{"id":6284,"date":"2020-09-24T15:32:15","date_gmt":"2020-09-24T19:32:15","guid":{"rendered":"https:\/\/cointelegraph.com\/magazine\/?p=6284"},"modified":"2021-06-22T17:29:55","modified_gmt":"2021-06-22T21:29:55","slug":"wtf-happened-in-1971","status":"publish","type":"post","link":"https:\/\/cointelegraph.com\/magazine\/2020\/09\/24\/wtf-happened-in-1971","title":{"rendered":"WTF happened in 1971 (and why the f**k it matters so much right now)"},"content":{"rendered":"

If you’ve ventured on to Crypto Twitter this year<\/strong>, you may have seen a tweet from the meme account<\/span> WTF Happened in 1971?<\/span><\/em><\/p>\n

Created in March, the account posts numerous times a week to its fast growing fanbase of 10,500 followers. A typical post features a graph that shows how inequality has grown in recent years, inflation has skyrocketed and how ordinary people are being priced out of houses and stocks due to low wage growth. Somewhere on the chart there will be a little arrow pointing at 1971, which highlights when the rot set in.<\/span><\/p>\n

And it invariably poses a question like: “WTF happened to wages in 1971?” Or, on a chart showing ever-widening political polarization: “WTF happened in 1971 that led to such a divergence in political thought?”<\/span><\/p>\n

Its followers notice similar phenomena and contribute to the meme by tagging them in. This week someone reposted a New York Post article showing a decline in the happiness of lower socio-economic status white adults since the early 1970s, asking: “Gee I wonder <\/span>#wtfhappenedin1971<\/span><\/a>???’<\/span><\/p>\n

 <\/p>\n

\"Income<\/h4>\n

 <\/p>\n

So what did happen in 1971?<\/h4>\n

The WTF Happened in 1971<\/span> website<\/span><\/a> suggests that all of these disparate effects are connected to President Richard Nixon calling time on the Bretton Woods financial system which tied the value of the world\u2019s reserve currency \u2014 the U.S. dollar \u2014 to gold.<\/span><\/p>\n

The \u2018gold standard\u2019 as it is known, underpinned global finance from 1944, when the World War II Allied Nations, including the U.S., Canada, Western European nations, Australia and Japan, negotiated the rules of the international monetary system with fixed exchange rates between currencies. This took place at a hotel in Bretton Woods, New Hampshire. At the time the U.S. controlled two thirds of the world’s gold and insisted the system was based on gold and the US dollar.<\/span><\/p>\n

The system meant that <\/span>in theory<\/span><\/i> you could redeem $35 USD for one ounce of gold\u00a0 – although in actual fact it was<\/span> illegal for US citizens to hold gold<\/span><\/a> between 1933 and 1974 after the government ran into trouble backing the currency during the Great Depression. Foreign governments could trade dollars for gold at that rate however. The government<\/span> again<\/span><\/i> ran into trouble backing the currency with gold in the late 1960s, after printing too much money to pay for things like the Vietnam war and various welfare programs, which was the rationale for Nixon killing the system on August 15, 1971.<\/span><\/p>\n

 <\/p>\n

\"Real<\/h4>\n

 <\/p>\n

Yeah, but it was a good thing<\/h4>\n

The effects of this are contested to say the least. The <\/span>International Monetary Fund<\/span> (IMF) for example suggests that fears at the time that the move away from gold would bring the era of rapid growth to an end were misplaced. <\/span>“In fact, the transition to floating exchange rates was relatively smooth, and it was certainly timely: flexible exchange rates made it easier for economies to adjust to more expensive oil, when the price suddenly started going up in October 1973. Floating rates have facilitated adjustments to external shocks ever since.”<\/span><\/p>\n

For many traditional <\/span>Keynesian economists<\/span><\/a> leaving the gold standard behind has provided governments with the flexibility to use activist monetary and fiscal policies to respond to, or prevent, economic crises. For example, without the Federal Reserves ‘unlimited’ quantitative easing program (money printing) this year, the economy may have fallen into such a deep hole the U.S. may never have clambered out of it. And Greece\u2019s inability to inflate itself out of its sovereign debt crisis in the years after the global financial crisis was part of the reason it had to embrace crippling austerity measures. Surveys of mainstream economists suggest that<\/span> 9 out of 10<\/span><\/a> think returning to the gold standard would be a disaster.<\/span><\/p>\n

No, leaving the gold standard was a disaster<\/h4>\n

But WTF 1971 tells a different story. It showcases various graphs highlighting that from 1971 onwards productivity increased while wages flatlined; GDP surged but the share going to workers plummeted; and house prices went through the roof leading to Americans’ ‘savings’ becoming inextricably tied to home values. It suggests that around the world episodes of hyperinflation increased, currencies crashed more frequently and there was a spike in the number of banking crises. The personal savings rate fell off a cliff, the incarceration rate went up by a factor of five, divorce rates shot up and the number of people in their late 20’s living with their parents increased exponentially.<\/span><\/p>\n

Most horrifyingly of all, the number of lawyers quadrupled.<\/span><\/p>\n

 <\/p>\n

\"Population<\/p>\n

 <\/p>\n

The site and Twitter account was founded by former 3D graphics designer<\/span> Ben Prentice<\/span><\/a> and Bitcoin podcaster<\/span> Heavily Armed Clown<\/span><\/a> \u2014 also known as Collin from <\/span>The Bitcoin Echo Chamber<\/span><\/a>. Both live on the east coast of the U.S., and met when Prentice pitched himself as a guest on Collin\u2019s podcast.<\/span><\/p>\n

Prentice discovered Bitcoin in 2017 and fell deep into the <\/span>Austrian economics <\/span><\/a>rabbit hole. That\u2019s a strand of <\/span>heterodox economics<\/span><\/a> beloved by goldbugs that suggests Keynesian economists have got it all wrong, fiat is <\/span>worthless paper<\/span><\/a> and gold is the answer. Although hugely influential among Bitcoiners, Austrian economics is shunned by mainstream economists and frequently criticized for lacking scientific rigor and not relying enough on mathematical models and macroeconomic analysis.\u00a0<\/span><\/p>\n

“Austrian economics is really just trying to dispel the logical fallacies inherent in Keynesian logic, starting at first principles and then building you way up from there,” says Prentice. However the pair have one major difference to the Austrians in that they believe Bitcoin is the answer that gold never was, he continues:<\/span><\/p>\n

Our belief is that gold itself failed as a money. And that’s hard for the Austrians to get because they’ve been advocating for gold for so long. But the reason gold failed as money is because we had to come up with paper in the first place to scale it and we know how many problems come with paper.<\/span><\/p><\/blockquote>\n

Collin says he was trading penny stocks, alternating between pump and dumps and a value investing strategy \u201cwhich isn\u2019t really a real thing\u201d when he stumbled across Presidential candidate <\/span>Ron Paul’s <\/span>End the Fed <\/em><\/span><\/a>while researching the underlying causes of the 2008 Global Financial Crisis. This led to the work of famed Austrian economists Ludwig von Mises and Murray Rothbard \u2014 who coined the term anarcho capitalism.<\/span><\/p>\n

“That’s where we found commonality,\u201d says Collin. \u201cAnd it was between our economic discussions talking about history, talking about money, talking about human action, that we came upon a lot of inflection points in the data, which happened around 1971.”<\/span><\/p>\n

The first few graphs for the site were taken from the Wikipedia entry on<\/span> Bretton Woods<\/span><\/a>, and they kept seeing more and more charts that suggested the same thing.<\/span><\/p>\n

 <\/p>\n