By Quentin Choy
April 7, 2021
The shift from the Keynesian, New Deal era in the 1930s to the rise of laissez-faire capitalism and neoliberalism in the 1980s and 1990s was the largest transformation in 20th century American economic history. Both Republicans and Democrats took steps and enacted policies that killed the New Deal’s economic policies and created an environment in which neoliberalism and market fundamentalism could thrive. The gradual dismantling of the New Deal order was necessary for the rise of the neoliberal order, which has long-lasting economic, social, and political consequences in modern political discourse.
Neoliberalism and the neoliberal order act as the opposite of the New Deal order and the economic policies passed by Franklin Roosevelt. If Franklin Roosevelt and Lyndon Johnson are the icons of modern liberalism and Keynesian economic policies, then Ronald Reagan and Bill Clinton represent the establishment, adoption, and preservation of market fundamentalism and the neoliberal order. Violent strikes and labor conflict marked much of the early 1930s in America, and the New Deal sought to reign in the power employers held over employees and to grant more rights to workers, strengthening the labor movement, assisting the poor, and increasing the wealth of Americans, all while helping the American economy recover from the hardships of the Great Depression.
Neoliberalism and the neoliberal order emphasized deregulation, market fundamentalism, and promised that “it could make markets work to their full potential and thereby rekindle the kind of economic growth that managed capitalism had failed to deliver in the long 1970s.” Free trade had revived economies of countries such as China, South Korea, India, and Brazil, and the U.S. believed neoliberalism and free trade could save its own markets while allowing it to trade with its newly-enriched global trading partners. Without an economic depression like the Great Depression of the 1930s to justify large amounts of government spending and an expanding welfare state, neoliberalism served as a viable alternative to accumulating wealth in America against the backdrop of the 1970s.
One of the New Deal’s greatest reassurances was its advocacy and support for labor unions, a support and membership which declined into the 1980s and collapsed following the election of Ronald Reagan in 1980 who opposed unions and organized labor. The decline of unions paved the way for neoliberalism’s rise. Much of business’ despise of unions and organized labor emerged from the passing of the Civil Rights Act of 1964 under President Johnson which included protections against discrimination and pushed for more racial equality.
For many who viewed society as changing too quickly for them, they opposed those who imposed these rules on them, and oftentimes, this was done by labor unions. A quote by author Gary Gerstle says “these wealthy Americans had come to loathe the labour unions with whom they were forced to deal, as well as government agencies that were compelling them to transform HR practices radically in the pursuit of racial equity.”
The presidency of Lyndon Johnson, who in many ways built upon the New Deal era with the creation of the Great Society preserved the New Deal era. He signed into law the Civil Rights Act, prohibiting discrimination, and also signing into law Medicaid, Medicare, and Head Start, all aimed to reduce poverty in Johnson’s War on Poverty.
While Johnson and his Great Society reforms of Medicare, Medicaid, and Head Start helped millions of Americans, it signified a federal government that grew even more expansively than during the New Deal era. Backlash was imminent. Following the Nixon years which represented the conservative revolt against the enlarged federal government, only two Democrats were elected; Jimmy Carter in 1976 and Bill Clinton in 1992.
Reagan’s election in 1980 followed a period of rapid social change seen through the social movements of the 1960s and 1970s which alienated several members of the Democratic Party who comprised the New Deal coalition and felt like their country was moving too quickly past them when it came to social issues. The conservative response to such movements during Richard Nixon’s presidency was a reassertion of traditional free-market economics characterized as a “full-scale countermobilization by business conservatives” against the “rebellions and broad anti business sentiment fostered by the radical movements of the 1960s and early 1970s.”
Reagan, one of America’s most influential embracers of neoliberalism started his presidency with a swift course of action against unions and organized labor, most notably demonstrated in his handling of air traffic controller strikes. Rather than negotiating with air traffic controllers who were unionized, Reagan instantly fired them all, demonstrating to the fractured remnants of the New Deal coalition that their time was up. His first few years in office were spent unraveling the New Deal and targeting the two pillars of the New Deal: organized labor and progressive income tax.
Right wing foundations, think tanks and organizations rose to prominence in the 1980s and 1990s and offered intellectual arguments and support for market fundamentalism and neoliberalism which was becoming normal in American society. Business intellectuals maintained a balance with the Religious Right in the Republican Party which now held conservative social positions and foreign policies while also having neoliberal, laissez-faire economic stances. The last major step of neoliberalism’s rise was the death of its alternative in the Democratic Party after Bill Clinton embraced neoliberalism in the branding of the New Democrats. With both parties now serving as proponents of neoliberalism, many Americans felt politically abandoned and overlooked, which would lead to severe political consequences following further union power decline, increased corporate power, the 2008 financial crash, and feeble attempts at regulating economic titans.
Clinton embraced some Republican principles in the name of political viability, focusing on reducing social spending and increased fiscal prudence. Clinton declared the “era of big government is over,” and he also vowed to “end welfare as we know it.” His repeal of the Glass-Steagall Act of 1933 declared that he was a different type of Democrat than Johnson and Roosevelt. Many Republicans felt upset, believing that Clinton had taken too many of their party’s core values. By the end of the 1990s, the New Deal era was completely dead after rifts from within and the rise of pragmatic, compromising Democrats who were the opposite of earlier Democrats like Roosevelt and Johnson.
Increased polarization leads to a stagnation on issues of inequality as lawmakers fail to respond to such issues. This inaction on such pressing issues leads to a distrust in political institutions and to the rise of groups such as the Occupy Movement on the left and the Tea Party on the right. In 2006, 59% of Americans thought government corruption was widespread. Political discourse shifts away from the establishment and to outsider candidates and any sort of change. Obama offered a glimmer of hope and change from the neoliberal order to many Americans in 2008, but following the Great Recession of 2008, some Americans believed that Obama too was a continuation of the neoliberal order and that they had been tricked, having voted for someone who continued to push for free-trade agreements and reassuring big banks and investors rather than ordinary Americans.
In this way, Obama represented a false hope for many Americans that the system could be changed, and now, Americans were ready to vote for change no matter the source if it meant anything other than the status quo. Stanley Greenberg, a political strategist criticized the Democratic Party saying that “Democrats don’t have a ‘white working class’ problem. They have a ‘working class problem.’” Such a conclusion was drawn from shifts toward identity politics and an alienation of economic inequality and labor issues as political issues the party ran on. Many white working class voters felt alienated by such a rapid shift in priorities within the Democratic Party and were swayed by anti-establishment, economically populist candidates such as Bernie Sanders and Donald Trump who both addressed the economic and class sentiments of many Americans.
Gerstle argues that the neoliberal was cracked by Obama’s insufficient response to the financial crash of 2008 and that it paved the way for anti-establishment populists to succeed. In 2016, Trump and Sanders were clear alternatives to the neoliberal establishment which was embodied through Hillary Clinton, who many believed to be corrupt, especially after accepting $300,000 for speeches made to Goldman Sachs.
Following Trump’s election, which served as a rebuke from the public to the neoliberal establishment, it seems that the neoliberal order was fractured, but will live on. With such powerful corporations, inefficient government, and widespread cynicism and acquiescence among voters, it is difficult to say how the neoliberal order will fare following the COVID-19 pandemic and the election of Joe Biden, who in many ways represents the status quo people voted against just four years ago. Though neoliberalism’s rise to prominence was swift, its decline will be slow, gradual, and likely far-off.
Biden has committed to being the most progressive president since FDR, and while he has undone several key legislation from the Trump administration and has passed a COVID-19 stimulus bill, delivering relief to millions of Americans, several key issues such as the minimum wage, infrastructure, and healthcare access still need to be dealt with. While I am not optimistic, I hope President Biden proves me wrong.
Gary Gerstle, “The Rise and Fall of America’s Neoliberal Order,” (2017)
Suzanne Mettler, “From Pioneer Egalitarianism to the Reign of the Super-Rich: How the U.S. Political System Has Promoted Equality and Inequality Over Time” (2014)
Fred Block, “Understanding the Diverging Trajectories of the United States and Western Europe: A Neo-Polanyian Analysis,” (2007)
Robert Reich, “The System: Who Rigged It, How We Fix It,” (2020)
Image Courtesy of Getty Images.