Like Shodan, I was alive during the 70’s and can tell you they sucked like sucking was their full time job and they were up for promotion. Most economic theory thought that it was impossible for interest rates and unemployment to go up at the same time. The 70’s disproved this. There was high unemployment, high inflation, and high interest rates.
You can cherry pick statistics to prove any point you want, 73% of people know that.
The debt to GNP ratios during the 80s are in line with historical averages.
People were able to use credit cards instead of layaways, a huge improvement. Automation and technology brought greater returns to education and skilled labor. New medical techonology brought new but expensive cures. Wages only stagnate if you don’t account for total compensation. Our lives today are so much better than they were then, it is amazing.
That was attributable to an atypical situation, a spike in the price of imported petroleum – a real, external cost to the American economy, neither caused by nor remedial by any monetary policy of the Fed. When oil costs more, everything costs more – everything we buy in stores got there by truck, almost everybody has to drive to work, etc.
But that was caused by geopolitical circumstances, not any actual decrease in the global petroleum supply or increase in the cost of extraction, and when those circumstances changed (about the time Reagan took office) there was an “oil glut.”
That was then. In the near future, we might be facing a global “Peak Oil” scenario, increasing a real external cost to the American economy, permanently, for reasons no diplomatic or political maneuvering can remedy.
A couple of points:
Personal debt tracks overall interest rates to some extent. When debt got cheaper in the mid-80s, people started to consume more of it.
There are two factors that leap to mind as contributing to wage stagnation. 1) In the post-WWII years, the American economy was uniquely healthy and dominant while most other industrial economies had been devastated by the war. As the rest of the developed world rebuilt, the US’s unusual advantage eroded. 2) Women entered the workforce in much larger numbers. This was unquestionably a social good, but it meant that the supply of labor grew much larger, and more quickly than the demand for it.
Income inequality may tie to stock market growth. The markets were flat in the 60s and 70s and then took off in the 80s and 90s. This doesn’t really explain the 50s, though.
As for healthcare, it may be that US health care has engaged in more large capital spending (MRI machines, etc.) since 1980, which could also have been a consequence of low interest rates. Also, the non-taxability of health benefits presumably distorts employer compensation spending relatively more toward health insurance and less toward wages. (Another reason for wage stagnation).
Some people would suggest looking at R&D spending and at malpractice/tort/“defensive medicine” costs, and others would look to administrative costs and advertising. There’s probably some truth in all of those, and how one weights them probably comports with one’s overall political leanings.
Ain’t no might about it, it’s comin’.
I can only hope that soon the wealthy will realize that it is more cost effective (in terms of their own comfort) to share their wealth than to maintain bloated militaries and prison systems to protect what they’ve stolen.
It all depends on which metrics one looks at as being important, economically, to the US…and which one you don’t. You really have to stretch things, though, in order to come up with things being right (economically) BEFORE the 80’s and continuing on down the dark path since then. You really needed to live through the 70’s to have an appreciation for how much better things got after that period. Sure, there was a lot of ups and downs, and a lot of disconnects as our economy shifted from traditional manufacturing and raw materials processing to other things, but even during this current recession it hasn’t come even close to how bad things were during the stagflation days of the 70’s.
-XT
I think the answer is that, sometime in the 1980’s, the USA became a net debtor nation. Because of this, a greater share of US GNP goes to repaying foreign debt-this money is lost to us, as it goes to building plants in China, India, etc.
That is why the USA cannot compete with China in areas like:
-consumer electronics/PCs
-clothing and textiles
-automobiles
-appliances
-plumbing supplies
-tools
-basic chemicals
-shoes and footwear
Now that our industries are shutting down, the trend will only get worse…as more and more wealth is sucked out of our economy, service industries are the only thing left.
great if you are a divorce lawyer, or work at McDonald’s…not so good if you are an engineer or steelworker.
I agree, Our industries like GE started building plants in Mexico. The beginning of corporate greed over what is in the best interest of America.
I would that since the 80s, advances in technology have led to increased globalization. Great news for poor, developing nations eager to get wealthier. Not so great for nations with bloated, union run heavy industry. You can complain about “corporate greed” all you want, but consumer vote with their wallets.
Couple with this, Americans desire to maintain or even increase their standard of living, increased military spending to maintain our overseas interests, increasing health costs, rising costs for natural resources and you get a lot of Americans spending money they don’t have.
This serves to increase debt reducing the real value of people’s wages. It becomes a vicious cycle because the more real value of wages are reduced, the more people cry to the government to assist them, the more the government spends on entitlement programs, the more our debt increases.
I hate to be depressed but the USA is done for, all you will have in the next 20 or 30 years is the rich and the poor like in banana republic nations. I think the next big job opportunity will be in the domestic servant capacity. Mr. Limbaugh and the like will need someone to cut their multi-acre lawns. The “servant” role diminished with the growing middle class so I predict a return to this as the middle class slowly erodes way. As George Will said “Americans shouldn’t be doing those jobs anyway.”
We’ll probably be invading Iran sometime this year too…
-XT
The 1970’s was a perfect storm of events for the US government, just like the current period, except this time I believe is (was) worse because faith/crisis in confidence of the banking/monetary system was at an all time low. The difference is that we don’t have stagflation of the 1970s (yet, but thankfully, economic indicators don’t point to that direction).
The difficulties of the 1970’s were marked by oil shocks, other supply shocks (because of the oil), the Vietnam war (inflationary war economy), technological changes to labor (automation and outsourcing), combined with strong unions and high barriers/competition to entry to the workforce (discouragement of non-union work, women entering the workforce, less stay at home moms), floating monetary policy (a lot of the world was still on the gold standard and confidence was lacking in the US dollar, worse, developing countries were pegged to the US dollar), and debt levels from Johnson’s expansion of social welfare and Korean war from the 60’s.
As stated upthread, Keynesian theory did not think it was possible for inflation and unemployment to rise at the same time. The thinking, simply put, was that printing more money and rising inflation was a result of a growing economy. The thinking goes: rising oil prices should result in more economy activity. As prices started to rise to an alarming rate, price and, then later, wage controls were introduced to keep things affordable to more people. This only created inflationary pressures to oil prices and the prices of goods that are directly related to the price of oil (e.g. food, transportation, etc.) Wage controls caused higher unemployment and it also did not (arguably) keep up with inflation which was still rearing despite the price controls.
At the same time, Nixon got the US off the gold standard, i.e. repeal of the Bretton Woods system. Countries going off a marked, and well-known basket of indicators/goods (e.g. stone, tulips, rocks, other currency, gold, etc.) always experiences inflationary pressures. The price and wage controls are experienced much more quickly. Market fluctuations from leaving the Bretton Woods system took longer to assimilate in the global market.
With the US still at war, the inflation also persisted. War time economies always cause inflation, and this is no different. Anti-inflationary measures are made less effective because of the US willing to run the printer for more money.
Technological booms of automation and an increasingly educated workforce, coupled with price and wage controls, created an excess in the labor supply. Companies unwilling to change technologies were less competitive. Companies that utilized technology and outsourcing did not transition its employees well (either layoffs or did not expand business to utilize those workers) or had strong unions which made it difficult to transition employees.
As prices rise and actual shortages of goods now apparent, coupled with price and wage controls, more families became two-income families in order to make ends meet. Labor that could not adapt to the new economy now have former housewives and newly minted graduates vying for the same unskilled/low-skilled labor. In the 1970s, think how many more typesetters, word processors, data entry people, telecommunications people (operators, dial clerks, etc.) that are now all replaced by software and computers. The economy of the 1970s was dominated by manufacturing, and the transition to a service based economy we have now had not yet started. Manufacturing labor was tied to automation that largely did not exist outside of that particular industry.
Lastly, though, more indirectly Johnson’s social programs were also a major contributor (Paul Krugman can kiss my ass). His two wars, Vietnam and Poverty were not felt until the 1970’s when trade relations changed as Europe and Japan caught up to the US in manufacturing capability, but lagged in standards of living, thus being able to deliver with lower labor costs. I believe, though I’m too busy to look for a cite, that Nixon was forced, politically, to continue these policies (or some form of them) to win the presidential election.
As for rising medical costs, I have always attributed it to medicare/medicaid, health insurance and technological improvements.
Clearly, the 1970’s was an awful era for the American economy.
I clicked them. The OP’s own links directly contradict his words.
Consider the claim that personal debt “grew dramatically” starting in 1980. According to the provided link, that is absolutely false. I’m looking at the link right now. The debt to income ratio quite clearly **had already peaked **in 1980, having grown very steadily since 1976, and then started to DROP, not climb. It continued to slide until 1985. It was in 1985 that it really started to slimb dramatically, really going nuts with the housing bubble starting around 2003. So whatever happened, if it was one effect, happened in 1985, not 1980.
Mazinger makes a good case, but like most here, I believe it was that fateful day in 1979 when scientists working in a Dupont lab discovered greed. If only that had never happened the working man might get a fair shake.
Which chart are you looking at? If you click the second link in the OP, the figure indicates that US household debt / personal income hovers around 60% between 1960 and 1984. Seems like you want to quibble about a four year difference (1980 vs 1984) and about a 2 to 4% fluctuation.
I would simply note that the OP specifically says “around 1980”, not “precisely 1980” and the fluctuations that you are calling DROPS represent a tiny change in the overall chart. Also, how could it have “already peaked in 1980”, when it was around 60%, when it is around 120% by the end of the period? Were you looking for the word “plateaued” until 1980 (or 1984 to be more specific)?
Oh, absolutely, US manufacturing is but a shell of its former self :rolleyes: So much industry has left that country that we’re only manufacturing about twice as much as we did in 1980, as you can clearly see in this graph.
I would blame Johnson in the current era for that - he fought Vietnam without asking the American public to make any sacrifice other than their sons. No rationing, no change in the tax code, just a big war that helped pile on the debt. RonBo was far from the originator of spending without having any extra taxes or reciprocal cuts in spending.
Neo-marxist* geographer David Harvey’s 1991 book The Condition of Postmodernity explains well how a lot of things started to change in the world (and, for the US especially, not for the better) around 1973 or 1974. Basically, he talks about what Mazinger mentioned, and more (“Fordsm” giving way to “flexible accumulation”, etc.), and connects it to cultural changes, too, such as architecture.
(*but don’t let that scare you – this guy has his feet planted on the ground, and really knows his stuff)
I think what people are more concerned about is the perceived reduction of middle-class jobs because of outsourcing and automation, creating a growing divide between lucrative service jobs like attorneys and engineers, requiring expensive education and training and minimum wage services like Walmart and McDonalds employees.
Engineering isn’t lucrative. I wish.
Well, why is it that in 1970, you could buy American-made shoes, clothes, tools,appliances…and now, everything comes from China?
There isn’t a single US shoe manufacturer left now!