The Nixon Cut: Unpacking the Link Between Gold and Wages

US wages have plummeted to 43% of national income, a level not seen since the Great Depression. This trend has sparked debate about its causes, with some pointing to current economic policies or labor market dynamics, while others revive an older theory: that President Nixon’s decision to break up with gold in 1971 is responsible for stagnant wages.

At first glance, this link seems tenuous. However, a closer examination reveals a more complex web of causality. The inflationary pressures of the 1960s and 1970s played a significant role in eroding purchasing power. As the Bretton Woods system teetered on collapse, the US dollar’s peg to gold became unsustainable. Nixon’s decision effectively allowed the Federal Reserve to print more money, fueling inflation that eventually reduced wages.

Many countries have followed similar paths, with strikingly consistent consequences: as governments devalued their currencies in pursuit of growth, workers saw real wages decline. The role of monetary policy in shaping income distribution is often overlooked. By allowing central banks to print money at will, policymakers created a system where capital gains can be made without corresponding wage increases, contributing to a widening wealth gap.

Critics argue that recent years have seen rising wages due to robust labor market conditions. However, these gains are largely offset by increasing costs of living, particularly in healthcare, education, and housing. American workers produce more than ever before – but their paychecks haven’t kept pace.

A continued shift towards asset-based income streams could further exacerbate income inequality, as those who own assets see wealth grow while workers struggle to make ends meet. Policymakers should focus on creating an environment where workers can earn a fair share of national income – not just in terms of nominal wages but also in real purchasing power.

In doing so, they might uncover a new way forward: one that balances economic growth with social justice and acknowledges the link between past decisions and American workers’ struggles today.