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Also note this rebuttal:
https://singlelunch.com/2023/09/13/the-bad-economics-of-wtfh...
With related discussion here:
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...
I agree with the rebuttal that the site seems to conflate economical developments with changes to social norms without any reasonable connection.
E.g. apart from the end of Bretton Woods, the beginning of the 70s also had the ongoing civil rights movement and the protests against the Vietnam war, both events that caused large-scale change of social norms.
...but I also had to stop reading the rebuttal when he got to the wage growth chart: He argues that inequality was rising (no objection) which causes the average income, pulled up by a small number of extremely high earners, to be overestimated vs the median income (no objection), which means... we should ditch the median and rely only on the average (wtf). Because I guess then the wage stagnation doesn't look as striking as it does otherwise?
It also doesn't debunk the "what happened in 1971?" question: If he doesn't want to talk about wage growth, fine, let's talk about inequality. Why did that increase so much after 1971 then that it starts to affect other statistics?
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.
Another "inflation good, deflation bad" repeater robot. Opinions, meet garbage.
Related:
WTF Happened in 1971? (2019) - https://news.ycombinator.com/item?id=37482646 - Sept 2023 (105 comments)
WTF Happened in 1971? - https://news.ycombinator.com/item?id=31471602 - May 2022 (102 comments)
WTF Happened in 1971? (2019) - https://news.ycombinator.com/item?id=25188457 - Nov 2020 (454 comments)
WTF Happened in 1971? - https://news.ycombinator.com/item?id=24135845 - Aug 2020 (5 comments)
WTF Happened in 1971? - https://news.ycombinator.com/item?id=20811004 - Aug 2019 (44 comments)
and:
The Bad Economics of Wtfhappenedin1971 - https://news.ycombinator.com/item?id=39144867 - Jan 2024 (42 comments)
The Bad Economics of WTFHappenedin1971 - https://news.ycombinator.com/item?id=37507749 - Sept 2023 (2 comments)
Weren't there a bunch of discussions about what happened in other years, or is it all 1971's fault?
You're missing one of the single greatest factors which is that shortly after that time, executive compensation became wholly disconnected from worker compensation. If executive compensation were tied to average employee compensation, I think you'd find a course correction in short order.
https://en.wikipedia.org/wiki/Executive_compensation_in_the_...
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.
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.
Could someone replicate this feat by creating a "WTF Happened in 19XX" website for any year in the 20th century, then combing through thousands of charts and graphs, and picking only the ones where there was a change in 19XX? Or was 1971 truly a special year?
"In October 1973, the Organization of Arab Petroleum Exporting Countries (OAPEC) announced that it was implementing a total oil embargo against countries that had supported Israel at any point during the 1973 Yom Kippur War, which began after Egypt and Syria launched a large-scale surprise attack in an ultimately unsuccessful attempt to recover the territories that they had lost to Israel during the 1967 Six-Day War. In an effort that was led by Faisal of Saudi Arabia,[1] the initial countries that OAPEC targeted were Canada, Japan, the Netherlands, the United Kingdom, and the United States."
I remember this was related to Reagan and Thatcher's policies. Essentially, it was more about concentrating funds and redistributing them. Those working on the distribution side, such as in finance and technology, benefited greatly.
My favorite theory for the leading cause of the inflection in the early 1970's is energy prices.
For the 100 years prior, the price of energy dropped very dramatically every year, Moore's law like. Then we had the oil crisis of 1973 and the price of energy has been roughly flat since.
Energy is a huge component of the price of everything, directly and indirectly.
My favorite theory is that it's related to zoning, permitting, and the urban built environment. What happened in the early '70s is that many of the US's major cities saw broad downzoning which compounded the effect of urban flight to suburbs, urban renewal, and the construction of freeways in cities which started the decade prior. This ensured that the traditional productivity gains of cities could not be shared as equally any longer. It led to a lower labor share of income (higher share to rent/land) and longer commutes for suburbs which effectively lowered their share of wealth. Productivity gains since have mostly went to increasing economic rents for land owners and monopolistic capital owners. After California's Prop 13 in 1978, many other states followed with their own property tax caps in the late '70s and early '80s which led to even more of the share of economic gains going to property owners.
Hunter S. Thompson went to a conference in the oil industry around this time where people were panicking that the US was about to experience an "oil peak" but was told by his editor to sit on the story.
Note the global monetary system was completely reorganized, not least to enable large scale exports of oil from peripheral countries to the core:
If productivity increases are driven by capital investments, why should the workers capture any of those benefits?
For example, if I have a guy digging holes with a shovel, but then I buy a backhoe with an auger, he is now maybe 100x more productive than he was before, but should he get paid more because of that? His life is actually easier now, maybe he should get paid less?
This crypto website somehow goes viral every 6 months and I have no idea how they do it
Given the scale and variety of transformations in the 20th century - technological revolution, mass urbanization, the integration of billions of new workers into global markets, nuclear weapons, mass media, environmental change, and unprecedented population growth – it would be very surprising if all the graphs just maintained linear trends the whole time. Many of these graphs appear to show continuations - though perhaps at inflection points of exponential growth – of trends already taking place.
Start of the unix epoch obviously.
I also like the ISO standardization of shipping containers explanation.
It's called the Nixon Shock - https://en.wikipedia.org/wiki/Nixon_shock
It ultimately led to the abolishment of the Bretton Woods International Monetary System which in turn led to the Oil Shock of 1973-1974 which in turn led to a prolonged period of high inflation in the United States (Americans from the late 70s would have loved Biden's inflation!)
Ronald Reagan "solved" the problem via massive tax breaks that resulted in profligate deficits, deficits which have continued nearly every year since to this day and via moving American manufacturing overseas.
It's unfortunate because Federal Reserve Chairman Paul Volcker had done and amazing job in reducing US inflation from 14% (!) in 1980 to 3% in 1983. The nascent neocons essentially pushed him out as Chairman and the rest, as they say, is history.
Anyway, what people are going to be asking 50 years from now is WTF happened in 2025? I'm fully expecting there's going to be a Trump Shock that has even longer-lasting impacts.
the end of bretton woods and the gold standard. Instead of Gold the the US could pay other countries with self printed paper.
If you search for images of "moore's law history", the y-intercept of the vast majority of the charts is 1969-1971.
Could the microprocessor explain, in part, the divergence of productivity and wages?
I would like a study that presents all this graphs (separately) to people and have them choose the inflection point. They would not all be on 1971. Some are very clearly a different year or just a gradual change.
The adding of arrows biases people to say everything happened in 1971 exactly.
I think there was a shift in national priorities and attitudes - roughly late 60s to early 80s. But, this bias is tricking people into thinking that one particular event was the cause of this shift.
Economically the US left the gold standard which meant currency could be created by the central bank. This caused inflation to rise but also meant that more capital could be raised in the economy, which wasn't as easy to do when the amount of dollars were fixed. Double edged sword kind of thing.
From all charts, the most intriguing to me is the one comparing the median male and female income.
https://www.computerhistory.org/timeline/1970/
The hippies made a choice in the 60s and humanity stuck with it.
Resistance is futile.
First affordable commercial single-chip microprocessor?
I long ago noticed the early 70's divergence of income inequality. I didn't realize that there was a Breton-Woods angle that some were pushing. I have no comment on that. I have always thought this was more closely related to the clawing back of higher tax rates on high income, which certainly helped set the conditions for higher executive compensation.
The Heritage Foundation was started in 1973 and they've been pushing their stupid agenda ever since, so maybe that played into it.
This is why we have Bitcoin.
"Energy and real GDP per capita, aggregate figures for G7 countries" seems the most telling to me.
The world hit a limit in the rate of energy production, but governments wanted (depended on?) continued growth, so various mechanisms overspending were pursued.
The result was inflation, which surfaces everywhere and affects everything.
The end of the Bretton Woods system is basically the turmeric of macroeconomics.
I ran across this theory years ago about a piece of legislation in late 1970 allowed lobbyists into previously closed door committee meetings, thus allowing lobbyists to assert direct pressure on congressional members. The second video is from the same guy but is rather long and goes into this idea that transparency in congressional committees is a counter-intuitively bad idea because it allows lobbyists to proactively apply pressure before anything ever gets to a floor vote.
I don't understand a thing about most of the subjects depicted in those charts so I can't discuss their contents. But couldn't it be another case of confirmation bias and correlation not implying causation?
In other words, if I pick a random year since, perhaps, 1950 and try to find charts where that year is an inflection point, would it be different to 1971?
End of the gold standard in the US
I mean, the early 70's saw some incredibly pivotal policy changes.
The US ended its trade embargo with China. The US dollar flooded European markets. The Vietnam War. The 26th amendment to the US constitution was passed, lowering the voting age. Women really entering the workforce.
Also, president Nixon announced that the US will no longer convert dollars to gold at a fixed value, and with this, froze wages, prices, and rents for 90 days.
Many things can point to this crucial economic change that all culminated around 1971.
WTF is up with that site, which is just a pile of charts with no analysis?
I think this group will appreciate this guy's analysis.
"James D'Angelo (Winner 2014 MIT Climate CoLab, ex-NASA scientist) uncovers a crucial flaw in American democracy. Incredibly, the solution – which lays at the heart of all current social concerns (inequality, the recession, political division, government disapproval, Citizens United, civil rights and corruption) – costs under 5 dollars.
James presents a breathtaking new look at congressional transparency and the troubles it has wrought by opening the doors to special interests and the wealthy.
So, welcome to the world of Martin Gilens' 2014 paper and flatline graph. Also welcome to the world created by electronic voting machines and the Legislative Reorganization Act of 1970 (passed on October 26, 1970). Unheard of in any current political discussion, this act of Congress has produced endless avenues for lucrative lobbying of special interest groups."
The Cardboard Box Reform - Nixon's Ghost Bill & A Crucial Flaw in Democracy
Basically, the world transitioned from “real value” to “perceived value”:
* Money valuation (vs. gold-backed value)
* Property valuation (vs. last transaction price)
* Stock market (speculation and perception)
* Individualism (perceived self-worth)
* Sexual revolution (vs. stable atomic family)
* Birth control (vs. unplanned family)
Everything got fluffy.
In 1971, the US withdrew from the Bretton-Woods agreement. In 1973 we had the oil crisis: Net production in western countries had peaked and governments switched over to importing oil from OPEC.
Those two events disenfranchised the working man in the US.
That’s easy to answer, The Powell memorandum. https://en.m.wikipedia.org/wiki/Lewis_F._Powell_Jr.#Powell_M...
There’s a clear through line from what that cruel, despicable man put to paper that year, to the incoming presidential administration in 2025.
The NHTSA issued FMVSS 215, the 5 mph bumper regulation.
A lot of changed in the 70s. End of Bretton Woods, Nixon goes to China, oil shock, Southern strategy changes party politics, War on drugs starts, 1968 movements fail, FED turns to monetarism culminating in the Volker shock, Thatcher elected in UK (with Reagan shortly after).
In short it was probably mainly the neoliberal turn.
Dunno, but lots of these charts are really poor.