is worth $1 and $1 is worth whatever the money market says it is." Do you see the disadvantage this puts you at? Yes, it's always arbitrary. But it's less arbitrary when it's based on something, and less arbitrary means more trustworthy. People lose trust in fiat currencies because they aren't actually related to any tangible asset. Thus fiat currencies are more susceptible to hyperinflation and have less resilience to rapid changes. If the value of gold plunges you can count on it to recover eventually, because gold is gold. You can therefore trust any currency tied to it will also recover. No such faith exists for fiat currency.
That being said, as I initially stated, I believe this feature of fiat currency has less to do with the current state of affairs than many seem to think. While it certainly isn't helping, what we've been seeing in our economy these last 50 years can't be fully accounted for by us dropping the gold standard. A number of other factors have had a greater impact. International competition alone accounts for far more damage to the domestic economy than fiat currency. Outsourcing probably has a greater toll also.
When we have these discussions it's a good idea not to latch onto one idea or one policy failure as being the sole boogeyman responsible for all our woes. It's also helpful to think in the same terms the framers and policymakers use to craft the policies we're talking about. Even if their actions ultimately prove harmful, many policymakers still act in what they believe to be the best interest of their constituents. For instance, deregulation of the airline industry led to air travel prices falling to a level the median family could afford. It also led to more accidents, increased competition, and has accelerated climate change. Breyer, who worked on the airline deregulation act, said this of it: "Even among business travelers, who wants to pay 'full fare for the briefcase?'" Part of his motivation for helping the act was to reduce costs for the average passenger. He also points out airline companies make less money, comparatively speaking, than they did before the act. He sees this as the industry more efficiently meeting the needs of its customers.
My point is everything is rarely as simple as we wish to believe. Even bad policies sometimes have good effects. We all know this, but it's worth being reminded sometimes. And bearing this in mind, you might see how your comment makes too strong a claim on too shallow a foundation. Saying that fiat currency is definitely better or definitely increased economic stability or prosperity is a strong claim that isn't really borne by the evidence.
It seems like a gold standard is fairly similar to a currency peg. There are countries that peg their currency to the US dollar. Is there a good reason they should switch to gold? It's more...
It seems like a gold standard is fairly similar to a currency peg. There are countries that peg their currency to the US dollar. Is there a good reason they should switch to gold? It's more volatile so it seems like it's worse.
Currency pegs often fail in a crisis, just like the US went off the gold standard in a crisis. A peg has more credibility if it has a long history behind it, but I don't think this credibility has much to do with what the government decides to peg the currency to. A peg is not a physical fact, it's government policy, and policies can change. The gold can be there in Fort Knox, but that doesn't mean you can trade for it if the government decides to stop.
This doesn't apply if coins are actually made of silver (or whatever) because you have the silver. As soon as you're using paper or bank accounts, monetary value depends on government policy.
Also compare with stablecoins. A lot of people expect Tether to fail sooner or later, but it hasn't yet. I guess it hasn't hit a big enough crisis? (Also, if gold is better, why aren't there popular cryptocoins pegged to gold?)
I guess I argued a little too strongly or didn't make it clear, but my point wasn't that a gold standard is necessarily better than fiat currency. I'm just arguing against the idea that fiat...
I guess I argued a little too strongly or didn't make it clear, but my point wasn't that a gold standard is necessarily better than fiat currency. I'm just arguing against the idea that fiat currency has all that much to do with the current economic situation, good or bad. Whether it's backed by gold or petroleum or nothing, the value of a currency has more to do with the faith stakeholders have in the body responsible for it. So one good counterargument I would make in regards to your point is that fiat currency being dependent on the fiscal policy of the present administration applies a lot of faith to a governing body that's prone to making poor financial decisions. America has been fortunate in maintaining its position as an international leader in the global monetary system, and this is due in large part to the policy decisions, international investments, and protection of domestic vital interests by the various administrations we've had over the last 5 decades. But there is no guarantee this situation will continue, and as we saw with the previous administration it doesn't take much to wreck our international reputation. So one could make the argument that it might be better to have a currency backed by something physical, yet that argument also has the same caveat that the value of that standards based currency will ultimately depend upon the wisdom of those entrusted with making fiscal policy decisions. Thus my penultimate argument that whether currency is fiat or not is largely irrelevant, it's the fiscal policy decisions of the administration among other critical factors (one of them being luck) which determine its value.
Perhaps to frame it another way, the flexibility that comes with adopting a fiat currency is not necessarily a good thing. Its performance depends entirely on the rest of the fiscal policy package, and in that regard it is no different than a standards based currency.
Okay, I think I agree with that in part. Having some consistent rules can be a good thing. My understanding is that current best practice is inflation targeting. This is more of a guideline, but...
Okay, I think I agree with that in part. Having some consistent rules can be a good thing.
My understanding is that current best practice is inflation targeting. This is more of a guideline, but it seems like a good idea? It's pretty recent, but most central banks use it now.
The debate seems fairly narrow, about whether 2% or 3% is a better target, but sometimes people talk about whether other targets would be better. Price targeting (0% inflation) and currency pegs are other possible rules.
Calling it "fiat currency" is something I associate with cryptocurrency. They have policies too, though. A fixed algorithm (like Bitcoin) is also a policy, but not a very good one for anyone other than speculators. This is like having a constitution you can't change.
The fun thing is, though, that it doesn’t matter! You made $10 for a hour of work yesterday and that bought you a lunch. Lunch now costs $15 and you now earn $15 an hour so lunch is still worth an...
At the very least you lose the ability to rebase your currency if, say, you experience a period of severe hyperinflation. Just let me take this dollar that's worth a dollar and say it's now worth... what?
The fun thing is, though, that it doesn’t matter! You made $10 for a hour of work yesterday and that bought you a lunch. Lunch now costs $15 and you now earn $15 an hour so lunch is still worth an hour of your time. Nothing changed here besides the counting unit we use to keep track.
And this isn’t really any different from it being backed by gold except that banks don’t need to cart trucks of gold around from vault to vault and nobody needs to play constant reevaluation tricks to adjust the money supply. A free floating currency functionally means availability of money is never an issue when seeking capital to invest. As long as the government has no reason to throttle investment they will always make sure it’s available. If you really wanted to rebalance the currency value the government could throttle the money supply to the point where you start to deflate the currency, but this would be an economic catastrophe which is why nobody does it.
If the value of gold plunges you can count on it to recover eventually, because gold is gold.
Gold is a metal. Currency is money. Gold is useful to use as money, but there is no reason gold should have value in this way aside from blind trust in the value of gold. It isn’t magically a store of value because of some property of the metal, it’s literally just cultural attachment that made it so. This is the exact same mechanism as the faith and credit of the US government. It’s just that we’ve cut the intermediary. The previous gold standard before the Breton Woods system was based on the faith and credit of the British Empire. And before that the Spanish Empire, but the standard was much weaker then.
Saying that fiat currency is definitely better or definitely increased economic stability or prosperity is a strong claim that isn't really borne by the evidence.
I honestly don’t see how you can come to this conclusion with even a cursory reading of the economics. Deflation is massively harmful to the economy and tying money supply to the output of companies that mine metal is basically insane. There isn’t enough gold in the world to satisfy the demand for money in the modern global economy and it’s silly to lock up durable goods with actual functional utility (which gold has) in vaults because you need it to balance exchanges and act as a symbolic store of value. There’s a reason no serious economists call for a return to gold standards, the cost in having to ship specie around the planet to balance forex exchange alone would grind the flow of finance capital to a halt.
I would refer you to this other reply I made: here To summarize, my point wasn't that fiat currency is necessarily better or worse than a standards based currency. The point is that a well...
I would refer you to this other reply I made: here
To summarize, my point wasn't that fiat currency is necessarily better or worse than a standards based currency. The point is that a well designed fiscal policy package is what ultimately determines the performance of a currency, and whether that currency is standards based or fiat is largely irrelevant. Crediting the success or failure of the modern financial system to fiat currency alone is naive and too narrow-minded. You do make good points and for the most part I agree with you, broadly speaking. But I feel almost as if you are arguing against someone else.
The issue is that a currency peg to a specie is functionally not any different from a fiat currency. It’s just how the state wants to set its valuation. You can be crazy and peg your currency...
The issue is that a currency peg to a specie is functionally not any different from a fiat currency. It’s just how the state wants to set its valuation. You can be crazy and peg your currency value to the US Dollar in lockstep of you want, but basically everyone who has done this has regretted it. The Greeks also came to regret being stuck with the EUR when their economy started to tank.
The stability of the financial system that allowed for trustworthy floating currencies has been an enormous boon for global economic growth and enabled free flows of capital in ways undreamed of before.
From the perspective of the US federal government, the dollar being a fiat currency has a lot of advantages when it comes to regulating the monetary supply. The average person doesn't think about...
From the perspective of the US federal government, the dollar being a fiat currency has a lot of advantages when it comes to regulating the monetary supply. The average person doesn't think about how much gold a dollar is worth; they think about what they can buy with the dollar. For the past few decades, the US dollar has always had a place internationally as the petrodollar.
I think you make a good point about hyperinflation and currency rebasing, but if the central bank is effective, the average person in a wealthy country shouldn't have to deal with those issues.
I pretty much agree with you. If you're interested to see what I had to say in regards to the other responses I've received, I'd like you to see this response here and let me know what you think....
I pretty much agree with you. If you're interested to see what I had to say in regards to the other responses I've received, I'd like you to see this response here and let me know what you think. It seems like we think largely the same on this, but to me it seems where we differ is that I don't necessarily think giving the US government that much control over our currency is always the best idea. So far it's worked out but that's largely because of the fact that the value of our currency is now more or less linked to the floating commodities we have command over. We can lose that command just as easily as the value of gold could plummet. Either way I do recognize the distinction is largely semantic so I don't necessarily expect anyone to agree with me on this.
I agree with that comment. Unfortunately the economy is broadly dependent on competent bureaucrats. Economic policy very quickly veers into political philosophy when you get into the mechanics of it.
I agree with that comment. Unfortunately the economy is broadly dependent on competent bureaucrats. Economic policy very quickly veers into political philosophy when you get into the mechanics of it.
While it's common to say that debtors benefit from inflation, I don't think a pro-inflation constituency really exists. People hate it, rich or poor, and I'm having trouble thinking of how someone...
While it's common to say that debtors benefit from inflation, I don't think a pro-inflation constituency really exists. People hate it, rich or poor, and I'm having trouble thinking of how someone would welcome inflation, even if they work and are in debt and get a raise.
Suppose someone has a student loan to pay off. Due to inflation, other expenses go up, but not the loan payment. Should they be thinking "great, my loan payment didn't change?"
In order to benefit, they need earn more. When there was high inflation, some unions would negotiate an automatic cost of living adjustment, but I don't think that's a thing now, other than for social security? Some companies do give raises fairly regularly, though.
You need to actually get that raise and it needs to keep up with inflation or beat it. Since we know that not everyone gets a raise, I don't think anyone thinks, "I got a raise, and my loan payments are the same. I'm doing better. Thanks, inflation!" You might feel good about getting a new job or getting a raise, but that's mostly between you and your employer. You might attribute it partly to the company doing well because the economy is doing well, but that's as far as it goes.
In practice, politicians sometimes talk about new jobs being created and the economy being good. People sometimes feel better when the economy is running hot. And we see pessimists saying "but real wages haven't increased."
It's only a slight caveat that, though real wages didn't increase, for paying off debt, what matters is that take-home pay went up.
Being pro-inflation was William Jennings Bryant’s whole platform and a core plank (free silver) of the Democratic Party in those days. You’re right that there is no pro inflationary constituency...
Being pro-inflation was William Jennings Bryant’s whole platform and a core plank (free silver) of the Democratic Party in those days. You’re right that there is no pro inflationary constituency today, but I’d say that’s largely a consequence of an ecosystem if media and education that’s in cahoots to create a political culture that is pro-finance and anti-worker.
The fact is that having a full employment economy and low inflation targets are goals that are at odds with each other. We’ve been strongly biased towards low inflation and concomitant low labor power since the Volvker era. And while it may have been merited at that time, I think people are dramatically oversensitized to it as a result.
Yes, that's how I understand the history too, and I agree that they're somewhat correlated. One thing that was learned in the 1970's is that you can have inflation and a bad economy. So, better to...
Yes, that's how I understand the history too, and I agree that they're somewhat correlated. One thing that was learned in the 1970's is that you can have inflation and a bad economy. So, better to aim at having a better economy, perhaps accepting some inflation now and then as a side effect?
In practice, this is about interest rates. The pain from an abrupt increase in interest rates is pretty obvious, but we're nowhere near the Volcker-level interest rates needed when inflation really got out of control.
Who likes higher interest rates? In the short run, nobody, because asset prices go down. Debtors don't like them either. In the longer run, earning 5% on CD's is pretty good if you have money and inflation is low enough. Banks do very badly in the short run but will earn more money on higher interest rates eventually.
I think it's hard to argue that the Fed has been on the side of the rich when interest rates were so low for so long, though. For a long time, we did have low interest rates and low inflation.
I always feel bad at family gathering with my wife's side of the family. None of them finished more than a semester of college and they really have no future to look forward to. Even making barely...
I always feel bad at family gathering with my wife's side of the family. None of them finished more than a semester of college and they really have no future to look forward to. Even making barely above 6 figures myself there isn't a ton to look forward to but for them it just seems so much more bleak. Constantly trying to live paycheck to paycheck while being worked to death. Something will have to give eventually. There's no way this kind of wealth inequality can exist without conflict forever.
Do you all live in the same area? COL varies wildly and in the US it's even more crazy. Here in Canada we have high housing costs but what's more wild is that they are very high across pretty much...
Do you all live in the same area? COL varies wildly and in the US it's even more crazy. Here in Canada we have high housing costs but what's more wild is that they are very high across pretty much the entire country. In the US there are places you can live that cost insane amounts of money and make $100k look like nothing, and there are far less desirable places that cost... almost nothing. And then there's places in between that look very reasonable to us in Canada. I could sell my rowhouse in Ottawa and move to Connecticut, buy a big-ass 5 bedroom single home, walk away with $150k and go blow it on a Yale degree or something.
Always good to remember that the future hasn't happened yet. Most trends we imagine aren't real. (Yet. Sometimes they become real.) We can't predict elections, laws, who will be on the Supreme...
Always good to remember that the future hasn't happened yet. Most trends we imagine aren't real. (Yet. Sometimes they become real.) We can't predict elections, laws, who will be on the Supreme Court, wars, pandemics, discoveries and inventions, or any stuff like that.
Future minimum wage increases can be predicted up to the next election (there probably won't be any) and it gets hazier after that. Also, people earning minimum wage now may end up earning more than that.
I think demographic trends are an exception, since they're about people who have already been born. (As we've seen durning the pandemic, death rates can vary.) It's much like predicting that an individual will be older, unless they die young. It's not hard to predict something that covers all the possibilities.
Well I’m going to go ahead and be very pessimistic towards what your saying. We can fairly accurately predict what will happen unless theres a huge upset. The only people with power in politics...
Well I’m going to go ahead and be very pessimistic towards what your saying.
We can fairly accurately predict what will happen unless theres a huge upset.
The only people with power in politics are over 40 years old, and come from wealthy backgrounds. They all have sponsors and donors who are filthy rich helping them choose what laws we all should live by and who the laws effect.
So with that being said, we can pretty accurately guess that laws will be made to benefit the rich. And even those who may have good intentions don’t understand the issues that face the average person. You aren’t born into generational wealth, and have any kind of understanding what it’s like to live paycheck to paycheck. Anyone who can advise them on policies that effect poor people have never been poor, so they just don’t know or don’t care about the choices they make for poor people.
There’s not even a realistic way for an average person to get into politics, since you need financial backing and “not needing to work to survive” to even attempt such a thing.
Many of those statements are true only in some countries. While it may be true that the US is a geritocracy and economic mobility has decreased, global economic inequality is at its lowest level...
Many of those statements are true only in some countries. While it may be true that the US is a geritocracy and economic mobility has decreased, global economic inequality is at its lowest level in 150 years. On average, most people have a higher standard of living now than at any point in human history.
Could things get better? Absolutely. But life is generally pretty good for most people currently, and even experts have a hard time predicting the future. So maybe things will turn out better than you think. :)
Unless you want a career in politics, why dwell on that? For getting a job, other people being having more money isn't a direct obstacle. They can be good customers and might even hire you. You...
Unless you want a career in politics, why dwell on that? For getting a job, other people being having more money isn't a direct obstacle.
They can be good customers and might even hire you. You can make a lot of money off rich people.
Minimum wage is a minimum, something not directly relevant to anyone earning more than that.
See, this is where we disagree. It’s hard to ignore what rich people do, because their actions directly effect the rest of us. Why, this discussion on minimum wage is a perfect example. I bet you...
See, this is where we disagree.
It’s hard to ignore what rich people do, because their actions directly effect the rest of us. Why, this discussion on minimum wage is a perfect example.
I bet you don’t even consider a minimum wage as it should be defined: the amount of money a household needs to have the bare minimum to survive.
Because if rich people actions, we now see the minimum wage as “how much we can pay teenagers to do jobs that need to happen during school hours, but they live with their parents so no big deal”
And it’s getting worse. Most people when they hear minimum wage think $15 (or if they’re severely uninformed they may even think $15 is far too much). Realistically the minimum wage: as in how...
And it’s getting worse.
Most people when they hear minimum wage think $15 (or if they’re severely uninformed they may even think $15 is far too much).
Realistically the minimum wage: as in how much money a single person needs to have a basic life, should be MUCH higher.
Articles from 2021 show that the minimum wage should be roughly $20-24USD on average. But I don’t find many sources doing the math after the pandemic raised interest so high.
With that being said, I also feel bad for the people making above minimum wage. Even most of them are struggling because the minimum doesn’t even equate to basic living needs.
The thing about understanding history is that a lot of things happen at the same time and there's no way to re-run the experiment, so counterfactual reasoning is difficult. There are a lot of...
The thing about understanding history is that a lot of things happen at the same time and there's no way to re-run the experiment, so counterfactual reasoning is difficult. There are a lot of things you can point to, like the 1970's energy crisis. There are also negative side-effects of positive developments. Women entering the workforce probably did push down some wages for supply-and-demand reasons.
Also, there are a lot of dumb charts on the page that aren't adjusted for inflation. Prices were much lower many decades ago! Why be surprised at this?
And you could also point to the end of British colonial rule in multiple Middle Eastern states in 1971, which was foundational to the formation of OPEC, the cartel that brought about the 1973...
And you could also point to the end of British colonial rule in multiple Middle Eastern states in 1971, which was foundational to the formation of OPEC, the cartel that brought about the 1973 energy crisis.
Interesting. That's a more straightforward connection to the decline of colonialism than I had realized, though obvious in retrospect. It's also connected directly to international politics, since...
Interesting. That's a more straightforward connection to the decline of colonialism than I had realized, though obvious in retrospect.
It's also connected directly to international politics, since the 1973 oil embargo was against countries that supported Israel in the Yom Kippur war.
There are so many pieces to the international politics story... The People's Republic of China was admitted to the U.N. in 1971, setting the stage for Nixon's trip and the normalization of...
There are so many pieces to the international politics story... The People's Republic of China was admitted to the U.N. in 1971, setting the stage for Nixon's trip and the normalization of relations with the U.S., which in turn began the globalization of manufacturing to lower-wage countries.
Japanese auto exports took off as a direct consequence of U.S. automakers' failure to adapt to abruptly higher gasoline costs.
The combination of outsourced manufacturing, increased competition, and absent labor/anti-trust enforcement that began in the Nixon years killed U.S. labor bargaining power.
Lyndon Johnson dropped the highest indexed tax brackets while Vietnam War and social spending rose, and Reagan continued the process of dismantling redistributive taxation. It's no wonder that inflation took off and real wages started to stagnate in the 1970's, while wealth accumulated at the top.
Edit: Corrected timing of U.S. tax rate changes and subsequent inflation hypothesis.
Greater autonomy in monetary policy by abandoning the gold standard meant that we could pursue much greater short term price stability at the cost of less long term price stability (ie....
Greater autonomy in monetary policy by abandoning the gold standard meant that we could pursue much greater short term price stability at the cost of less long term price stability (ie. inflation). So the connection between gold and inflation is quite direct in that case.
Yes, that's a big part of the history of the 1970's. But according to this history, Nixon dropping out of Bretton Woods was a response to inflationary pressures? What were the causes of inflation...
Yes, that's a big part of the history of the 1970's. But according to this history, Nixon dropping out of Bretton Woods was a response to inflationary pressures? What were the causes of inflation before then? Maybe it's connected to the cost of the Vietnam war?
It doesn't seem like it was a very good response, since high inflation in the US didn't end until Volcker raised interest rates in the early 1980's.
Here's an article that blames it directly on bad Federal Reserve policy:
[O]ne critical and erroneous assumption to the implementation of stabilization policy of the 1960s and 1970s was that there existed a stable, exploitable relationship between unemployment and inflation. Specifically, it was generally believed that permanently lower rates of unemployment could be “bought” with modestly higher rates of inflation.
After that ended, there was little inflation until recently, so it seems hard to say that there's any cost now to not being on the gold standard? Future inflation is also a rather vague thing to call a "cost," since we don't know how much inflation there will be or how bad it will be. It seems more like a risk (of more bad Federal Reserve policy, among other things), and there are risks either way. Putting the economy on autopilot has risks too.
Another way to think about it might be that the 1970's was a very painful learning experience about what a central bank should do, but having paid the cost and learned that lesson, it wouldn't be a good idea to unlearn it.
This again. The author is pretty clearly Libertarian or at least Libertarian-adjacent in their political leanings and pretty clearly is trying to argue in a circumspect sort of way that it's the...
This again.
The author is pretty clearly Libertarian or at least Libertarian-adjacent in their political leanings and pretty clearly is trying to argue in a circumspect sort of way that it's the termination of the "gold standard" (i.e. the end of direct convertibility of the greenback to gold) that has caused all these things.
But it's a simplistic argument. Clearly the woes afflicting modern society are manifold and also have multiple causes that switching to $shitcoin_du_jour will certainly not address.
The Reagan and Thatcher governments would certainly had a great deal to do with concentrating wealth in the hands of the most wealthy 0.1-1% and the effect of their "trickle-down supply-side"...
The Reagan and Thatcher governments would certainly had a great deal to do with concentrating wealth in the hands of the most wealthy 0.1-1% and the effect of their "trickle-down supply-side" economic and austerity policies are still felt today. However, that wasn't until 1980. Some of those graphs look like the inflection point may have been as close to 1971 as to 1980, but overall it does look like some catalytic event/s occurred in/around 1971 that was accelerated by Reagan and Thatcher.
Could the 1971 catalyst have been the recovery of manufacturing in countries whose manufacturing base was destroyed in WW2 which is to say Germany and Japan? Certainly, the demise of US domestic steel production was not political or regulatory. It was the failure of US steel manufacturers to adopt newer and more efficient electric minimills (Nucor excepted) until it was too late.
The Construction Physics blog has a pretty interesting article about steel: The Blast Furnace: 800 years of technology improvement So this is part because the US has so much steel already that we...
Because steel can be recycled, and because the US has been making huge amounts of steel for over 100 years, we get a proportionately large amount of our steel — around 70% — from scrap steel remelted in electric arc furnaces. But this is a relatively modern development. Production of electric arc steel didn’t surpass blast furnace-basic oxygen steel in the US until the early 2000s, and worldwide, 70% of steel starts life in a blast furnace.
The electric arc furnace is a comparatively modern invention. It was first patented in the late 1800s by William Siemens, but didn’t see commercial use until the early 1900s when electricity became widely available and less expensive. For the first half of the 20th century, the electric arc furnace was largely used to make relatively small amounts of high-quality tool steels, replacing the expensive crucible process. It didn't start to produce steel in large volumes until the development of the minimill in the 1960s.
So this is part because the US has so much steel already that we don't need all that much new steel. Other countries are different, so the change is happening with a different timeline:
Japan, which eclipsed the US as the world’s largest steelmaker at various points in the second half of the 20th century, continues to produce a majority of its steel in blast furnaces, but the number of operating Japanese furnaces has dropped by half since the 1970s, and its furnace size and fuel efficiency have both plateaued. As one researcher noted, hundreds of years’ worth of furnace engineering has resulted in a tightly optimized process that’s hard to keep improving.
...
Blast furnaces continue to be constructed around the world, particularly in China, which now produces more steel than the rest of the world combined. For the foreseeable future, recycling steel scrap won’t be sufficient to supply the world’s need for iron, and we’ll continue to need iron ore based methods of steelmaking. But blast furnaces, like cement plants, have the unfortunate distinction of producing CO2 as a fundamental part of the process: a blast furnace is essentially a machine that turns iron oxide and carbon into iron and carbon dioxide. Worldwide steel production is responsible for around 7-8% of carbon emissions, and producers are largely focused on finding a way to produce iron from ore that doesn’t emit CO2.
I'm somewhat conflicted about what this site attempts to posit. Many of the purported correlations seem to be spurious. The premise that the increase in global vegetable oil production, a growth in chicken consumption, usage of the words "peer review" and the nixon shock are correlated is absurd and is not remotely supported by the graphs the site presents. The charts are cherry picked and randomly switch between measuring by country and capita while axis change widely between graph or go unlabelled.
One of the most laughable inclusions is the graph of culminative inflation in the US since 1775. Inflation compounds, and therefore always forms an exponential graph. In an actual chart of the annual inflation rate (not culminative), there is no long term trend change in 1971. As with so many other purported changes occuring in 1971, a red arrow pointing at the bottom of an exponential graph can be made to look like the start of a trend.
When I first came across this site, it was promoting a scam-esque crypto site. That's gone now, and instead they ask for donations to support "research"--I'm skeptical.
With all that being said, there very clearly is something to be said for the decline of the middle class shown in the first few graphs. That is real. But that didn't happen from a magic spell cast in 1971. I cannot help but notice that the third chart shows that wealth moving the rich is more correlated with the 1980s decrease in marginal tax rates. But you can't include something that might contradict the cryptobro dream of the pre-Nixon shock gold standard, so the red arrow still points at the uneventful 1971.
this website is a gish gallop with graphs. i would expect this kind of bullshit to be posted on reddit, not here. and the top comment is someone espousing a conspiracy theory… sigh.
Looks like the ad at the top of that archived page is for River finance… fwiw doesn’t come across as a scam to me. Haven’t used them before but they look regulated with money transmitter licenses in the US, allow self-custody, run their own infrastructure, even have a beneficiaries service etc…
It’s pretty obvious that culture wars and other nonsense is designed to distract from the movement of wealth to the .01%
Complete speculation, but...
One possibility is that 1971 was when Nixon effectively killed the Bretton Woods system, an international agreement that tied currency values to the US dollar, which was in turn tied to gold. This led countries to transition to fiat currency, which basically means free-floating money not backed by any physical stuff. In turn, this gave countries more flexibility in their monetary policy, but also led to increased inflation and economic instability. (Cynically speaking, this also might have helped the rich, who had the knowledge and means to profit from these changes...) So, in conjunction with the social changes happening domestically in the US, maybe that might explain why 1971 showed such a visible change?
Of course, the fact that this change has continued unabated for 50 years is probably a lot more complex than that. It's just one factor that might have been part of it.
It’s simply incorrect to say it led to more economic instability. The past 50 years have seen more economic growth and a remarkably stable system for global financial trade that has been basically unprecedented throughout history.
There is nothing special about gold that makes it any more meaningful than fiat as a standard. Gold standards only had value when a hegemonic trading power exerted force to maintain them, which is functionally still a fiat system. That hegemon can still expand or contract the money supply by devaluing or it’s currency in comparison to gold reserves and this is functionally what they did before the standard was done away with because it’s a clumsy and inefficient way of managing the economy.
The fact is that inflation is actually good (in moderation) for anyone who works for a living or carrys debt. The only people for whom inflation is bad are people who inherit their wealth or live as rentiers because it devalues their idle wealth. But if you work your wages will grow to keep up with the cost of living (albeit at a lag) and your debts will only devalue because they are denominated in nominal dollar figures. The anti-inflation drumbeats from the financial press is entirely propaganda from the credit and financial markets.
Honestly, I don’t agree.
If what you were saying was true, wealth would be more equally spread out. The wealthy could only afford one yacht instead of 3 and the working class would have much more comfortable lives.
I think you are forgetting to take into account interest rates, and how people with generational wealth can game the system to get stupid rich on their “idle wealth” as you put it.
It’s a conplexe issue, with many parts that make up the whole picture. But the simple way of putting it is that the rich are getting richer and the poor are getting poorer. So no amount of one take/solution will solve that without huge changes to the system as a whole.
The system that exclusively caters to people who are already rich.
Edited to sound less confrontational
This is a very vague criticism. It's clear that you think inequality is a big problem, but I can't tell what you think is wrong with NaraVara's post and I'd rather not guess.
I’m not sure what part you found vague, could you elaborate?
I know I'm going to come off sounding like a prick. This is a me problem of not knowing how to fix it, and not at all a you problem of reading into it the wrong way. Please keep that in mind as you read on, and know this isn't coming from a malicious place, trying to dunk on you or some shit like that. You asked, I'm trying to help, but I also suck at this. Here goes.
Here are your key points:
With the exception of the first point, which is a belief or value judgement (that I happen to agree with fwiw), the rest are essentially just truisms. After reading your comment I have no idea what exactly you disagree with or why.
If it helps form a clearer rebuttal, here are NaraVara's main points:
I hope the perspective of an outside observer helps clarify why why your argument was seen as vague, and maybe to form a clearer response.
Hey! I was hoping my comment would inspire discussion that I could learn from, so thank you for taking the time to reply. I'm only an interested outsider in finance.
Let me know if I'm understanding your points:
Looking over your comment and mine, I'm wondering if we're just using different semantics. The instability I was thinking of was just the fact that a lot of the graphs in OP's link start trending differently in the 1970's than they had before. From the perspective of the international financial system's stability, I'm quite sure you are correct. I also think you're right about the gold system, which I always thought was kind of silly on the face of it (what inherent value does gold have, anyway?), but I'm wondering if there are other dimensions to Nixon's decision or its consequences that might have left echoes beyond that.
In short, in the absence of a better explanation, I was thinking: What happened in 1971, indeed? Perhaps there's something to this? Bretton Woods was the first thing that came to mind.
The one thing I'm concerned about is the idea that
Does the data bear that out in practice? I'm seeing the opposite trend in the graphs. Maybe I'm missing something.
You hit the nail on the head with what I was disagreeing with. In an ideal capitalist system the working man’s wages SHOULD keep up with the cost of living, especially when our money isn’t based off of the arbitrary price of a precious metal.
But we are definitely seeing the reverse play out now.
And realistically, it IS being caused by a thousand small things at once. But the whole system of how money works is needlessly complex, and hugely favours people who already have money.
It depends on the rate and the causes. The pandemic inflation rates that were caused by a supply chain backup then no not really (though wages did grow at the bottom of the economy and the service sector in particular). But if it’s the normal type of inflation due to high rates of investment then yes it should as long as it’s not so high that capital starts fleeing and credit dries up.
I would argue that decoupling currency from hard reserves has had little to no direct effect on the economy. However, to claim the effect has been positive is something you'll have to try harder to convince me of. At the very least you lose the ability to rebase your currency if, say, you experience a period of severe hyperinflation. Just let me take this dollar that's worth a dollar and say it's now worth... what? If I can say it's worth an ounce of this rare metal rather than that other rare metal, well that's not super great but it's better than nothing. But you can only do that if your currency is backed by something- "turn this note in for $1 worth of silver" means a lot more than "this note is worth $1 and $1 is worth whatever the money market says it is." Do you see the disadvantage this puts you at? Yes, it's always arbitrary. But it's less arbitrary when it's based on something, and less arbitrary means more trustworthy. People lose trust in fiat currencies because they aren't actually related to any tangible asset. Thus fiat currencies are more susceptible to hyperinflation and have less resilience to rapid changes. If the value of gold plunges you can count on it to recover eventually, because gold is gold. You can therefore trust any currency tied to it will also recover. No such faith exists for fiat currency.
That being said, as I initially stated, I believe this feature of fiat currency has less to do with the current state of affairs than many seem to think. While it certainly isn't helping, what we've been seeing in our economy these last 50 years can't be fully accounted for by us dropping the gold standard. A number of other factors have had a greater impact. International competition alone accounts for far more damage to the domestic economy than fiat currency. Outsourcing probably has a greater toll also.
When we have these discussions it's a good idea not to latch onto one idea or one policy failure as being the sole boogeyman responsible for all our woes. It's also helpful to think in the same terms the framers and policymakers use to craft the policies we're talking about. Even if their actions ultimately prove harmful, many policymakers still act in what they believe to be the best interest of their constituents. For instance, deregulation of the airline industry led to air travel prices falling to a level the median family could afford. It also led to more accidents, increased competition, and has accelerated climate change. Breyer, who worked on the airline deregulation act, said this of it: "Even among business travelers, who wants to pay 'full fare for the briefcase?'" Part of his motivation for helping the act was to reduce costs for the average passenger. He also points out airline companies make less money, comparatively speaking, than they did before the act. He sees this as the industry more efficiently meeting the needs of its customers.
My point is everything is rarely as simple as we wish to believe. Even bad policies sometimes have good effects. We all know this, but it's worth being reminded sometimes. And bearing this in mind, you might see how your comment makes too strong a claim on too shallow a foundation. Saying that fiat currency is definitely better or definitely increased economic stability or prosperity is a strong claim that isn't really borne by the evidence.
It seems like a gold standard is fairly similar to a currency peg. There are countries that peg their currency to the US dollar. Is there a good reason they should switch to gold? It's more volatile so it seems like it's worse.
Currency pegs often fail in a crisis, just like the US went off the gold standard in a crisis. A peg has more credibility if it has a long history behind it, but I don't think this credibility has much to do with what the government decides to peg the currency to. A peg is not a physical fact, it's government policy, and policies can change. The gold can be there in Fort Knox, but that doesn't mean you can trade for it if the government decides to stop.
This doesn't apply if coins are actually made of silver (or whatever) because you have the silver. As soon as you're using paper or bank accounts, monetary value depends on government policy.
Also compare with stablecoins. A lot of people expect Tether to fail sooner or later, but it hasn't yet. I guess it hasn't hit a big enough crisis? (Also, if gold is better, why aren't there popular cryptocoins pegged to gold?)
I guess I argued a little too strongly or didn't make it clear, but my point wasn't that a gold standard is necessarily better than fiat currency. I'm just arguing against the idea that fiat currency has all that much to do with the current economic situation, good or bad. Whether it's backed by gold or petroleum or nothing, the value of a currency has more to do with the faith stakeholders have in the body responsible for it. So one good counterargument I would make in regards to your point is that fiat currency being dependent on the fiscal policy of the present administration applies a lot of faith to a governing body that's prone to making poor financial decisions. America has been fortunate in maintaining its position as an international leader in the global monetary system, and this is due in large part to the policy decisions, international investments, and protection of domestic vital interests by the various administrations we've had over the last 5 decades. But there is no guarantee this situation will continue, and as we saw with the previous administration it doesn't take much to wreck our international reputation. So one could make the argument that it might be better to have a currency backed by something physical, yet that argument also has the same caveat that the value of that standards based currency will ultimately depend upon the wisdom of those entrusted with making fiscal policy decisions. Thus my penultimate argument that whether currency is fiat or not is largely irrelevant, it's the fiscal policy decisions of the administration among other critical factors (one of them being luck) which determine its value.
Perhaps to frame it another way, the flexibility that comes with adopting a fiat currency is not necessarily a good thing. Its performance depends entirely on the rest of the fiscal policy package, and in that regard it is no different than a standards based currency.
Okay, I think I agree with that in part. Having some consistent rules can be a good thing.
My understanding is that current best practice is inflation targeting. This is more of a guideline, but it seems like a good idea? It's pretty recent, but most central banks use it now.
The debate seems fairly narrow, about whether 2% or 3% is a better target, but sometimes people talk about whether other targets would be better. Price targeting (0% inflation) and currency pegs are other possible rules.
Calling it "fiat currency" is something I associate with cryptocurrency. They have policies too, though. A fixed algorithm (like Bitcoin) is also a policy, but not a very good one for anyone other than speculators. This is like having a constitution you can't change.
The fun thing is, though, that it doesn’t matter! You made $10 for a hour of work yesterday and that bought you a lunch. Lunch now costs $15 and you now earn $15 an hour so lunch is still worth an hour of your time. Nothing changed here besides the counting unit we use to keep track.
And this isn’t really any different from it being backed by gold except that banks don’t need to cart trucks of gold around from vault to vault and nobody needs to play constant reevaluation tricks to adjust the money supply. A free floating currency functionally means availability of money is never an issue when seeking capital to invest. As long as the government has no reason to throttle investment they will always make sure it’s available. If you really wanted to rebalance the currency value the government could throttle the money supply to the point where you start to deflate the currency, but this would be an economic catastrophe which is why nobody does it.
Gold is a metal. Currency is money. Gold is useful to use as money, but there is no reason gold should have value in this way aside from blind trust in the value of gold. It isn’t magically a store of value because of some property of the metal, it’s literally just cultural attachment that made it so. This is the exact same mechanism as the faith and credit of the US government. It’s just that we’ve cut the intermediary. The previous gold standard before the Breton Woods system was based on the faith and credit of the British Empire. And before that the Spanish Empire, but the standard was much weaker then.
I honestly don’t see how you can come to this conclusion with even a cursory reading of the economics. Deflation is massively harmful to the economy and tying money supply to the output of companies that mine metal is basically insane. There isn’t enough gold in the world to satisfy the demand for money in the modern global economy and it’s silly to lock up durable goods with actual functional utility (which gold has) in vaults because you need it to balance exchanges and act as a symbolic store of value. There’s a reason no serious economists call for a return to gold standards, the cost in having to ship specie around the planet to balance forex exchange alone would grind the flow of finance capital to a halt.
I would refer you to this other reply I made: here
To summarize, my point wasn't that fiat currency is necessarily better or worse than a standards based currency. The point is that a well designed fiscal policy package is what ultimately determines the performance of a currency, and whether that currency is standards based or fiat is largely irrelevant. Crediting the success or failure of the modern financial system to fiat currency alone is naive and too narrow-minded. You do make good points and for the most part I agree with you, broadly speaking. But I feel almost as if you are arguing against someone else.
The issue is that a currency peg to a specie is functionally not any different from a fiat currency. It’s just how the state wants to set its valuation. You can be crazy and peg your currency value to the US Dollar in lockstep of you want, but basically everyone who has done this has regretted it. The Greeks also came to regret being stuck with the EUR when their economy started to tank.
The stability of the financial system that allowed for trustworthy floating currencies has been an enormous boon for global economic growth and enabled free flows of capital in ways undreamed of before.
From the perspective of the US federal government, the dollar being a fiat currency has a lot of advantages when it comes to regulating the monetary supply. The average person doesn't think about how much gold a dollar is worth; they think about what they can buy with the dollar. For the past few decades, the US dollar has always had a place internationally as the petrodollar.
I think you make a good point about hyperinflation and currency rebasing, but if the central bank is effective, the average person in a wealthy country shouldn't have to deal with those issues.
I pretty much agree with you. If you're interested to see what I had to say in regards to the other responses I've received, I'd like you to see this response here and let me know what you think. It seems like we think largely the same on this, but to me it seems where we differ is that I don't necessarily think giving the US government that much control over our currency is always the best idea. So far it's worked out but that's largely because of the fact that the value of our currency is now more or less linked to the floating commodities we have command over. We can lose that command just as easily as the value of gold could plummet. Either way I do recognize the distinction is largely semantic so I don't necessarily expect anyone to agree with me on this.
I agree with that comment. Unfortunately the economy is broadly dependent on competent bureaucrats. Economic policy very quickly veers into political philosophy when you get into the mechanics of it.
While it's common to say that debtors benefit from inflation, I don't think a pro-inflation constituency really exists. People hate it, rich or poor, and I'm having trouble thinking of how someone would welcome inflation, even if they work and are in debt and get a raise.
Suppose someone has a student loan to pay off. Due to inflation, other expenses go up, but not the loan payment. Should they be thinking "great, my loan payment didn't change?"
In order to benefit, they need earn more. When there was high inflation, some unions would negotiate an automatic cost of living adjustment, but I don't think that's a thing now, other than for social security? Some companies do give raises fairly regularly, though.
You need to actually get that raise and it needs to keep up with inflation or beat it. Since we know that not everyone gets a raise, I don't think anyone thinks, "I got a raise, and my loan payments are the same. I'm doing better. Thanks, inflation!" You might feel good about getting a new job or getting a raise, but that's mostly between you and your employer. You might attribute it partly to the company doing well because the economy is doing well, but that's as far as it goes.
In practice, politicians sometimes talk about new jobs being created and the economy being good. People sometimes feel better when the economy is running hot. And we see pessimists saying "but real wages haven't increased."
It's only a slight caveat that, though real wages didn't increase, for paying off debt, what matters is that take-home pay went up.
Being pro-inflation was William Jennings Bryant’s whole platform and a core plank (free silver) of the Democratic Party in those days. You’re right that there is no pro inflationary constituency today, but I’d say that’s largely a consequence of an ecosystem if media and education that’s in cahoots to create a political culture that is pro-finance and anti-worker.
The fact is that having a full employment economy and low inflation targets are goals that are at odds with each other. We’ve been strongly biased towards low inflation and concomitant low labor power since the Volvker era. And while it may have been merited at that time, I think people are dramatically oversensitized to it as a result.
Yes, that's how I understand the history too, and I agree that they're somewhat correlated. One thing that was learned in the 1970's is that you can have inflation and a bad economy. So, better to aim at having a better economy, perhaps accepting some inflation now and then as a side effect?
In practice, this is about interest rates. The pain from an abrupt increase in interest rates is pretty obvious, but we're nowhere near the Volcker-level interest rates needed when inflation really got out of control.
Who likes higher interest rates? In the short run, nobody, because asset prices go down. Debtors don't like them either. In the longer run, earning 5% on CD's is pretty good if you have money and inflation is low enough. Banks do very badly in the short run but will earn more money on higher interest rates eventually.
I think it's hard to argue that the Fed has been on the side of the rich when interest rates were so low for so long, though. For a long time, we did have low interest rates and low inflation.
This, as far as I know, is the theory. I always hear that leaving the gold standard has led to nonstop inflation.
I always feel bad at family gathering with my wife's side of the family. None of them finished more than a semester of college and they really have no future to look forward to. Even making barely above 6 figures myself there isn't a ton to look forward to but for them it just seems so much more bleak. Constantly trying to live paycheck to paycheck while being worked to death. Something will have to give eventually. There's no way this kind of wealth inequality can exist without conflict forever.
Do you all live in the same area? COL varies wildly and in the US it's even more crazy. Here in Canada we have high housing costs but what's more wild is that they are very high across pretty much the entire country. In the US there are places you can live that cost insane amounts of money and make $100k look like nothing, and there are far less desirable places that cost... almost nothing. And then there's places in between that look very reasonable to us in Canada. I could sell my rowhouse in Ottawa and move to Connecticut, buy a big-ass 5 bedroom single home, walk away with $150k and go blow it on a Yale degree or something.
Always good to remember that the future hasn't happened yet. Most trends we imagine aren't real. (Yet. Sometimes they become real.) We can't predict elections, laws, who will be on the Supreme Court, wars, pandemics, discoveries and inventions, or any stuff like that.
Future minimum wage increases can be predicted up to the next election (there probably won't be any) and it gets hazier after that. Also, people earning minimum wage now may end up earning more than that.
I think demographic trends are an exception, since they're about people who have already been born. (As we've seen durning the pandemic, death rates can vary.) It's much like predicting that an individual will be older, unless they die young. It's not hard to predict something that covers all the possibilities.
Well I’m going to go ahead and be very pessimistic towards what your saying.
We can fairly accurately predict what will happen unless theres a huge upset.
The only people with power in politics are over 40 years old, and come from wealthy backgrounds. They all have sponsors and donors who are filthy rich helping them choose what laws we all should live by and who the laws effect.
So with that being said, we can pretty accurately guess that laws will be made to benefit the rich. And even those who may have good intentions don’t understand the issues that face the average person. You aren’t born into generational wealth, and have any kind of understanding what it’s like to live paycheck to paycheck. Anyone who can advise them on policies that effect poor people have never been poor, so they just don’t know or don’t care about the choices they make for poor people.
There’s not even a realistic way for an average person to get into politics, since you need financial backing and “not needing to work to survive” to even attempt such a thing.
Many of those statements are true only in some countries. While it may be true that the US is a geritocracy and economic mobility has decreased, global economic inequality is at its lowest level in 150 years. On average, most people have a higher standard of living now than at any point in human history.
Could things get better? Absolutely. But life is generally pretty good for most people currently, and even experts have a hard time predicting the future. So maybe things will turn out better than you think. :)
Unless you want a career in politics, why dwell on that? For getting a job, other people being having more money isn't a direct obstacle.
They can be good customers and might even hire you. You can make a lot of money off rich people.
Minimum wage is a minimum, something not directly relevant to anyone earning more than that.
See, this is where we disagree.
It’s hard to ignore what rich people do, because their actions directly effect the rest of us. Why, this discussion on minimum wage is a perfect example.
I bet you don’t even consider a minimum wage as it should be defined: the amount of money a household needs to have the bare minimum to survive.
Because if rich people actions, we now see the minimum wage as “how much we can pay teenagers to do jobs that need to happen during school hours, but they live with their parents so no big deal”
And it’s getting worse.
Most people when they hear minimum wage think $15 (or if they’re severely uninformed they may even think $15 is far too much).
Realistically the minimum wage: as in how much money a single person needs to have a basic life, should be MUCH higher.
Articles from 2021 show that the minimum wage should be roughly $20-24USD on average. But I don’t find many sources doing the math after the pandemic raised interest so high.
With that being said, I also feel bad for the people making above minimum wage. Even most of them are struggling because the minimum doesn’t even equate to basic living needs.
Thought this was an interesting site chronicling the decline of the middle class and wage growth.
The thing about understanding history is that a lot of things happen at the same time and there's no way to re-run the experiment, so counterfactual reasoning is difficult. There are a lot of things you can point to, like the 1970's energy crisis. There are also negative side-effects of positive developments. Women entering the workforce probably did push down some wages for supply-and-demand reasons.
Also, there are a lot of dumb charts on the page that aren't adjusted for inflation. Prices were much lower many decades ago! Why be surprised at this?
And you could also point to the end of British colonial rule in multiple Middle Eastern states in 1971, which was foundational to the formation of OPEC, the cartel that brought about the 1973 energy crisis.
Interesting. That's a more straightforward connection to the decline of colonialism than I had realized, though obvious in retrospect.
It's also connected directly to international politics, since the 1973 oil embargo was against countries that supported Israel in the Yom Kippur war.
There are so many pieces to the international politics story... The People's Republic of China was admitted to the U.N. in 1971, setting the stage for Nixon's trip and the normalization of relations with the U.S., which in turn began the globalization of manufacturing to lower-wage countries.
Japanese auto exports took off as a direct consequence of U.S. automakers' failure to adapt to abruptly higher gasoline costs.
The combination of outsourced manufacturing, increased competition, and absent labor/anti-trust enforcement that began in the Nixon years killed U.S. labor bargaining power.
Lyndon Johnson dropped the highest indexed tax brackets while Vietnam War and social spending rose, and Reagan continued the process of dismantling redistributive taxation. It's no wonder that inflation took off and real wages started to stagnate in the 1970's, while wealth accumulated at the top.
Edit: Corrected timing of U.S. tax rate changes and subsequent inflation hypothesis.
Greater autonomy in monetary policy by abandoning the gold standard meant that we could pursue much greater short term price stability at the cost of less long term price stability (ie. inflation). So the connection between gold and inflation is quite direct in that case.
Yes, that's a big part of the history of the 1970's. But according to this history, Nixon dropping out of Bretton Woods was a response to inflationary pressures? What were the causes of inflation before then? Maybe it's connected to the cost of the Vietnam war?
It doesn't seem like it was a very good response, since high inflation in the US didn't end until Volcker raised interest rates in the early 1980's.
Here's an article that blames it directly on bad Federal Reserve policy:
After that ended, there was little inflation until recently, so it seems hard to say that there's any cost now to not being on the gold standard? Future inflation is also a rather vague thing to call a "cost," since we don't know how much inflation there will be or how bad it will be. It seems more like a risk (of more bad Federal Reserve policy, among other things), and there are risks either way. Putting the economy on autopilot has risks too.
Another way to think about it might be that the 1970's was a very painful learning experience about what a central bank should do, but having paid the cost and learned that lesson, it wouldn't be a good idea to unlearn it.
(There are other lessons being learned now.)
This again.
The author is pretty clearly Libertarian or at least Libertarian-adjacent in their political leanings and pretty clearly is trying to argue in a circumspect sort of way that it's the termination of the "gold standard" (i.e. the end of direct convertibility of the greenback to gold) that has caused all these things.
But it's a simplistic argument. Clearly the woes afflicting modern society are manifold and also have multiple causes that switching to $shitcoin_du_jour will certainly not address.
The Reagan and Thatcher governments would certainly had a great deal to do with concentrating wealth in the hands of the most wealthy 0.1-1% and the effect of their "trickle-down supply-side" economic and austerity policies are still felt today. However, that wasn't until 1980. Some of those graphs look like the inflection point may have been as close to 1971 as to 1980, but overall it does look like some catalytic event/s occurred in/around 1971 that was accelerated by Reagan and Thatcher.
Could the 1971 catalyst have been the recovery of manufacturing in countries whose manufacturing base was destroyed in WW2 which is to say Germany and Japan? Certainly, the demise of US domestic steel production was not political or regulatory. It was the failure of US steel manufacturers to adopt newer and more efficient electric minimills (Nucor excepted) until it was too late.
The Construction Physics blog has a pretty interesting article about steel: The Blast Furnace: 800 years of technology improvement
So this is part because the US has so much steel already that we don't need all that much new steel. Other countries are different, so the change is happening with a different timeline:
...
Boomers happened.