Young people in America today believe the economy has failed them. They look at the entry point for new homes and realize they will never be able to afford one. They look at the cost of college and either find higher education unattainable, or they pursue it anyway and find themselves saddled with crippling debt. They share apartments with roommates, only to discover they can barely afford the rising costs of rent and food.
They are not wrong, and they are not alone. My wife and I feel the pinch too. The difference is that I have been working since I was sixteen, and after nearly forty years in the workforce I already own a home, I have worked my way up in the corporate world, I carry manageable college debt, and I feel a far more muted impact from inflation than they do.
Inflation only impacts some of my budget. I’ve owned my home long enough that my mortgage payment is much lower than what an apartment would cost.
Nor is this the first time inflation has left generations behind. Today’s youth are simply too young to remember the ‘70s.
That brings up a question: why did women begin entering the workforce in large numbers in the 1970s? The popular story says liberation, but the real story begins with something today’s youth would find familiar.
Households across the country discovered in the early 1970s that a single paycheck no longer carried the weight it once did. Rent, food, energy, and other basic expenses began rising far faster than wages. Families responded the way families always respond when money gets too tight, and added labor.
The United States did not suddenly decide that one income was unfair. One income stopped being enough, and women suddenly felt forced to enter the workforce.
The women who wanted to work could do so before the ‘70s. My parents both taught high school, and when I was very young nobody else I knew had a mother who even wanted to work, but ten years later it seemed like everyone’s mother worked.
I don’t doubt that for a lot of women, and particularly younger ones, more women moving into the workforce seemed like liberation, but that is not what drove the cultural change. The actual reason sits at the center of modern economics, though economists rarely say it plainly: the dollar stopped being honest money.
Here is the simplest economic lesson you will ever receive. Imagine an economy with two apples and two dollars. The totality of dollars in circulation and the totality of goods and services produced always work toward one another, so in this very simple economy each apple will cost one dollar.
Now imagine the number of apples stays the same but the number of dollars doubles. Four dollars suddenly chase two apples and each apple will now cost two dollars.
That is inflation, and it really is that simple.
Inflation is not complicated. Inflation happens when the supply of money grows faster than the supply of goods and services. Prices rise because the money chasing those goods has been diluted, and the number of dollars in circulation, and the value of the goods and services those dollars pursue, always pull toward one another.
Economists often try to make inflation sound complicated, but it is not. What is complicated is the economy inflation moves through.
Inflation reaches gold almost immediately, then other precious metals, then non-consumable commodities, then consumable commodities, and finally labor.
Gold is the leading indicator of inflation. Labor is the trailing indicator. That means inflation has little immediate impact on those with the wealth to invest, but it hits those living hand-to-mouth hard, and especially young people just entering the workforce. Eventually inflation hits labor, and then it comes through in waves, each increase in the cost of labor causing the costs of everything with labor in it to rise until the cost of labor roughly catches up with the cost of commodities.
The United States once prevented inflation with gold.
Gold cannot be printed or voted into existence. It must be mined and refined. The forces that govern gold production are the same forces that govern capital formation in the broader economy such that over time, the price of gold tracks closely with the price point of the overall economy, and when money is tied to gold, governments cannot create unlimited debt without causing a run on the currency and bankrupting the country.
For most of American history the dollar was anchored to gold. In 1933 Franklin Roosevelt broke the domestic gold standard. Americans could no longer redeem dollars for gold through their banks. The government confiscated the metal and replaced it with paper. Roosevelt also roughly halved the amount of gold a dollar was tied to.
The international link to gold remained through what later became known as the Bretton Woods Agreement. Foreign governments tied their currencies to the dollar and could still exchange dollars for gold. That final restraint disappeared in 1971 when Richard Nixon closed the gold window and ended the Bretton Woods system.
This was not entirely Nixon’s fault. Lyndon Johnson financed the Vietnam War and his Great Society through credit, expanding the supply of dollars in circulation so rapidly that other nations began rapidly exchanging their dollar reserves for gold. The United States no longer held enough gold to cover those claims. Nixon ended the gold standard to prevent a run on the currency.
The consequences appeared almost immediately.
The Crisis We Keep Repeating
Every few years the same sequence recurs.
Markets climb and headlines celebrate prosperity. Politicians congratulate themselves. Credit expands and asset prices surge, and then something breaks. Banks fail and we go into recession.
Here are some examples:
- 1920–21 tightening after wartime inflation
- 1929 credit collapse
- 1970s inflation → Volcker tightening → recession
- 2000 dot-com bubble
- 2008 housing bubble
- 2022–23 rate shock
Since the creation of the Federal Reserve, here are the recessions not listed above:
- 1918–1920 demobilization after WWI
- 1945 post-war contraction
- 2020 pandemic shutdown
Even with those three, the same sequence amplified the damage. Those recessions were just triggered differently. Between the two lists, that is every recession since the Federal Reserve became operational at the end of 1914.
Each time it happens experts will appear on television explaining that the crisis could not have been predicted. Emergency actions become necessary and liquidity floods the system. Interest rates fall as the government attempts to spend its way out of the crisis and federal debt explodes.
Cheap money causes low interest rates for a time, but keeping the rates low is inflationary so eventually the Federal Reserve raises rates to bring inflation down, and the cycle begins again.
This pattern has repeated so often that people now treat it as the natural rhythm of modern capitalism, but it is not.
The crashes are not accidents. Cheap credit encourages risk that would never exist under honest interest rates. Businesses expand based on artificial signals, and investors borrow against rising assets.
When the distortion becomes too large to sustain, reality asserts itself. Prices fall, projects collapse, and banks discover that the assets on their books were never worth what they claimed when they borrowed against them to “invest” in whatever the bubble of the day happened to be.
The same officials who created the distortion then intervene to rescue the system – again. The cycle repeats because the cause is never addressed.
This is not capitalism failing. This is Keynesian policy operating exactly as it always has. Every recession since the Federal Reserve was founded fits this pattern.
Every single one – as listed above. And it can’t be any other way.
A large economy contains countless moving parts. Industries constantly rise and fall, but not all at the same time. Those shifts occur within individual industries. They do not collapse an entire national economy.
It takes a system-wide disruption to throw the entire economy into recession.
A geographically small country might collapse after a natural disaster, and a nation with little economic diversity might crash when the industry that dominates its economy collapses.
The United States is not structured that way. Our country is physically enormous and economically diverse. A natural disaster, like a hurricane, can produce a local recession but cannot crash the national economy. A single industry can collapse and devastate a region, as the auto industry once did in Detroit, but it cannot bring down the entire country.
In a healthy economy some industries are booming while others are contracting. Churn is normal. Pushing all industries into contraction at the same time requires something that hits every industry simultaneously.
Historically that force has been money.
When the United States operated on the gold standard, recessions and depressions followed rapid changes in the value of gold, and though Austrian Economists might not want to admit it, returning to a gold standard would return us to that pattern.
We had some very deep depressions while on the gold standard.
Earlier I explained that over long periods gold tends to move in value at almost the exact same pace as the broader economy. That’s true, but in the short term gold can move dramatically relative to everything else.
A major new deposit of gold can increase supply suddenly, and a major mine running dry can restrict supply just as quickly. Before the creation of the Federal Reserve, American recessions closely tracked these gold booms and busts, and when the value of the dollar is tied to gold, that causes the entire economy to go into price discovery all at once, leading to a recession.
To understand the casual link, it helps to remember that money does not have value so much as it stores value.
I work for my employer, and every couple of weeks they deposit money into my account. I use that money to pay my mortgage, buy food, pay my Internet provider, and cover the rest of my bills. Occasionally I may even take my wife out to dinner.
This works because the money is worth the same amount when I spend it as it was worth when I got it.
When gold changed rapidly in value, whether up or down, suddenly nobody knew what money backed with gold was worth, and if you don’t know what the money is worth you don’t know what anything valued in money is worth either. Of course that causes a recession.
The Federal Reserve was originally created to smooth-over short term fluctuations in the value of gold such that those fluctuations would no longer cause recessions, but this did not end recessions. It only changed the cause – now Federal Reserve mistakes cause recessions.
In a healthy economy wages grow slightly faster than inflation over the course of a person’s career, as people gain experience and their productivity rises. This allows their living standards to gradually improve, and is one of the primary reasons older people generally make more than younger people.
I had to support myself while I was still in high school. I worked at McDonald’s for $3.35 an hour and lived with five other people in a three-bedroom apartment. For many young adults today, that probably sounds very familiar. Each generation goes through that. It does improve as long as you can get started – believe me.
Gold Is Money
Getting back to our initial question about why women entered the workforce in large numbers during the 1970s, there were several reasons. The biggest one was that after the United States left the gold standard the value of the dollar began deteriorating much faster than wages rose.
We can see this clearly by looking at the value of gold.
I’m going to use Austrian School theory in this section and maintain that gold is money. That theory is imperfect in the short term, so while this section is correct in principle, understand that some of the specific swings may be exaggerated by short-term fluctuations in the value of gold. Keep that in mind as you read the rest of this section.
Gold rose from $35.96 per ounce in 1970, when the United States was still on the gold standard, to $614.75 per ounce in 1980.
Gold is money, so the value of gold did not change. What changed was the value of the dollar.
The spending power of the dollar fell 17.1 times between 1970 and 1980.
The median household income in 1970 was $9,870. By 1980 it had risen to $21,020. Household income therefore rose only 2.13 times during the decade, and that figure includes the influx of women into the workforce such that many households had twice as many workers.
In other words, throughout the 1970s the buying power of the dollar fell to roughly one-seventeenth of its previous value while household income, even with far more households adding a second worker, only doubled.
In real terms, then, the average household earned roughly one-eighth as much in 1980 as it had earned just ten years earlier.
Americans noticed their deteriorating spending power during the 1970s, but much of the decline was masked by the behavior of labor costs. The raw materials used to produce goods rose rapidly in price, but the cost of labor used to produce those goods rose far more slowly.
When Americans compared their wages to the wages of other workers, the loss of purchasing power appeared smaller than it actually was. Only when measured against the rising cost of the materials used to produce goods did the full collapse in purchasing power become visible.
Ronald Reagan then brought Paul Volcker into the Federal Reserve in 1979 and inflation stopped.
By 1990 gold sold for between $350 and $400 an ounce, which was a lot less than it had sold for in 1980. Household wages rose during the same period from $17,710 to $30,070.
In other words, gold roughly halved in value during the 1980s while wages roughly doubled.
Gold is money, so the value of gold did not change. The value of the dollar did, and by 1990 the American household had roughly four times the buying power it had possessed in 1980, in real terms.
No wonder Reagan was so popular.
George H. W. Bush, Bill Clinton, and George W. Bush preserved the basic economic framework that Reagan and Volcker had restored such that by the year 2000 gold was down to between $250 and $320 an ounce while median household income had grown to $41,990. That period produced the longest sustained economic expansion in American history as American families became more and more wealthy in real terms.
Then came 2008. The housing market crashed and the government bailed out the banks by printing money, causing inflation.
Gold reached $1,420 per ounce by 2010 while median household income had risen only to $49,445. By that point the American household was roughly one-quarter as wealthy as it had been in 2000.
The Obama administration then kept the floodgates of monetary expansion open.
By 2020 gold cost roughly $2,000 per ounce, and it was up to $2,400 by 2024, which is 60% higher than in 2010. Household incomes were $83,730 in 2024, which is the last year household income data is currently available. That is roughly 60% higher as well. Real wages fell under Obama and rebounded under Trump’s first term, until Covid-19 hit and the flood gates opened again.
As I type this, the spot-price for an ounce of gold is $5,092 – more than two and a half times what it was in 2020 and more than twice what it was in 2024.
Frankly, I think gold is in a bubble. I think most of the changes discussed up to 2024 are real, but I do not think gold should currently cost over $5,000 per ounce. I think it’s about twice what it should be. Still, times are tough and we feel it every time we walk into a grocery store.
Inflation has eroded American buying power for more than half a century.
Looking further back makes the contrast even clearer: In 1936 gold cost $35.96 per ounce and it still cost $35.96 in 1970. Median household income in 1936 was $1,600 per year. By 1970 it had risen to $9,870. Because gold remained constant during that period, the purchasing power of the American household increased roughly 6.17 times between 1936 and 1970. That’s a tremendous rate of growth.
Leaving the gold standard did not merely weaken the currency. It weakened the wealth of our nation.
It is possible to maintain a stable currency without a gold standard, as Paul Volcker demonstrated, but the federal government has shown little discipline in doing so as of late. Nor was the gold standard perfect. We had plenty of recessions and depressions under the gold standard.
The solution is not to go back to the gold standard unless it is a soft standard such as existed until 1971, with the Federal Reserve smoothing over short-term fluctuations.
With or without a gold standard, we need to end the dual mandate and have the Federal Reserve focus solely on maintaining a stable dollar. The labor market can take care of itself.
The Illusion of Prosperity
John Maynard Keynes believed governments could manage economies through spending. He viewed economic downturns not as the result of distorted prices, but as failures of demand that could be corrected if governments injected enough money into the system. In his view the state could step in during downturns to replace missing private spending, to restore growth through deliberate intervention.
Keynes, however, was not an economist. He described himself as an “aesthetician.” He ignored the work of every economist who came before him and promised to rewrite the entire field from the ground up, relying only on his personal brilliance.
As a result, modern economists measure prosperity by counting spending.
Gross Domestic Product adds together every transaction in the economy without asking whether the spending created wealth or merely moved money from one place to another. Borrowed money and earned money enter the ledger the same way, so this masquerades debt as growth.
When the government borrows a trillion dollars and spends it, the economy is said to have expanded by a trillion dollars even if nobody wants what that money was spent on. By this metric, even fraud is growth. Keith Ellison, in fact, argued that fraud gets spent into the economy and is thus growth, as Attorney General of Minnesota, to justify ignoring Somali welfare fraud. “All of Minnesota benefitted,” he said.
When consumers finance purchases with credit cards or borrow against rising home values, those purchases appear as economic growth. When corporations borrow money to buy their own shares, the rising stock price reinforces the illusion that new wealth has been created. The numbers climb upward, but though aggregate demand has grown the debt has to be repaid, reducing future spending.
Every borrowed dollar is a claim against future wages, representing work that has not yet been done and goods that have not yet been created. For a time the illusion holds as the spending is real even if the wealth behind it is not.
Then the bill arrives.
That is what young adults are feeling today. Since 2008 we have been expanding the supply of dollars in circulation faster than we have been expanding the real economy, and everything has grown more expensive as a result, while wages have lagged behind.
Young people entering the workforce have less buying power than did previous generations. It’s as simple as that.
My parents paid the price for Keynes’ folly in the 1970s. We are paying for it today, and the burden always falls hardest on those with the fewest assets, which is why America’s young adults feel it first.
Had Keynes studied economics, he would have found that an economy is not a machine that can be tuned by adjusting a few controls. It is, rather, a living system built from millions of individual decisions made by all of the people within the economy.
We, collectively, are the economy.
Ironically, John Maynard Keynes was a close friend of Austrian Economist Fredreich Hayek, and Hayek spent a good portion of his life trying to convince Keynes that Keynes was wrong.
There is a really fun series of YouTube videos on this subject in which actors pretending to be Keynes and Hayek have rap-battles. You can watch the first one here.
What Hayek understood is that the economy is the aggregate of everything everyone in the economy does. Prices coordinate our collective decisions by transmitting signals about scarcity, risk, and opportunity. When governments manipulate money, those signals become unreliable and actual growth slows.
The distortion always begins with the belief that governments can replace production with spending. It is “Field of Dreams” in reverse: spend it and they will come.
Bubbles, Debt, and the Coming Reckoning
The pattern has repeated often enough that it should no longer surprise anyone.
In 2000 the technology bubble collapsed. Internet companies that had never produced profits suddenly discovered that stock prices cannot rise just on hype. Capital fled the sector, markets fell, and policymakers feared a recession that might expose deeper weaknesses in the economy.
I knew the Internet was in a bubble when I saw an Internet company CEO on TV and a reporter asked him what his company does. He talked about capital accumulation and web-based tech, but when the reporter pressed him on what his Internet startup actually did, he did not have an answer.
This was the first bubble I really paid attention to, but whether I look forward from that point or back, the same pattern emerges: whenever the Federal Reserve makes money artificially cheap, much of the money ends up in bubbles.
The response to the 2000 recession was both immediate and familiar. Interest rates fell sharply as the Federal Reserve pushed the cost of borrowing down, and credit expanded. Paul Krugman called for a housing bubble, and the Federal Reserve changed the rules to allow banks to package loans together and to sell the risk to Fannie Mae and Freddie Mac.
Mortgage lending exploded. Cheap money poured into housing and prices began to rise.
Developers responded. Fields turned into subdivisions almost overnight as borrowed money financed construction built on the assumption that demand would never slow.
The boom looked like prosperity. The spending was real even if the wealth behind it was not, and it got so bad that people could buy houses they could not afford and then borrow against their homes to pay their mortgages.
Then reality returned.
Housing prices stopped rising. Borrowers began to default. Mortgage-backed securities that had been sold as safe investments revealed themselves as insoluble debt, and banks suddenly discovered that the assets on their balance sheets were worth far less than they had claimed.
The housing market collapsed in 2008 and instead of shielding the American people from the fallout, we printed money to bail out the people who caused the crash. The result was one of the largest transfers of wealth in American history, from the poor and working classes to the rich.
Just to be clear, we could have allowed the banks to go bankrupt. The Federal Reserve could have managed the banks through bankruptcy, and provided the overnight lending some industries, like automotive, depended on, until the banks could resume those operations. We’d still have seen a recession, and it might have been deeper, but we would have gotten out of it sooner and the people who caused the recession would have been the ones it primarily hurt.
Instead, we bailed out the guilty and then the cure for the housing bubble became the seed for the next bubble.
The national debt now approaches forty trillion dollars, which is a number so large it has lost any connection to ordinary experience. The interest on the national debt is now the single largest item on the Federal budget, choking out actual spending and forcing us to borrow to pay for other things.
Universities charge tuition that would have been unimaginable two generations ago because government loans guarantee payment regardless of the value of the education received. Students borrow money that will follow them for decades, while institutions expand programs and facilities on the assumption that federal lending will continue.
Someone with a degree in Feminist Studies, or some other DEI-based degree, is qualified to either make coffee at Starbucks, or to go all the way through to a Doctorate such that they can then propagandize the next generation of Feminist Studies students. Most of these people will never pay their degrees off, meaning that the taxpayer will have to.
Healthcare costs rise under a dense web of mandates, insurance structures, and subsidies that separate the person receiving treatment from the person paying the bill. Prices climb because the normal discipline of consumer choice has been buried beneath regulation and third-party payment. This bubble will eventually force us to socialize the system, pushing the costs onto the taxpayer. This will be a particularly painful bubble when it bursts, as the quality of our medical care will collapse.
Public pension systems promise retirement benefits that tax revenues cannot realistically support. Politicians made the initial promises decades ago, assuming investment returns and future growth would make the obligations manageable, but public unions donate to the campaigns of the same people they negotiate with. Public pensions get more and more generous over time as a result, independent of the state’s ability to meet those promises.
Each of these bubbles survive only because the broader monetary system continues to supply cheap credit, until it no longer can.
Power, Production, and the Way Back
Keynesian policy offers politicians something earlier generations of leaders never had: immediate spending with deferred cost.
With a gold standard, governments would show restraint as the money required to fund promises would have to come from somewhere real, to prevent a run on the currency. Taxes would have to rise and voters would see the cost of policy decisions as they were made.
Even without a gold standard, if the Federal Reserve refused to inflate the supply of money by buying government debt, the government would have to show restraint.
We used to have such a system, but we no longer do.
When governments control the creation of money, they gain the ability to distribute benefits before the bills arrive. The cost can be financed with debt. Debt causes inflation and the people become more poor over time. Voters receive the benefits in the present while the costs spread quietly into the future.
Those entering the workforce today cannot afford to buy homes because we effectively bought our homes with their money, and now they are paying our bills. Anyone who doubts that needs to re-read the ‘Gold Is Money’ section as it makes the mechanism clear.
Politicians can promise spending without asking voters to sacrifice. They announce new programs, expand old ones, and respond to every downturn with another round of stimulus. If the economy slows, they claim the cure is more spending. If markets fall, they promise rescue. If debt grows too large, they rely on the quiet erosion of the currency to reduce its real value.
No politician ever lost an election by promising prosperity without pain. Keynesian economics provides the intellectual cover that allows those promises to be made. It tells governments that spending can replace savings, that borrowing can replace production, and that every downturn can be solved with more money.
But wealth does not appear just because governments spend money. Wealth appears when people produce things people actually want.
Real growth begins with production, not policy.
Factories build machines that allow fewer workers to produce more goods. Farmers cultivate crops that feed millions of people who will never see the fields where the food was grown. Engineers design tools that multiply the power of human labor and make tasks possible that once required thousands of hands. This is supposed to make the worker better off, but the productivity gains only make it to the worker when we don’t squander it through inflationary spending.
Entrepreneurs take capital and labor and combine them in ways that create products people actually want to buy. They take risks, organize resources, and constantly search for better methods of production. When they succeed, the economy produces more goods with fewer resources and society becomes richer – but only if entrepreneurs are building things people actually want. When entrepreneurs build for government programs to grow aggregate demand, it’s a bubble.
Prices tell producers what consumers value. Profits reveal where resources are being used effectively, while losses signal that capital should move elsewhere. Interest rates tell businesses whether real savings exist to support long-term investment.
When the value of the currency remains steady, entrepreneurs can plan years into the future, knowing they can trust that the prices guiding their decisions reflect real scarcity and real demand. Savers can accumulate capital because they know the purchasing power of their work will not quietly disappear.
The modern system replaced that stability with manipulation. Prices move under political pressure instead of reflecting real conditions, and interest rates change after policy meetings instead of emerging from the balance between savings and borrowing. Growth appears in official statistics even as households feel their purchasing power slipping away.
The path back does not require complicated theories or new institutions. The principles are older than our current monetary system and simpler than the policies that replaced them.
- Governments must spend within the limits of their revenue.
- Interest rates must reflect real risk and real savings rather than the preferences of central bankers.
- Money must be stable in value.
These principles governed the era that built the modern industrial world. They allowed capital to accumulate, entrepreneurs to plan, and workers to trust that the value of their labor would remain intact.
Under those conditions the United States experienced the greatest expansion of wealth in human history, and not only for the rich. We had the fastest growth in the living and working conditions of the common worker as well.
The country now faces a choice that cannot be postponed forever. It can continue the cycle of stimulus, debt, and currency dilution, hoping the next expansion lasts longer than the last, or it can restore the discipline that once governed money and production.
One path leads to endless intervention and recurring collapse. The other leads to reality.
Making the economy work again for America’s youth is not complicated. It is no more difficult than the explanation of inflation earlier in this essay.
Wages simply need to rise relative to gold again.
