Great Changes in Progress, Part II

We left Part I with the end of the gold standard. This was the pivotal point in this history as will be shown.

1972 brought the election, and Watergate. The Viet Nam War was still in progress, with the attendant demonstrations and domestic violence from the anti-war crowd. With Nixon's re-election, he was able, at least some what, to pacify Viet Nam, and our troops were pretty rapidly with drawn, leaving a viable, but needy South Vietnamese government in charge, dependent upon American aid to be viable.

At the same time, shocks in the economy were constant, a result of the abandonment of the gold standard and a de facto devaluation of the dollar. OPEC caused oil prices to skyrocket, and the result was inflation throughout the economy.

The entire remainder of the decade saw inflation and a stagnant economy. This was commonly called "stagflation."

The 1970s was not a good decade for the United States. Stagnation, inflation, scandal dominated the scene. Viet Nam was ultimately lost when Congress pulled the aid from the South Vietnamese government, which promptly fell to the North, rendering the 52,000 American live lost purposeless.

We continued to have high inflation and energy woes through the end of the decade.

One may now ask why the gold standard was so important. What that did was require the US Government to exercise some fiscal restraint or face losing our gold. Without the convertibility, the government and the Federal Reserve had the ability to spend and print money as they wished, without an immediate apparent penalty, even though there would be an invisible penalty. Politicians love that kind of money availability, for they can then spend their way to re-election after re-election. And they did.

One thing that occurred in the overall economy was the beginning of the financialization of it. Manufacturing jobs began their decline, and Wall Street began to grow in power and influence. Money was "free" more or less.

And the invisible penalty began to be paid. Inflation adjusted earnings for men age 25 and up peaked in 1972, just as the gold standard was axed and the dollar devalued. They have never recovered to that point. Only the top quintile has done better, and particularly the top 5%. And these latter groups do better only when you count the households, not individuals.

We heard a lot about the "misery index" back in those days. Voters tended to hold the politicans responsible for that, and they were certainly partly to blame, but the Federal Reserve had the power to rein in the excesses, but failed to do so.

The president being forced to appoint a tough Chairman of the Federal Reserve marked the end of the decade. Paul Volcker would, in 1980, bring inflation to it knees. And that is where we will start Part III.