It does seem like since 1970, we have experienced an era of permanent decline. A "recession" or two will occur every decade, but the economy will remain stagnant for most of the decade. No real growth. Savings is a myth. Prices going up. It's unfortunate. The fed changed the nature of the world
The big monetary policy change around 1970 was the Nixon shock, not the Fed, but yeah, there is decent circumstantial evidence (if you start from certain priors) that the shift to pure fiat money contributed to our economy's long-term unsoundness.
These are fighting words to me!
1.There really is no 'Nixon shock.' President Johnson starting in 1966 by increasing spending on Vietnam at the same time as funding the Great Society (guns and butter) precipitated what became an inflationary spiral. Though I don't know if this could be called an 'inflationary spiral' by 1970, the higher U.S inflation rate relative to inflation in the rest of the world made the world wide gold standard as devised at Bretton Woods with fixed exchange rates impossible to maintain.
In my opinion anyway, the Nixon Administration transitioning the U.S off the Gold Standard via negotiating with Saudi Arabia to make the U.S $ the Petrodollar was policy genius.
2.The gold standard is extremely unsound. The money supply increases not based on anything to do with the economy but when large gold deposits are found. How does that even begin to make any sense?
However, there were two ways that governments could increase their money supply even under the Gold Standard which kind of ruined its supposed benefit:
1.Decrease the amount of gold in coinage. Obviously this was done before economies started to have economic growth. This is where the term 'debase the currency' comes from.
2.Decrease the gold to coinage ratio. Nations, rather than having a 1:1`ratio of gold to currency (or after fractional reserve banking, gold to money) would announce a 1.5:1 ratio for instance.
In democracies or with greater public scrutiny, that was not popular government policy. So, for instance, the FDR Administration with the Great Depression tried some bizarre hybrid of not going off the gold standard, but interferring with its value by pegging gold at $35 an ounce. Every mainstream economist agrees that the Gold Standard increased the length and severity of the Great Depression.
For more on the Gold Standard and its failures, I always highly recommend people read "The Power of Gold: The History of an Obsession" by Peter Bernstein.
https://www.amazon.ca/Power-Gold-History-Obsession/dp/111827010X"The need for realism in reform of its monetary system is what makes Bernstein’s story of the Power of Gold so timely. It is a compelling reminder that maintaining a fixed price for gold and fixed exchange rates were difficult even in a simpler financial environment….Peter Bernstein was reluctant to project the story of gold into the future. But to me his message was clear. Yes, gold will be with us, valued not only for its intrinsic qualities but as a last refuge and store of value in turbulent times. But its days as money, as a means of payment and a fixed unit of account are gone."
—From the New Foreword by Paul Volcker
3.I think the United States going off the Gold Standard at a time of high inflation has allowed the 'Gold bugs' (I don't think you'll ever find a more horrible collection of grifters) to make dishonest negative attributions to 'fiat currency.' The reality is, once inflation was whipped in the early 1980s, with the exception of the late 1980s when the Reagan Administration sparked a new round of inflation with very high government budget deficits, with a few short exceptions in the mid 2000s, inflation in the United States has been roughly stable at between 1-4% per annum.
That it took a major external shock like Covid to wreck this, I think shows how well Central Banks generally understand how to control inflation. One criticism of economists, as I've mentioned here previously, is that they aren't educated in supply chain logistics. Although this is a bit odd since I think clearly supply chains were what Adam Smith was referring to as 'the guiding hand' moving 'as if by magic', unfortunately I think most economists interpreted that as simply incentives provided by the price mechanism.
So, The Federal Reserve was too slow in appreciating that the supply chain bottlenecks would lead to shortages resulting in significant ongoing price increases. (That erased the shortages at the higher price levels.)
3B.From sometime in 1991 to 2007, the only recession in the United States was the recession declared by the NBER in 2000-2001. So, there were approximately 16 years where there was no time of two consecutive quarters of negative economic growth.
The U.S economy has grown enormously over the last 40-50 years, and not through only population growth, but through real growth per capita. The increases in productivity in the U.S show this. For one example, a reason the economy did not suffer as much as in the 1970s through the increases in oil prices is that oil usage is at least twice as efficient as it was in the 1970s. (And this is even with all the stupid SUVs.)
The problem with the U.S economy and with a large percentage of Americans not benefiting from the enormous productivity gains is the horrible right wing economic policies that started under the Reagan Administration that have helped concentrate wealth at the top.
There is no problem with central banks that can't be solved with some better education for economists and there is no problem with 'fiat currency.' Most of the problems with the U.S economy at present going back 40 years are a result of right wing economic policies.
