The Golden Era of the 1950s/60s Was an Anomaly, Not the Default Setting

Tyler Durden's picture




 

Submitted by Charles Hugh-Smith of OfTwoMinds blog,

The 1950s/60s were not "normal"--they were a one-off, extraordinary anomaly.

If there is one thing that unites trade unionists, Keynesian Cargo Cultists, free-market fans and believers in American exceptionalism, it's a misty-eyed nostalgia for the Golden Era of the 1950s and 60s, when one wage-earner earned enough to buy all the goodies of a middle-class lifestyle because everything was cheap. Food was cheap, land was cheap, houses were cheap, college was cheap and most importantly, oil was cheap.

The entire political spectrum looks back at this Golden Age with longing because it was an era of "the rising tide raises all ships:" essentially full employment, a strong U.S. dollar and overseas demand for U.S. goods combined to raise wages while keeping inflation low.

The nostalgic punditry quite naturally think of this full-employment golden age of their youth as the default setting, i.e. the economy of the 1950s/60s was "normal." But it wasn't normal--it was a one-off anomaly, never to be repeated. Consider the backdrop of this Golden Era:

1. Our industrial competitors had been flattened and/or bled dry in World War II, leaving the U.S. with the largest pool of capital and intact industrial base. Very little was imported from other nations.

2. The pent-up consumer demand after 15 years of Depression and rationing during 1942-45 drove strong demand for virtually everything, boosting employment and wages.

3. The Federal government had put tens of millions of people to work (12 million in the military alone) during the war, and with few consumer items to spend money on, these wages piled up into a mountain of savings/capital.

4. These conditions created a massive pool of qualified borrowers for mortgages, auto loans, etc.

5. The Federal government guaranteed low-interest mortgages and college education for the 12 million veterans.

6. The U.S. dollar was institutionalized as the reserve currency, backed by gold at a fixed price.

7. Oil was cheap--incredibly cheap.

All those conditions went away as global competition heated up and the demand for dollars outstripped supply. I won't rehash Triffin's Paradox again, but please read The Big-Picture Economy, Part 1: Labor, Imports and the Dollar (September 23, 2013).

In essence, the industrial nations flattened during World War II needed dollars to fund their own rebuilding. Printing their own currencies simply weakened those currencies, so they needed hard money, i.e. dollars. The U.S. funded the initial spurt of rebuilding with Marshall Plan loans, but these were relatively modest in size.

Though all sorts of alternative global currency schemes had been discussed in academic circles (the bancor, etc.), the reality on the ground was the dollar functioned as a reserve currency that everyone knew and trusted.

But to fund our Allies' continued growth (recall the U.S. was in a political, military, cultural, economic and propaganda Cold War with the Soviet Union), the U.S. had to provide them with more dollars--a lot more dollars.

Federally issued Marshall Plan loans provided only a small percentage of the capital needed. As Triffin pointed out, the "normal" mechanism to provide capital overseas is to import goods and export dollars, which is precisely what the U.S. did.

This trend increased as industrial competitors' products improved in quality and their price remained low in an era of the strong dollar.

Long story short: you can't issue a reserve currency, export that currency in size and peg it to gold. As the U.S. shifted (by necessity, as noted above) from an exporter to an importer, a percentage of those holding dollars overseas chose to trade their dollars for gold. That cycle of exporting dollars/importing goods to provide capital to the world would lead to all the U.S. gold being transferred overseas, so the dollar was unpegged from gold in 1971.

Since then, the U.S. has attempted to square the circle: continue to issue the reserve currency, i.e. export dollars to the world by running trade deficits, but also compete in the global market for goods and services, which requires weakening the dollar to be competitive.

In a global marketplace for goods and services, all sorts of things become tradable, including labor. The misty-eyed folks who are nostalgic for the 1950s/60s want a contradictory set of goodies: they want a gold-backed currency that is still the reserve currency, and they want trade surpluses, i.e. they want to export goods and import others' currencies. They want full employment, protectionist walls that enable high wages in the U.S. and they want to be free to export U.S. goods and services abroad with no restrictions.

All those goodies are contradictory. You can't have high wages protected by steep tariffs and also have the privilege of exporting your surplus goods to other markets. That's only possible in an Imperial colonialist model where the Imperial center can coerce its colonial periphery into buying its exports in trade for the colonies' raw commodities.

And very importantly, oil is no longer cheap. The primary fuel for industrial and consumerist economies is no longer cheap. That reality sets all sorts of constraints on growth that central states and banks have tried to get around by blowing credit bubbles. That works for a while and then ends very badly.

The 1950s/60s were not "normal"--they were a one-off, extraordinary anomaly. Pining for an impossible set of contradictory conditions is not helpful. We have to deal with the "real normal," which is a global economy in which no one can square the circle for long.

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Fri, 03/28/2014 - 13:21 | 4602957 One And Only
One And Only's picture

With a totalitarianistic government that centrally manages everything....you can kiss the 50's goodbye.

Opening the borders to all third world immigrants (like Kenya) surrrrreeee hasn't helped much either.

Fri, 03/28/2014 - 14:03 | 4603147 Anusocracy
Anusocracy's picture

I want freedom.

Let everything else sort itself out after that.

Fri, 03/28/2014 - 15:12 | 4603396 zaphod
zaphod's picture

But Americans tried to re-create that prosperity in the 80s/90s/00s using credit and false money, because they believed this prosperity was a right, not the product of 200 years of hard work.

Now we've dug a hole that is impossible to climb out of, the false prosperity will come back ten fold.

When this happens, there will be freedom for none. 

Fri, 03/28/2014 - 14:22 | 4603231 midtowng
midtowng's picture

It was only an anomaly because the wealthy were scared of communism at the time, and decided to let some of their wealth slip down to the working class in order to dull their revolutionary tendencies.

Fri, 03/28/2014 - 15:14 | 4603409 zaphod
zaphod's picture

I am way more scared of communism in the US today. Mostly because the wealthy in the US have figured out to implement it for the masses (us) while protecting themselves.

Fri, 03/28/2014 - 18:41 | 4604119 TimmyB
TimmyB's picture

What nonsense. Please explain how on Earth communism can be implemented for the masses and the wealthy are protected. That's the same as saying fire is both hot and cold.

What you mean is that oligarchy has been implemented, where the rich rule for their benefit and the masses get screwed. Communism my ass.

Fri, 03/28/2014 - 15:08 | 4603378 dogismycopilot
dogismycopilot's picture

fuck man, at this rate i would be thankful to have the 1980s back.

Fri, 03/28/2014 - 15:08 | 4603379 kanoli
kanoli's picture

Kenyans work very hard for low wages.  What's wrong with that?

Fri, 03/28/2014 - 15:11 | 4603393 kanoli
kanoli's picture

More to the point... If we did not have artificially high minimum wage and a cornucopia of welfare benefits, we would not have the massive influx of foreign labor who are willing to work illegally at market rates.

The problem is not immigration control.  The problem is giving out too much free shit.

Fri, 03/28/2014 - 17:45 | 4603886 NidStyles
NidStyles's picture

Not sure why you are being junked, you are correct...

Fri, 03/28/2014 - 18:31 | 4604073 Flakmeister
Flakmeister's picture

Wrong on just so many levels....

Except the free shit part, we do indeed give far too much free shit to the corporations and the uber wealthy....

Fri, 03/28/2014 - 18:45 | 4604136 TimmyB
TimmyB's picture

Actually, if we didn't have shitload of employers who knew nothing would happen to them if they broke the law and hired illegal immigrants we wouldn't have had a massive influx of illegals taking American jobs.

Fri, 03/28/2014 - 17:56 | 4603935 Bangin7GramRocks
Bangin7GramRocks's picture

I long for a time when bankers and CEO's were regular rich, not 400 foot yacht, 10 mansions and private jet rich. We can go back to those times. Give me some bullshit chart that explains why these fucks deserve to be that rich! And don't even tell me that they possess otherworldly skills that require such largesse.

Fri, 03/28/2014 - 13:21 | 4602967 LetThemEatRand
LetThemEatRand's picture

Simplistic analysis at best.  How about the fact that the middle class had wage earning power, as evidenced by the fact that the average difference between the pay of a CEO and a worker was measured in the single digits (worker salary *X was maybe 8 or 9), versus in the hundreds now.  

Fri, 03/28/2014 - 13:33 | 4603025 NOTaREALmerican
NOTaREALmerican's picture

Re:  versus in the hundreds now

Sure, but would we have been able to defeat the trrrsss if our CEO's didn't earn 100+ times worker wages?

That's the problem with you redistributionist, you never admit the benefits there are to having an Elysium Class. 

Fri, 03/28/2014 - 13:56 | 4603126 Big Brother
Big Brother's picture

I can't figure out why this occurs in the US and UK much more so than say, Germany, Japan, and South Korea.

There has to be some sort of correlation between banking and service industry profits as a percentage of GDP versus value-added manufacturing and exportation of tangible goods.  In every instance with exception of China and the US, the trade unions help to regulate CEO pay electing their member to sit on the company's board.  I think this is a matter of law in Germany for example.

This leads me to conclude that it's predicated on the predominant private industry and the level of active corporate governance exerted by the shareholders.

Fri, 03/28/2014 - 14:04 | 4603151 NOTaREALmerican
NOTaREALmerican's picture

Re:  In every instance with exception of China and the US, the trade unions help to regulate CEO pay electing their member to sit on the company's board. 

I think it has to do with "those people".   The white people here trashed their own society in a desparte attempt to get even with "those people", and the Red Team promised to help them, but told them the only way to do it was to impliment a survival-of-the-fittest society where everybody would complete and (obviously) "those people" would lose.   

Didn't quite work out as the white dumbasses expected.  

Fri, 03/28/2014 - 14:56 | 4603341 jaxville
jaxville's picture

  This essay is total bullshit. No mention of a fractional reserve banking/credit based money system and one of it's corrollories, totalitarian government. The fact is our standard of living has gone down as the government and the financial sector drain away resources. A bloody revolution which erases big government and credit based money would restore our lost standard of living. Too few care about freedom, preferring security; making the likelihood of change pretty slim for now. That change will arrive once those who voted for the safety of the state find it is little more than an illusion.

Fri, 03/28/2014 - 15:08 | 4603373 Spastica Rex
Spastica Rex's picture

Your response doesn't directly address a single contention in the article; your response is total bullshit. If you're an angry white dude, it might sound good, though.

Global growth is dead. Good luck on your bloody revolution - grab what you can!

Fri, 03/28/2014 - 16:18 | 4603613 Flakmeister
Flakmeister's picture

.

 

"And that, I think, was the handle—that sense of inevitable victory over the forces of Old and Evil. Not in any mean or military sense; we didn’t need that. Our energy would simply prevail. There was no point in fighting—on our side or theirs. We had all the momentum; we were riding the crest of a high and beautiful wave. . . .

So now, less than five years later, you can go up on a steep hill in Las Vegas and look West, and with the right kind of eyes you can almost see the high-water mark—that place where the wave finally broke and rolled back.”

Fri, 03/28/2014 - 17:47 | 4603898 NidStyles
NidStyles's picture

Wait, dudes get banned for saying someone is Jewish, but you can run freely labelling people as an angry white person. 

 

It's obvious that Zerohead has fallen into the hands of the statists again.

Fri, 03/28/2014 - 18:24 | 4604044 Spastica Rex
Spastica Rex's picture

Yeah, sorry for the racism. I know how sensitive ZHers are to racism.

Sat, 03/29/2014 - 02:02 | 4604973 kurt
kurt's picture

That was a very nigardly apology.

Sat, 03/29/2014 - 03:55 | 4605041 NidStyles
NidStyles's picture

well damn sir... i had no idea...

Fri, 03/28/2014 - 18:42 | 4604126 Flakmeister
Flakmeister's picture

The state is a merely means by which power is projected by those that desire to project power.... 

The greater the power to be projected the greater the state...

And there will always be those that desire power and are charismatic enough or otherwise gifted to convince others that it is in their interests....

Very simple really...

In essence ZH is a form of the state...

Sat, 03/29/2014 - 04:20 | 4605051 NidStyles
NidStyles's picture

No one is arguing that. Even Rothbard based a lot of his work on that premise. The difference is that he took it several steps further. I do recommend his work to you, Flak.

Sat, 03/29/2014 - 06:02 | 4605093 Flakmeister
Flakmeister's picture

Now to deny that the true course of things is naive....

Sat, 03/29/2014 - 00:21 | 4604886 TimmyB
TimmyB's picture

What the article does overlook was that the American work force was 35% union and that tariffs protected American industries. Once the oligarchs were able to bribe Congress to removed those tariffs, which allowed American industries to move overseas and hire semi-slaves and pocket the difference between the wages paid to American unionized workers and those paid to semi-slaves, we were all screwed.

Sun, 03/30/2014 - 01:27 | 4607189 MeelionDollerBogus
MeelionDollerBogus's picture

And yet this partially is the fault of those workers.

They could have started their own businesses and warned everyone to boycott companies that moved labour overseas, thus shutting down those companies unless they sought their customers overseas too (they didn't seek that). As it turns out fucking no one wanted to boycott and no one wanted to start their own honest homegrown companies so everything collapsed.

Lazy people, too lazy to even boycott, helped make this so.

Hearing the shameless support of being a consumer of Target or Walmart tells me all I need to know. I'm happily boycotting, why aren't you?

Fri, 03/28/2014 - 13:35 | 4603029 kurt
kurt's picture

Yeah, this article is the advance guard of banker propagandists telling us we need Greek style

                                                                              "AUSTERITY"

 

How about a better future than the past? Dare to dream. Pull your heads out of your asses!

Fri, 03/28/2014 - 13:44 | 4603077 Buckaroo Banzai
Buckaroo Banzai's picture

I am less concerned about pay differentials, and more concerned that during the last 30 years, corporate executives have been looting shareholders via stock options. That disables the capital formation process, which is the foundation of actual capitalism.

Sun, 03/30/2014 - 01:25 | 4607186 MeelionDollerBogus
MeelionDollerBogus's picture

One enables the other to exist, they are in fact joined topics. Without the raiding of wages, and pensions are wages, the giant ratio wouldn't exist. As for shareholders, not all are treated equally.

Stock options, however, made publicly known, are in fact a part of the proper free market. Taking a stand against them seems nonsensical while claiming all at once to support the free market.

Actual or potential shareholders are free to dump or avoid stocks that have stock options but doing some math & applying some business experience may just conclude that attractive options bring in revenue, buyers, funding for the company, so then the only question is how badly misspent that money could be, or how very clever is the investment of that money into the company's immediate & future production actually turning out.

Fri, 03/28/2014 - 13:45 | 4603081 Big Brother
Big Brother's picture

Long story short: you can't issue a reserve currency, export that currency in size and peg it to gold. As the U.S. shifted (by necessity, as noted above) from an exporter to an importer, a percentage of those holding dollars overseas chose to trade their dollars for gold. That cycle of exporting dollars/importing goods to provide capital to the world would lead to all the U.S. gold being transferred overseas, so the dollar was unpegged from gold in 1971.

This ^

evidenced by the fact that the average difference between the pay of a CEO and a worker was measured in the single digits (worker salary *X was maybe 8 or 9), versus in the hundreds now.  

Stongly contributed to this ^.

Financialization, an unintended (or possibly intended) consequence or negative externality from depugging from gold; and cronyism, fascism, the oligarch class, etc permit CEOs to get the pay they do.  

Fri, 03/28/2014 - 14:10 | 4603156 TWSceptic
TWSceptic's picture

The health of an economy (and society) isn't predominantly measured by the difference in pay. Those with unique skills should earn many times more than the unskilled. Even though I agree those in the financial sector are overpaid, the more important issue is government screwing up the free market. More regulation, more taxes, more welfare, less freedom. You can thank the fed, another quasi government entity, for enriching the banking sector.

Fri, 03/28/2014 - 18:06 | 4603975 U4 eee aaa
U4 eee aaa's picture

If no one cleans the toilets, we all get sick and die. Highly skilled positions are not that much more valuable than unskilled ones if there is no division of labor

At the end of the day what we really only need is food and clothing and shelter from the elements (and some would argue against the third). It doesn't take a lot of skill to produce those things if we don't get in nature's way. After 70+ years we are dead anyway. The rest of the sophistication is us making work for ourselves

Fri, 03/28/2014 - 19:09 | 4604203 FredFlintstone
FredFlintstone's picture

I have been conditioned to not want to live in a mud hut and scavenge. Division of labor has been good to me.

Sun, 03/30/2014 - 01:22 | 4607183 MeelionDollerBogus
MeelionDollerBogus's picture

I have no such conditioning. Survival can come in any package and I'm good with it. I'd prefer something physically strong which a mud hut is not but division of labour isn't necessarily required and further, wasn't actually the topic, for the topic was ratio of CEO pay vs others. Much as one might want to conflate the topics into one they are divergent topics in reality.

Sun, 03/30/2014 - 01:21 | 4607180 MeelionDollerBogus
MeelionDollerBogus's picture

I imagine you're trying to be clevery abstract but #1 I never saw anyone die from use of a 'dirty' toilet. #2 we can in fact clean our own toilets #3 division of labour wasn't in question, but pricing of categories of labour. At some ratio absurdity is obvious: CEO's don't add a million times value vs the janitor so if their pay is a million times more a clear fraud is happening, a mispricing, a failed comprehension of value.

"It doesn't take a lot of skill to produce those things"

Is that right? I'll believe you after you build your own house, grow all your own food & composting toilet much less make all your own clothing.

Not much skill indeed. It took countless hours & wages before industrial machines could assist & it still takes a lot of skill to manufacture & program (as applicable) the machines that now do it (textiles mostly, but don't forget CNC's are involved for a lot of machining for pipes, valves, etc., various parts of a house aka shelter).

Fri, 03/28/2014 - 14:07 | 4603157 Chief Wonder Bread
Chief Wonder Bread's picture

LTER writes,

... the average difference between the pay of a CEO and a worker was measured in the single digits (worker salary *X was maybe 8 or 9), versus in the hundreds now.

Why is this the case?  

I used to believe in 'trickle-down' economics but increasingly question this idea. Here is a link to an article that explains why high marginal tax rates on high-wage earners -which was the tax regime in place in the 1950s and 1960s - actually encouraged reinvestment in pp&e, research, employee training and wages as opposed to what we have today: stock buybacks, executives options, etc...

http://seekingalpha.com/article/2105343-missed-lesson-of-great-depressio...

 

Fri, 03/28/2014 - 15:35 | 4603484 Herd Redirectio...
Herd Redirection Committee's picture

Look at a pyramid.  Does it 'trickle down'?

No.  It is built from a solid foundation.  From the ground up.

Fri, 03/28/2014 - 16:20 | 4603624 Chief Wonder Bread
Chief Wonder Bread's picture

I'm not following you.

Fri, 03/28/2014 - 17:50 | 4603917 NidStyles
NidStyles's picture

He's telling you that you are being fed a line of BS. He is also correct in that statement. 

Fri, 03/28/2014 - 19:06 | 4604198 Chief Wonder Bread
Chief Wonder Bread's picture

With all due respect, nobody's feeding me a line. I'm trying to temporarily forget my conditioning on this issue and make up my own mind if there's some substance to the argument.

The problem with any economic issue is you can take any line of reasoning and make it sound persuasive by ignoring everything that contradicts it (of which there always will be such in the real economy). Further, I fully understand this particular issue has been hugely polarizing for decades and that probably few here will make the effort to question their own long-held beliefs.

What with this economic crisis and being exposed to diverse opinions here at ZH and at other websites the last few years has totally shocked me out of my complacency. I started reading ZH a few years back and finally decided to register and post on occasion but I do so with the certainty that I no longer have the certainty I once possessed and my posts will often reflect that, i.e., I am trying to learn something rather than just spout off.

OK, rant warning in contradiciton to what I just wrote: I'm going to say something emotional here so you may or may not choose to continue reading. No one likes high taxes and advocacy of higher taxes is usually associated with 'progressive' or 'liberal' policies. I don't like the label and despise the professional purveyors of most of such pap I read and hear in the media. But what really is beginning to get under my skin is the suspicion that I (and millions of other Americans) have been played for fools over the last 30 years by wolves in sheeps clothing masquerading as 'libertarians' but who are in reality nothing more than greed-filled plutocrat parasites who have used the naive faith of my kind to enrich themselves beyond all imagining and to the enduring harm of this nation. Guess what? The 'libertarian paradise' they promised is nowhere to be found. Wonder why? Could it be because there is no such place? 

Sat, 03/29/2014 - 04:04 | 4605044 NidStyles
NidStyles's picture

Odd Libertarianism as in real Libertarianism never became a thing until the 2000's after Rothbard died. Any iteration of it beforehand was independent of the Institute which was Rothbard's home for quite a while. The original Libertarians are Rothbardians. He was the one that came up with the philosophy. 

From what you are saying, you think Rand had something to do with it. Rand did not like the Libertarians. Mises liked Rand, but he wasn't a Libertarian.

Mises was the original minarchist of economics. His entire theory was built up Bastiat's work with his own to fill in the blanks and issues Bastiat could not solve. He had nothing to do with the Libertarian movement outside of his circle club.  

Sat, 03/29/2014 - 18:42 | 4606350 Chief Wonder Bread
Chief Wonder Bread's picture

I think you're reading too much into what I wrote. I was just going into a rant about what I perceive as the hijacking of 'libertarian' (note lower-case) sentiment within the American traditional conservative voting public (red-state voters mostly) by crony-capitalist opportunists/apologists hiding behind a free-market facade. Such individuals as Rubin, Summers, Greenspan and many others.

I don't have a lot of time to spend on this today but in brief, I have a real problem with Rothbard's anarcho-capitalism, I have a very negative view of Rand and I very much admire what I understand of Mises and Bastiat. (but I have to admit I have not read these in depth.) 

 

 

Sat, 03/29/2014 - 04:24 | 4605054 UselessEater
UselessEater's picture

Could it be because there is no such place?

No place they want us to wonder into.

I wonder if we're letting them set and constrain our world view and intellect a little too much? Even a wolf bites its foot off to get out of a trap.

Sat, 03/29/2014 - 18:48 | 4606367 Chief Wonder Bread
Chief Wonder Bread's picture

I concede you may be right but 'they' will always be around. If only we shared the nature of Angels. Angels could make a libertarian paradise work as easily as they could a socialist paradise. Unfortunately, most human beings are not angels. 4% of the population are psychopaths ffs. Will that ever change?

Sun, 03/30/2014 - 01:15 | 4607168 MeelionDollerBogus
MeelionDollerBogus's picture

50% could be psychopaths and it wouldn't be so bad as long as the other 50% stopped the harm they saw right away.

With a complacent & stupid sheeple population demanding leaders you could have 0.00001% sociopaths and they'd still be overlords.

Sat, 03/29/2014 - 02:05 | 4604974 mjazzguitar
mjazzguitar's picture

Even though it was portrayed as so by the democrat political ads, Reagans tax cuts weren't trickle down.The poorest got their taxes cut the most, those at the next economic level got theirs cut less, and so on up to the wealthiest, who got their cut the least.

Fri, 03/28/2014 - 14:22 | 4603228 Anusocracy
Anusocracy's picture

It's a matter of scale. What is the ratio of CEO pay per worker?

In the hierarchy of pro sports, what is the pay per fan at the top and the bottom? Pro team vs. farm teams? What about the high pay of top tier college football coaches?

There are good reasons to pay top performing CEOs a big sum. Unfortunately, distortions have allowed almost every crumb bum CEO to get top pay.

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