Noah Smith considers the break. His conclusion is that something big is driving this. I wrote about this too just a little over a month ago.
Noah comes to one of the same conclusions I did: Bretton Woods started the trend of labor competition with low wage countries. I think that's probably a big part of it. What I noted in the last post is that the Ron Paul types running around and pointing to "fiat money" and Bretton Woods don't seem to have a sensible answer. If it's Bretton Woods, it's Bretton Woods plus labor competition, not Bretton Woods plus fiat money.
Noah dismissess the union explanation, as I did.
He adds the oil shock. I wasn't sure why that would change the trajectory, but he makes an interesting point: 1973 marked the beginning of a period of energy price uncertainty, which increased costs. That sounds very plausible to me.
This is also a valuable thought from Andrew Bossie in the comment section of my old post: "Also, from a technical perspective, if wages and productivity are
difference stationary, then wages will trend upward alongside
productivity until it doesn't. It can make a gradual process look like a
sharp break."
People also did not like my dismissal of the union explanation in the old post at all. Go read those comments. My priors are modestly shifted by the discussion... not sure I've changed my mind. I really do need to read What Unions Do, though. I don't deal with organized labor stuff on a regular basis, but I am a self-proclaimed fan of Freeman, so I should probably read it.
Friday, July 20, 2012
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This is what I posted on Noah Smith's blog regarding the Bretton Woods system's design. It may have had something to do with wages and TFP not traveling together.
ReplyDeletehttp://noahpinionblog.blogspot.hk/2012/07/something-big-happened-in-early-70s.html?showComment=1342843516835
Fractional Reserve Banking plus "deregulation of banking from 1980" around the western nations is what is now strangling them all it matters not about productivity or flexability when the taxpayer is supporting a debt the size of which he can no longer support it will result in a collapse or a war or both.
ReplyDeleteWith the New York Stock exchange being proped up by the PPT "plunge protection team" involving the FED each time it falls it is no wonder Ron Paul is refering to "fiat let it be money fake", this money for nothing to a select few to enslave the many is falling apart & about time lets hope when the dust settles that new responsible people can take charge instead of the incompetant zombies in charge at present.