The period between 1945 and 1970, often referred to as the ‘Golden Age’ of capitalism, saw an unprecedented level of growth of the American economy. In 1950 the average family income was $4,237 (about $44,500 in 2017 dollars), an increase of 178% since 1934–36. The median income was $3,216 (about $33,714 in 2017 dollars).
By 1960 the median household income had risen to $5,620 (circa $46,345 in 2017 US$), and by 1970 it had risen to $9,870 ($64,673). In 2016 the median household income was $59,039.
Other economic indicators such as GDP growth, unemployment and job security also suggest that the American economy in the 1945-1970 period performed well, and that the general welfare of the citizens improved.
However, just a few years later a new movement gained traction in American politics. The Right, which since the era of Franklin D. Roosevelt had lived under the shadow of the Democratic Party, launched a crusade against the style of governance that originated from the New Deal.
The target of the Right’s ‘revolution’ was the post-war social and economic system, the ‘big government’, which it portrayed as inefficient and tyrannical. The Right’s assault on the government’s role in the economy was successful. Within two decades neoliberalism, the doctrine of the ‘free’ (i.e. self-regulating) market, became the new consensus.
The Republican revolution against ‘big government’, welfare spending, the public sector and government intervention in general, appears all the more puzzling in the context of an American economy that had, as we have mentioned, achieved the highest level of growth and living standards in its history.
In this article we shall show that the new Republican Party did not stage a progressive revolution, but a reactionary movement aimed at restoring the pre-1929 order.
We shall argue that the American Right had never given up on its traditional ideals, and that it continued to cling to them until a new opportunity, the mid-1970s economic crisis, presented itself for them to advocate the dismantling of what had been created in previous decades.
Furthermore, we shall argue that the radicalization of the Republican Party since the 1980s, their assault on government, which was tantamount to a smear campaign against elected institutions and their ability to act for the common good of the citizens, paved the way for the gradual dismantling of the state itself, the alienation of large sections of the population, and the unprecedented rise of demagogy in the highest offices of American politics.
A Republican ‘Revolution’?
The Republican Right that emerged from the 1970s political shake-up depicted itself as a force of change, rejecting all that the Democratic Party since the days of the New Deal had stood for: welfare, regulation, government intervention. The Republicans styled themselves as ‘revolutionaries’ whose aim was to break with the past.
In his book What’s Right: The New Conservative Majority and the Remaking of America (1996) Republican neoconservative commentator David Frum summed up what the ‘Republican revolution’ was about:
Voter anger, and the apparent inability of conservatives to tap it, is a bitter byproduct of welfarism. The welfare state is a highly rickety contraption. Its costs rise faster than its revenues, because the underlying economy’s growth slows under the weight of the welfare state’s demand for taxes. Deficits, debts, and crushing interest costs ensue. The ‘end game of the welfare state,’ as Irving Kristol has called it, may thus present Republicans with no choice but to take a harder line against big government …
Government should not protect nonindigent people against the predictable results of their own actions or the inevitable cycles of life–against the costs of retirement and college, against the regular fluctuations of farm and factory prices, against the miseries caused by idleness and addiction …
Cultural conservatives bemoan the eclipse, of one type of American personality–self- reliant, self-controlled, hardworking and patriotic–and its apparent replacement by another: dependent, hedonistic, narcissistic and whiny.
Cultural conservatives like William Bennett now recognize that antipoverty programs have stifled self-reliance among the poor. They concede that government-mandated racial preferences have exacerbated inter-group animosity. The welfare state is collapsing about our ears, bankrupting the Treasury, and corrupting the character of the people (David Frum, What’s Right: The New Conservative Majority and the Remaking of America, 1996, pp. 95- 98, my emphasis).
Frum believed that the Republican congressional majority of the 1990s would “need decades to catch up to the venality and corruption of the Democrats.” However, he also argued that the Republicans’ victories were insufficient. “The achievements of the 104th Congress as yet appear both incomplete and disturbingly fragile. For all the excitement and commotion, the real work still lies ahead,” he wrote (Frum 1996, p. 35).
Frum very well described the Republicans’ ideology and their belief that state intervention was bad and corrupted the true ‘spirit’ of the American people. But was he right?
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The Regulatory State
Frum’s arguments were based on two fallacies. First, he assumed that pre-New Deal America was a state without regulations, where the free spirit of individuals allowed them to achieve prosperity. Second, he believed that regulations had corrupted the United States. Let us look at these two fallacies briefly.
We have already examined in a previous post the myth of free market in American economic history. Far from being a state without regulations, the US pursued for more than 150 years a strictly protectionist policy. Tariffs, one of the major issues in American politics until the 1970s, favoured US manufacturing and workers.
Moreover, one can argue that the US policy of acquiring territories and resources from native Americans and Spain and redistributing them among white settlers is in itself a state-sponsored economic policy that has little to do with ‘free market’. Therefore, protectionism and the official ‘theft’ of resources refute the claim that the US government did not intervene in the economy prior to the New Deal era.
The second fallacy is that government intervention in the economy corrupted the American spirit and hindered economic development. Data show that GDP per capita in the US grew by an average of 1.4% between 1870 and 1913, 1.2% between 1913 and 1950, 3.8% between 1950 and 1973, and 2% between 1973 and 1979 (The Golden Age of Capitalism: Reinterpreting the Postwar Experience, eds Stephen A. Marglin, Juliet B. Schorp. 42).
It seems absurd to argue that the regulatory state built between 1929 and 1973 was so disastrous when in that period the US not only overcame the most catastrophic recession in its history, but also won a global war and experienced the most spectacular level of economic growth and improvement of the population’s standard of living in its history.
But what was the ‘regulatory state’?
In the six years following Franklin D. Roosevelt’s inauguration in March 1933, the federal government implemented a series of far-reaching regulations affecting “entry, price, and competition in nearly 20 per cent of the national economy” (Richard H. K. Vietor, Regulation American Style, 1933-1989, in: Policies for Competitiveness: Comparing Business-Government Relationships in the ‘Golden Age of Capitalism’, ed. Hideaki Miyajima, Takeo Kikkawa, and Takashi Hikino, 1999, p. 214).
Key sectors of the economy such as agriculture, finance, transportation, natural resources, telecommunications and manufacturing were increasingly regulated by the government (ibid., p. 216).
During this period the US government passed the Banking Act (1933; it included the famous Glass-Steagall provisions); the Securities Act (1933); the Agricultural Adjustment Act (1933); the National Industrial Recovery Act (1933); the Communications Act (1934); the National Housing Act (1934), among others. Many of these regulations remained in place for decades and began to be dismantled in the 1970s.
It is also important to note that foreign trade continued to be regulated until the 1970s. The Reciprocal Tariff Act (1934) allowed for bilateral trade agreements aimed at reducing reciprocal tariffs, but it did not eliminate the protectionist system that had characterized the US economy since independence. President J.F. Kennedy still faced resistance when he tried to liberalize trade and he maintained various trade barriers in order to appease the public. President Lyndon B. Johnson’s proposed Trade Expansion Act of 1968 was debated in the House Way and Means Committee but never put to the vote (Encyclopedia of Tariffs and Trade in U.S. History, eds Cynthia Clark Northrup, Elaine C. Prange Turney, p. 394).
The regulatory state that existed between 1933 and 1973 was not without its flaws. But it achieved an unprecedented degree of material progress. During this era the US became a world’s superpower envied abroad for its wealth and its way of life.
The Republican ‘Restoration’
During the era of Democratic dominance of economic and social policies, the right-wing faction of the Republican Party rejected the ‘Roosevelt revolution’.
Right-wing Republican Noah Mason of Illinois was a supporter of high tariffs, but he rejected the New Deal, calling it a “brand of socialism.” Samuel W. Arnold of Missouri stated that it was “difficult to distinguish between the New Deal and Communism.” Right-wing columnist Westbrook Pegler launched a “vicious backlash against the New Deal and the labor movement to which it gave legal protection.”
The complete repeal of the New Deal was the GOP’s crusade, no matter the consequences. “True, a sudden and complete repeal of the New Deal legislation would subject the country to violent shock,” argued Clare Hoffman of Michigan, “but it would … not be fatal and a recovery would be comparatively quick and more important complete” (quoted in: David W. Reinhard, The Republican Right since 1945, 1983, p. 2).
The Republican right coined the term ‘Americanism’ to describe an allegedly strict adherence to the constitutional principles of fiscal sobriety and states’ rights as opposed to ‘big government’, federal regulation and spending (ibid.).
[A] federal government that overregulated and overtaxed could quash the individual’s incentive to improve his material well-being and jeopardize the pioneer virtues of individualism and self-reliance. All Republicans, of course, espoused fiscal conservatism, but for the Right it was dogma. The Republican Right Wing scorned Keynesian economics. Limited government spending and low taxes — these were the bases of real prosperity, a prosperity assured by a balanced budget. As conservative Nebraska congressman Howard Buffett intoned in May, 1945, “A balanced budget is the all-American goal, and the future of America depends on it” (ibid., p. 3, my emphasis).
As mentioned before, the opposition of the Right to the regulatory state is astounding in light of the unprecedented growth of the American economy during that period. But it shows that the ideology of laissez-faire never ceased to exist in US politics, and it only waited for an opportunity to fight back. That opportunity presented itself during the 1973-75 recession.
In the 1970s the Right rebranded itself, capturing the collective imagination by promising a new era of individual freedom, and of more economic welfare, achieved by breaking the shackles of state regulation that allegedly tied the hands of the hard-working, productive population. We shall use the term ‘neoliberalism’ to define this new brand of laissez-faire.
In order to bring about a shift in public opinion from the post-war consensus to a neoliberal consensus, right-wing groups began investing in think tanks, universities, the media and other organizations as a means of changing the narrative. As David Harvey explained:
The ‘long march’ of neo-liberal ideas through these institutions that Hayek had envisaged back in 1947, the organization of think-tanks (with corporate backing and funding), the capture of certain segments of the media, and the conversion of many intellectuals to neoliberal ways of thinking, created a climate of opinion in support of neoliberalism as the exclusive guarantor of freedom. These movements were later consolidated through the capture of political parties and, ultimately, state power (David Harvey, A Brief History of Neoliberalism 2007, p. 40).
In August 1971 Lewis F. Powell, who would later be appointed Supreme Court Justice by Richard Nixon, sent a confidential memorandum to the US Chamber of Commerce arguing that opposition to the American system of free enterprise had gone too far. Powell wrote that the time had come “for the wisdom, ingenuity and resources of American business to be marshalled against those who would destroy it” (Harvey 2007, p. 43).
In 1972 American CEOs founded the Business Roundtable, an organization that propagates neoliberal values. The corporations that participated in the Roundtable accounted for about half of the US’ GNP at the time and spent about $900 million per year to advance their cause.
Corporations funded think tanks such as the Heritage Foundation, the Hoover Institute, the Center for the Study of American Business, the American Enterprise Institute and the National Bureau of Economic Research, with the purpose of attacking government regulation, conducting studies and constructing arguments that would back neoliberal policies (ibid., pp. 43-44).
The Right’s assault on the regulatory state succeeded in bringing about a shift in public opinion. In 1980 Republican Ronald Reagan was elected President of the United States on a neoliberal platform.
The ‘Republican revolution,’ as we have shown, was not really a revolution but rather a return to old-style right-wing tenets. The arguments put forward by Ronald Reagan or Newt Gingrich echoed those of the Republican Right which opposed the regulatory state throughout the 40 years of Democratic political dominance.
In 1994 the Republicans, armed “with a vision of limited government and individual freedom,” won a majority in the Senate for the first time since 1986 and a majority in the House for the first time since 1954. In 2000 G.W. Bush became President, consolidating the trend towards neoliberal politics (Richard Armey, Reflections on the Republican Revolution, in: The Republican Revolution 10 Years Later: Smaller Government or Business as Usual?, ed. Chris Edwards and John Samples, 2005, p. 5).
Reagan, Gingrich and Bush shared the same neoliberal ideals, the “belief in the unfettered working of the marketplace and a limited government,” or, as Reagan put it in his First Inaugural Address: “In this present crisis, government is not the solution to our problem; government is the problem” (see: George A. Mackenzie, Conservatives and the American Economy, in Crisis of Conservatism?: The Republican Party, the Conservative Movement and American Politics after Bush, ed. Joel D. Aberbach and Gillian Peele, 2010, p. 281).
The Democratic Party itself shifted to the right. Under pressure from the ideological tide of neoliberalism and the electoral triumph of Newt Gingrich’s Republicans, Bill Clinton rammed the NAFTA deal through Congress with the help of Republicans, adopted Republican views on welfare reform, immigration, free trade and a balanced budget. One of the most symbolic political acts of the Clinton administration was the repeal of the Glass-Steagall legislation in 1999.
Thus the dream of the Republican Right to repeal the New Deal and dismantle the regulatory state came true.
As we have already explained, for over 150 years US economic policy was based on various degrees of government intervention, either in terms of tariffs, investment, acquisition of resources, regulation or welfare. In the 1970s, the Right began an all-out assault on those tools of economic and social policy. In order to achieve their objective, neoliberals launched a smear campaign against the state itself.
In the Right’s rhetoric, the state was no longer the representative of the people tasked with implementing policies that benefited the people, but an enemy, a tyrant and an obstacle. The Right’s crusade against the state has deprived politicians of the credibility necessary to put forward policies, to experiment and solve problems. And because politicians no longer act, but leave the well-being of the economy to the idealized notion of self-regulating market mechanisms, the electors blame them because they don’t seem to accomplish anything. It is a vicious circle.
Some may argue that it is not true that the state has become too small. Many Republicans themselves claim that the failure of their ‘revolution’ was due to the fact that they did not scale back enough the role of the government.
“Many now view the Republican takeover as having little effect on the size and scope of the federal government, ” wrote Richard Armey in 2005. “Congress continues to spend at a record pace while federal regulators are expanding the reach of government into the private sector” (Richard Armey, Reflections on the Republican Revolution, in: The Republican Revolution 10 Years Later: Smaller Government or Business as Usual?, ed. Chris Edwards and John Samples, 2005, p. 5,).
The problem is that there is no evidence that less government intervention creates more wealth. While the United States dismantled its regulatory state, welfare system and tariffs, states like Taiwan, Singapore and Japan overcame the 1973-75 crisis by clinging to their mixed economic system.
Over the past four decades, neoliberal ideology has made the government dysfunctional. It has deprived politicians of the necessary tools to visibly improve the economy and it has created dissatisfaction among the people. Neoliberalism has erased the memory of the achievements of the post-war era, and it has smeared government action and regulation. As a result, it has paved the way for the rise of demagoguery and the politics of hatred. The citizens, tired of insecurity, stagnation and lack of good job opportunities, turned in their desperation to the only politician who seemed to address their concerns.
In order to rebuild democracy, the United States needs to reject neoliberalism as a state dogma. It needs to embrace experimentation and the use of all available tools of economic policy in order to improve people’s standard of living. Because if the American people lose their faith in the American dream, democracy will fail. The rise of Trumpism is a warning. But the lesson from the past four decades has yet to be fully understood.
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