So... What did happen in the 70's...?

[Xolodno]

13. In a single word...Stagflation...

...but its not that simple.

OPEC shot the price of energy through the roof causing increased costs of production thereby forcing producers to to pass cost to the consumer at the same time having them to control costs...and since the price of labor is usually your biggest cost, it was easy to hold back on wages. Energy efficient methods of production were still in their infancy and gains from that would not be realized for a long time. Plus OPEC recognized energy efficiencies could reduce demand for oil and thereby price, so they pulled the price of oil back just enough to discourage growth of energy efficiency while still transferring wealth back to them.

Then of course, other nations by this point had sufficiently rebuilt themselves from World War 2 and began exporting steel and other important goods to other countries and a lower price and/or dumping goods into markets that were traditionally US importers. As a result you had US companies going out of business (increasing unemployment) while tariffs kept cheaper goods out and coupled with higher costs of energy...prices rose.

Nixon tried to reduce government consumption (increasing supply in the private market place) and increase taxes (force more efficiencies) but Congress resisted. So he took us off the gold standard which devalued our currency...it made our exports more attractive (decreasing unemployment) but also made raw material imports more expensive (again forcing companies to reduce wages). He tried price controls (never a really good idea) but that didn't work either. Because these were new problems the US never faced before (little understanding of how the international marketplace worked at the time) they spent too much time trying to solve immediate problems such as inflation. Had he been able to serve out his full term, I think they would have figured it out and given he didn't need to win re-election...would have went through with a painful but necessary economic policy....which didn't occur unfortunately until the early 80's...which only made the wage problem even worse.

It took a Fed generated recession in the early 80's to overhaul the economy (accepting the fact that certain industries the US could no longer compete, due to cheaper labor overseas and focus on industries it had a comparative advantage).

Once the economy realigned to its core strengths, the tax incentives designed to encourage the economic overhaul should have been removed and higher taxes should have been instituted to discourage rampant consumerism and encourage wage equality. However, people got used to having more "stuff" by then and raising taxes meant they would have less "stuff" (such as having a new car every 2-3 years instead of 5-6, etc.). The rampant consumerism increased the flow of money to the upper class and low tax rates allowed them to keep more of it rather than transfer it to government in the form of higher taxes or transfer it to higher wages for employees (higher production costs = lower tax brackets).

Due to the 70's and self inflicted 80's recession, people got used to slower wage growth and given their consumer appetite, more women entered the work force to supplement income (one wage earner wasn't enough anymore)...which increased the labor pool and encouraged even slower growth of wages....which forced more into the labor pool...creating a vicious cycle. Eventually the easing of credit was needed to continue the unsustainable cycle...which ironically stripped more income away in the long term for short term gains.

Also, people don't quite understand income inequality. Yes you may have more income if the transfer of wealth was more equitable, however, the costs of goods and services will be higher as well (as you are paying for a real wage and not wage slave). So yes, you will have more money in your pocket but but won't be able to afford the latest iPhone every year. But you can easily afford basic and needed necessities. You will just have to treat that older cell phone or car as more of a durable good rather than a one use good.