WTF Happened in 1971?

WTF Happened in 1971?
wtfhappenedin1971.com

OK, I think the author is making some vague point about the collapse of the Bretton Woods system leading to the surge in inequality.

On a superficial level that looks to be what happened. And indeed something big happened that created an economic regime very different than the post-War regime of rising GDP and rising wages.

What happened in the early 1970s?

I think that's the wrong question because it pinpoints the last 40 years as in some way exceptional. I don't think they are. It's more interesting to ask what happened in the immediate post war era to allow increasing shared prosperity.

Well, the US won a major near apocalyptic war with its home territory completely unscathed permitting the US to utterly dominate the capitalist world order.

Maintaining that dominance required appeasing American workers who agitated heavily before the war and could credibly threaten to shut down strategic parts of the economy in the midst of a Cold War that could turn hot at any moment. Furthermore, that same Cold War created a polarity between capital and labor and forced the hands of the American elite to give way more concessions to labor than they would otherwise.

So in the years following WWII, there was about two decades of relatively pro-labor policies (or at least tolerance of labor). This allowed American workers to share in the gains from productivity.

What happened in the late 1960s?

American power started to diminish as the rest of the capitalist world became more competitive. The US could no longer just print dollars to fund its war machine and a new social welfare state (Great Society).

International capital became more aggressive in pursuit of profits. Why invest in American businesses when they could invest in lower wage, more efficient, up and coming economies. That put more pressure on American wages and American labor power.

With high levels of war spending and social spending without commensurate increases in taxes inflation was an ever present threat. Another reason capitalist became less interested in holding dollars.

The inflation threat was finally stomped out by the Volker Federal Reserve policies that generated a crushing recession. This recession and the Reagan administration's anti-labor policies crushed any hope that American labor would have of regaining its share of productivity increases.

The massive Reagan tax cuts further precluded building a social welfare safety net that could have helped workers weather economic calamities. Desperate workers work for cheap and are more willing to give up gains from productivity.

So, I don't think anything magical happened in 1971. Rather it was a collection of events that spanned into the 1980s culminating in the early 1980s recessions that both ended inflation and severely weakened American labor. On top of that right-wing policies further weakened the power of workers, making it less likely that they could share in gains from productivity increases.

How can you look at those graphs and not see the unmistakable, virtually overnight phase change? There are lines that run together until 1971 and then diverge. There are lines that cross axes in 1971. There are lines than run flat, and then begin a meteoric ascent in 1971.

The whole point of putting these graphs together is to show that something sudden happened then.