Can America Wake Up from Reagan's “Free Market Magic” Lies?

America — and the Democratic Party — have arrived at one of our nation’s history’s great crossroads. Hopefully, we’ll make it through…

Image by Alana Jordan from Pixabay

Senator Chris Murphy gets it. And he’s begging his fellow Democrats to wake up, too.

Forty-two years ago, Ronald Reagan launched America into a great social, economic, and political experiment. It was based on the 1940s utopian thinking of a handful of conservative economists and promised to bring peace and prosperity to the entire world through a magical thing they dubbed the “free market.”

Reagan and his Vice President GHW Bush, who initially called it “Voodoo Economics,” became true believers, as did Bill Clinton, George W. Bush, and Barack Obama.

And, it turns out, it was based on a lie and has produced an utter disaster for America.

This experiment — called neoliberalism, but more commonly referred to as Reaganomics — has transferred $51 trillion from the pockets of America’s working class directly into the money bins of the morbidly rich, taking America’s middle class from almost two-thirds of us to fewer than half of us. It has made a handful of billionaires richer than any humans in history, richer than the pharaohs, richer than the mythical Midas, richer than the historic kings of Europe.

By exploding inequality and crushing the ability of a single worker to raise a family, it has fueled an economic bitterness and fatalism we see in every poll today about people’s satisfaction with their ability to keep their heads above water and prosper.

As I document in my book The Hidden History of Neoliberalism: How Reaganism Gutted America, it moved over 50,000 factories out of America and destroyed an estimated 40 million good-paying manufacturing and support jobs.

It has made us reliant on Communist China, a country that itself explicitly rejected neoliberalism in 1989, turning instead to what built the American miracle of the 1930-1980 era: classical or Keynesian economics. They literally traded places with us, and now have the largest economy in the world; the Chinese middle class is today larger than the entire population of the United States.

Senator Chris Murphy lays it out over at his new Substack newsletter, where he writes about visiting Boone, North Carolina:

“Today, I’m traveling to Boone, North Carolina, in the heart of Southern Appalachia, to convene a meeting on the impact of neoliberal economics on rural and small-town America. I wrote about the wreckage of America’s bipartisan blind faith in neoliberalism last year, and while I’ve learned a lot of about the consequences of mistakes we made through research, reading, and conversations with stakeholders and thought leaders … there is no substitute for in-person experience.

“Obviously, I see the results of globalization, automation, and the cult of profit (key tenets of neoliberalism) in Connecticut. On Tuesday, I convened a group of religious leaders in Norwich, Connecticut, to talk about why fewer Americans are attending church, synagogue, or mosque, places where many people found positive meaning and identity before neoliberalism (and other forces) started to destroy local institutions.”

Senator Murphy — along with President Joe Biden and the Congressional Progressive Caucus — is at the forefront of a crusade to awaken America to the damage neoliberal Reaganism has done to our country and lead America back out of the wilderness and into an economy that will work for average Americans.

Milton Friedman, then being secretly funded by the real estate lobby, began selling neoliberalism to America back in the 1950s, and we fully bought into it in the 1980s.  Most Americans had no idea, really, what this new political/economic ideology meant; they just knew it involved free trade, economic austerity/tax cuts and deregulation/privatization.

The free trade part, we were told, would bring about the end of great-power wars because countries that were economically interdependent wouldn’t dare ruin their own economies by going to war with a significant trading partner. 

The “McDonald’s Theory” hatched by Thomas Friedman was argued on TV and in the newspapers: no two nations that had McDonald’s fast-food restaurants, we were told (falsely), had ever gone to war with each other.

Free trade was also going to eliminate poverty in the world by giving every country an “even playing field” to compete for manufacturing jobs. 

High-wage countries like the US and the UK would have to stop protecting their laborers with unions, whose wage and benefit demands were merely “drags on the economy” and prevented the “magic of markets” from working.

Low-wage countries would pick up much of that work, but over time their people would rise into the middle class, too, and everything would even out. 

And, indeed, trillions of dollars of wealth were sucked out of the American working class as union membership plunged from around a third of workers to about 6% in the private marketplace, all while China (which rejected neoliberalism) saw the fastest and strongest rise of a middle class in the history of the world.

Austerity was supposed to end ghettos, crime, and poverty in America by withdrawing the supports “lazy” people used to get by without having to work. 

And neoliberalism’s tax cuts for the morbidly rich would incentivize them to start new businesses and “create jobs.” Everybody would win!

Deregulation, we were told, would enable all of this “free market magic” to happen quickly, because businesses were more nimble and knew better what they needed to do to make their products than did “government bureaucrats.”

Even regulations that most people agreed with, like pollution controls, were unnecessary, the neoliberalism advocates told us, because businesses that polluted would be “shamed in the marketplace.”

If they refused to clean things up and their pollution was harming people, we were told, they’d be “held accountable in the press and the courts” by the families of the people they’d damaged or killed.

Deregulation would also end economic depressions, because no banker or stockbroker in his right mind would take such big chances that a misstep could wipe out large sectors of the nation’s economy.

Neoliberal Republican Senator Phil Gramm made this very point on the floor of the Senate in 1999 when selling the end of the 1933 Glass-Steagall law that prevented checkbook banks from using their depositors’ money to gamble in the stock, bond and real estate markets.  

Everybody applauded and banksters started gambling and became billionaires. And, of course, it led us straight to the Bush Crash of 2008 when the entire system seized up and you and I bailed out Wall Street with trillions of dollars, hundreds of billions of which a few hundred banksters simply pocketed.

Privatization was a subset of deregulation, moving control over essential services like water, power, and schools out of the public/governmental arena and into the hands of the rich and their allies. Privatization was supposed to make water cleaner, electricity cheaper, and schools better.

Tragically, as Americans are now realizing as we wake up to our neoliberal nightmare, all were lies.

Flint, Michigan, for example, experienced a disastrous water privatization scheme pushed by the then-Republican administration of that state that has destroyed the lives of thousands of now-lead-brain-damaged children.

California and Texas suffer from regular blackouts while the stockholders and executives of their power companies stash billions in their money bins.

Public schools around the country have been kneecapped as their resources are reallocated to corporate, for-profit charter schools.

Reagan installs Neoliberalism

From the 1930s to 1981, a period of time spanning more than two full generations, the American political and economy was run under a “well-regulated capitalism” system grounded in the classical economics of Adam Smith, fine-tuned by economist John Maynard Keynes, and put into place in 1933 by President Franklin D. Roosevelt. 

A top income tax bracket of 91% that kicked in at around $3 million a year in today’s money guaranteed that nobody became obscenely rich, while strong protections for workers and their right to unionize ensured a good chunk of corporate profits went to the workers who created that revenue.  

Prices were stable because companies had to compete. America was peppered with millions of small, family-owned local businesses.

Anti-trust laws were so vigorously enforced that in the 1962 antitrust case of Brown Shoe Co. v United States, the Supreme Court blocked the merger of Brown and GR Kinney, two shoe manufacturers, because the combination of the two would have captured about 5 percent of the US shoe market. (For comparison, Nike today has 18 percent of the US shoe market.)

Throughout that period America became steadily safer and cleaner as worker protections became law (and got their own agency with OSHA), pollution and dangerous products were regulated (and the EPA was created), and government stepped in proactively to end the Dust Bowl and reforest America (with the Civilian Conservation Corps) and provide American families with low-cost clean electricity (the Hoover and Bonneville Dams and the Tennessee Valley Authority, among others).

But starting in a big way in the 1950s a number of front men for big money industries and dynastic fortunes stepped forward to argue that all of this regulation and taxation was not a benefit or economic stabilizer but, instead, a certain road to economic doom and social perdition. 

Milton Friedman argued (in his book Capitalism And Freedom) that the high wages, high taxes, and regulation of the 1950s were stifling the economy in a way that would surely lead to hyperinflation and ruin, predicting a disaster far worse even than the Black Tuesday stock market crash and ensuing Republican Great Depression that Herbert Hoover kicked off in 1929.  

Inflation gives neoliberals the lever they needed

Inflation had always been the thing that Friedman and his acolytes most loudly warned against, but when it came to America its cause wasn’t what Friedman had predicted. 

In 1973 several Arab states went to war with Israel, and the US openly took Israel’s side in the conflict. Enraged, the oil-rich states — led by Saudi Arabia — cut off the supply of oil to America in what is now known as the Arab Oil Embargo of 1973-1974.

There are two main ways inflation happens: a country debases its currency (as happened in Germany in the 1920s and Zimbabwe in this century) or a commodity that’s at the core of an economy becomes scarce (in the case of Zimbabwe it was both: food became scarce at the same time the government went on a money-printing binge). 

The US has never had a serious problem with debasing our currency (although that’s what Friedman was hysterically warning against), but everything in our economy — from manufactured goods to travel to food production and distribution — runs on oil.

The oil shock so shook our economy that Richard Nixon, no fan of government intervention in markets, resorted to wage and price controls while people formed mile-long lines to get gas on the odd- or even-days they could do so, based on the last digit of their license plate. 

The result of that oil shortage was a subsequent shortage of pretty much everything else, and when things are scarce their price gets bid up.  Inflation hit 12% in 1974 and stayed high while oil slowly worked its way back through the economy until 1981 when it dropped down to “mere” 8.9%.

Friedman, Reagan, and the wealthy funders of the Republican Party saw this inflation, which was devastating the Jerry Ford and Jimmy Carter one-term presidencies, as a political gift.  To a man, they insisted it was caused by FDR’s and LBJ’s “welfare state” policies and the “big spending” associated with them, even though that was a complete lie.

Reagan was sworn into office in 1981 just as inflation was beginning to abate (it dropped to 3.8% in 1982) and he told America that we needed to embrace an entirely new economic theory if we were to avoid another era of 15% mortgage rates and wage-eroding price increases.

America, shook by that decade of seemingly intractable inflation, bought his sales pitch and Reaganomics — AKA neoliberalism — became the operational economic and political system of America in 1981. Everything from trickle-down to busting unions to “ending welfare as we know it” and “tough on crime policing” fell under this single rubric.

Democrats buy into neoliberalism

As the oil shock wore off and the American economy entered a period of strong rebound in 1982, it seemed that Reaganomics/neoliberalism was working. 

Expanding on the idea, Reagan and Bush the Elder negotiated what Bush called a “New World Order” of “free trade.” While human beings would still be constrained by national borders, there would no longer be borders or barriers for the flow of money and corporations.

They rolled out the General Agreement on Tariffs and Trade (GATT) which later birthed the World Trade Organization (WTO), and negotiated the North American Free Trade Agreement (NAFTA) that was later signed by President Clinton. 

Bill Clinton had become a believer, in part because it was good politics; Reaganomics was getting credit for the end of the oil-shock-caused inflation and subsequent hard times, and was then popular.

Walmart, for example, went from “100% made in the USA“ (the title of Sam Walton’s autobiography) to today where it’s almost impossible to find a single product made in America in a big box store. To say “automation is the problem” is a cruel joke: manufacturing was simply offshored.

Reagan’s destruction of American unions had also dried up the Democratic Party’s main revenue source, so by 1992 jumping into bed with giant corporations and the super-rich had become a political survival strategy for Clinton’s Democrats. 

Embracing multinational corporations that wanted to move their expensive-labor manufacturing facilities overseas meant overflowing campaign coffers for the newly-neoliberal Democratic Party and Clinton’s political arm, the Democratic Leadership Council (DLC).

It was time, Clinton told us, to consign the policies of Smith, Roosevelt, and Keynes to the dustbin of history. To “end welfare as we know it” and kill “the era of big government.” There was a “New Democrat” Party (there’s still a “New Democrat Caucus” in Congress for neoliberal hangers-on) and a new, young, vigorous president and his wife were taking the reins of government.

It worked for a while, but by the early 2000s Americans were starting to see through the entire neoliberal façade, as over 50,000 factories had moved from the US to Mexico, China and other developing countries while wages in the US had collapsed.  The middle class was going backwards, or staying flat at best, and discontent roiled the country. 

After a brief feelgood period of punitive war after 9/11, Americans were again ready to shake things up; they did so in a historic move by electing our country’s first Black president, Barack Obama.

But while Obama, like Clinton, had campaigned on themes that made it seem he was rejecting neoliberalism, in fact he was as deeply in its camp as were Reagan, Bush, Clinton and Bush.

By the time of his presidency, neoliberalism was simply conventional wisdom in political circles, having been adopted in the UK in 1978 by Margaret Thatcher and large parts of it adopted by much of the rest of Europe in the 1990s and early 2000s. Onward to Davos to party with the neoliberal billionaires!

But, still, as noble and soaring as Obama’s rhetoric was, and as good and decent a man as he was (in contrast to the war criminal and torturer Bush, horny Clinton, or the evil Nixon), neoliberalism still wasn’t working for anybody except America’s biggest corporations and richest families. And, while American workers knew it, only a few in the Democratic Party (sometimes called “the Bernie Wing”) understood it.

As Senator Murphy confessed to American Prospect writer Luke Goldstein:

“I was guilty of accepting this paradigm we were stuck in and in which we assumed we had to live with this massive concentration of corporate power. I had no living memory of government using its power to break up monopolies.”

Enter Donald Trump, the political equivalent of The Little Boy Who Said The Emperor Has No Clothes.  Trump attacked neoliberal policies of both parties, although never directly using the word “neoliberal.” 

Free trade, he said, had been a disaster for American workers.  And voters knew he was right.

Rich people were gaming the tax system — he knew, he told us, because he did it, too — and he was going to put an end to that.  Americans wanted tax fairness, and when Trump said his rich friends “will hate me” because he was going to raise their taxes so much, voters believed him.

And austerity had not only not ended crime but was driving working class people into the poorhouse.  Nobody, Trump proclaimed, would be a better friend to Social Security, Medicare, housing supports and other entitlement programs that supported the poor and middle class alike than him.

Most of his solutions were lies, of course, but the American people wanted to believe that this reality TV star and billionaire was just the savior America needed. 

To top it off, Trump spoke what many white people considered “politically incorrect truths” about race and immigration.  “They” were stealing your job and threatening to rape your wives and daughters, Trump told white Americans, and he was just the guy tough enough to deal with “them.”

Outside of tearing a few thousand brown-skinned children away from their parents and symbolic tariffs on Chinese products that backfired badly, Trump couldn’t pull any of it off.  He was as much a follower of neoliberal ideology as any American president since Reagan, his rhetoric aside. 

So Americans, still wanting to get rid of neoliberalism, decided to try the Democrats again in 2020, giving that party control of the House, Senate and White House. 

Joe Biden, a canny politician sensing the mood of the country, openly denounced many of the tenets of neoliberalism and, in the first six months of his presidency and with the help of then-Budget Committee chairman Bernie Sanders, accomplished Keynesian stimulus programs that would have left Clinton, Bush, or Obama in shock (and, we’re now hearing, were apparently opposed by all three in backchannel conversations).

Now the rest of America’s elected Democrats face a choice, and Chris Murphy wants to help lead the revolution.

Turning back neoliberalism would be an accomplishment for the ages, something considered impossible even five years ago. 

Bringing American manufacturing back home, raising top income tax rates to the above-50% level that stabilizes the explosion of great wealth, breaking up the giant monopolies that have emerged since Reagan stopped enforcing the anti-trust laws in 1983, and building a 21st century social safety net with free college and Medicare For All would guarantee the Democratic Party would — like it did from the 1930s to 1980 — control most of the US government for generations.

It would also strengthen democracy itself in America, leading us towards the multiracial, multi-ethnic all-in society promised in our Founding documents but not yet fully realized.

On the other hand, there are powerful forces arrayed in defense of neoliberalism, including six Republicans on the Supreme Court, massive transnational corporations, and an activist billionaire class the Court empowered with rulings like Citizens United that legalized political bribery. 

As Senator Murphy told the American Prospect’s Goldstein:

“I think there is still a sizable portion of the Democratic Party that is sort of stuck in its addictions to neoliberal economics that concentrated and globally integrated markets can deliver prosperity. I still think this party has not made a firm break from neoliberalism.”

If the neoliberals win and Biden, Murphy, and the progressive Democrats back down, it’s unlikely America will simply slide back into a “friendly neoliberalism” like we had before the Trump presidency. 

Instead, because neoliberalism has so embittered the American electorate and demagogues in the GOP are more than happy to supply a “them” (Blacks, Hispanics, Immigrants, liberals, the LGBTQ community, China) as the villains, we will almost certainly follow the path that Russia and Hungary have trod, re-embracing Friedman’s economic policies.

This time, though, it won’t be with Reagan’s and Clinton’s happy faces: for the morbidly rich and giant corporations to maintain their control of the wealth and politics of America will require the strongman politics of authoritarianism necessary to keep workers “in their place.”

It would signal the end of the largest and most noble parts of the American Experiment and the full-on beginning of American fascism.

America — and the Democratic Party — have arrived at one of our nation’s history’s great crossroads.

And the most powerful force that can help us make it through will be for American voters to understand the history of how we got here.

Pass it on.