What Happened in 1980?
(…besides a lot of real wealth starting to change
hands.)
by Wilton D. Alston
by
Wilton D. Alston
DIGG THIS
"Deficits
and a mounting debt, therefore, are a growing and intolerable burden
on the society and economy, both because they raise the tax burden
and increasingly drain resources from the productive to the parasitic,
counterproductive, "public" sector. Moreover, whenever deficits
are financed by expanding bank credit – in other words, by
creating new money – matters become still worse, since credit
inflation creates permanent and rising price inflation as well as
waves of boom-bust ‘business cycles.’"
~ Murray N.
Rothbard "Repudiating
the National Debt"
As I did the
research for another essay, I came across some interesting data
regarding the changes in real wages that seemed to begin in approximately
1980. Just for grins, I dug up more data on income, courtesy of
the Economic
Policy Institute, and analyzed it, creating the charts below.
The first chart below shows the median family income in the U.S.
from 1966 through 2003, in 2003 dollars. (Only the data up to 2003
was available.)
This chart
shows what I would predict based upon my impression of the goal
and purpose of the Federal Reserve. While my impression may be incorrect,
one conclusion still seems obvious: A massive transfer in real
wealth from the lower quintiles to the richest quintile
seemed to begin in approximately 1980, at least according
to this measure. The chart below, which was generated from the same
data, shows average percentage increases in real wages from
1966 wages for each quintile.
Up until about
1980, the growth in real wages across economic classes seemed relatively
uniform, that is, enjoyed by everyone. Thereafter, one can see that
the growth in wages is skewed toward the upper income levels. In
my view, this skewing exemplifies the transfer of wealth driven
by inflation (and increased national debt) and to whom that money
flows. That transfer continues today. My suspicion: The State, via
the Federal Reserve, is the facilitator of that transfer. (I’m not
alone in my suspicion, as a
recent LRC podcast seems to indicate.) It strikes me as curiously
ironic that the
Monetary Control Act, which gave the Fed much broader powers,
including the power to "monetize" sub-prime mortgages,
was passed in 1980. Again, while I am certainly no economist and
therefore cannot draw a firm conclusion, my suspicions are strong.
Either way
the result is rather obvious. That result is the widening gap between
the proverbial ends of the income spectrum that seemed to accelerate
beginning around 1980. According to a well-researched and fascinating
presentation on the economy by Chris Martenson, entitled, "The
Crash Course," the Greek philosopher Plutarch
stated, "An imbalance between rich and poor is the oldest and
most fatal ailment of all republics." That this imbalance seems
to be ever widening in the current U.S. society should be, in my
view, cause for concern, no matter the amount of debt. This is not
because it is inherently bad for some to be more proficient at making
money than others. Differences in performance are both normal and
expected. However, when the State facilitates that difference well,
"Houston, we have a problem!" (FYI, Jim Davies has a wonderful
essay that explains some of the caveats
of the Crash Course, one of which is its Malthusian point-of-view.
Davies’ essay very worthwhile; nearing required reading in my view.)
Make no mistake;
the production of fiat money by a central banking scheme drives
much of this widening gap between the ends of the socio-economic
food chain. Libertarian philosopher and Austrian economist Roderick
Long explains:
When the
central bank creates money, the new money doesn’t propagate throughout
the economy instantaneously; some sectors get the new money first,
while they’re still facing the old, lower prices, while other
sectors get the new money last, after they’ve already begun facing
the higher prices. The result of such "Cantillon effects"
is not only a systematic redistribution of wealth from those less
to those more favoured by the banking-government complex, but
an artificial stimulation of certain sectors of the economy, making
them look more inherently profitable than they are and so directing
economically unjustified levels of investment toward them.
Speaking of
debt, how has that changed since 1980? The graph below, taken from
zFacts.com and modified
just slightly, shows national debt as a percentage of gross domestic
product, with the president at the time thrown in for fun.
While correlation
is not necessarily causation, it certainly seems like the creation
of a mountain of debt fits with the beginning of the transfer of
wealth from the bottom of the economic food chain to the top. It
should be noted, however, that there is a "lag" on the
chart above. In other words, the national debt had already turned
the corner on an exponential curve before 1980. If total
national debt is not the harbinger of wealth transfer, it certainly
seems to fit rather nicely, as the graph below, taken from an informative
analysis
by a gentleman named Steven McGourty seems to illustrate.
It seems clear
that by continuing to erect a huge pile of national debt, Reagan,
and pretty much every president since, with the exception
of Clinton, has successfully strengthened the State’s wealth transfer
medium. Fleecing the sheeple, while keeping them entertained, dumb,
and afraid of bogus
threats versus real ones; what a concept! (I have to give it
to Slick Willie.
While he had a tendency to use The Oval Office for, er, relatively
novel pursuits, he apparently understood that out-of-control national
debt was not a good thing, per se. Then again, maybe he was
just busy with other things!)
Nixon, by unilaterally
removing the systematic brake on debt expansion imposed by the Gold
Standard, decreased the amount of time necessary for the debt curve
to reach its exponential portion. (He really was a crook,
only he wasn’t alone.) I admit that I haven’t a real clue what will
happen going forward, but I would bet that it won’t be as pleasant
as say, a root canal, particularly if that future enjoys the same
amount of State control over the money supply as the past. Given
that this essay is being penned during U.S. election time, it is
also worth noting one other truth. Neither party has any
interest in reversing the course the U.S. state has been on since
Nixon’s time with regard to spending fiat money. (Only the
recipients at the margins might change.) In fact, all indications
are that spending will accelerate.
Conclusion
 I’ll
end this essay the same way I started it, with Rothbard:
In the spring
of 1981, conservative Republicans in the House of Representatives
cried. They cried because, in the first flush of the Reagan Revolution
that was supposed to bring drastic cuts in taxes and government
spending, as well as a balanced budget, they were being asked
by the White House and their own leadership to vote for an increase
in the statutory limit on the federal public debt, which was then
scraping the legal ceiling of one trillion dollars. They cried
because all of their lives they had voted against an increase
in public debt, and now they were being asked, by their own party
and their own movement, to violate their lifelong principles.
The White House and its leadership assured them that this breach
in principle would be their last: that it was necessary for one
last increase in the debt limit to give President Reagan a chance
to bring about a balanced budget and to begin to reduce the debt.
Many of these Republicans tearfully announced that they were taking
this fateful step because they deeply trusted their President,
who would not let them down.
As Murray opines,
these are "Famous last words." While one might argue that
Reagan let those Republican congressmen down, I’d assert that he
actually made the wealthiest 20% very happy. That happiness continues
today, for the time being.
(Personally, I don’t think Reagan ever planned to balance the budget,
but that’s a debate for another day.) There was a time when I would
have said this gravy train of "free" money for whomever
or whatever boondoggle would continue for as long as the coercive
state draws breath, but even the State can’t change the laws of
math.
Those laws
indicate that the debt load of the U.S. has each of us headed for
a bumpy – possibly very bumpy – ride, of which this most-recent
$700B scam was just the iceberg’s tip. Buckle
up. (And gentlemen, wear a cup.)
November
5, 2008
Wilt
Alston [send him
mail] lives in Rochester, NY, with his wife and three
children. When he’s not training for a marathon or furthering his
part-time study of libertarian philosophy, he works as a principal
research scientist in transportation safety, focusing primarily
on the safety of subway and freight train control systems.
Copyright
© 2008 LewRockwell.com
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D. Alston Archives
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