Ronald Reagan’s New Economic Order, and What It Meant for America

THE RISE AND FALL OF THE NEOLIBERAL ORDER
America and the World in the Free Market Era
By Gary Gerstle

"Ronald Reagan devoted his Labor Day in 1980 to two marvelous photo ops. The first captured him delivering a major speech on freedom and opportunity in Jersey City, N.J., the Statue of Liberty standing in the haze behind him. Then he flew to Allen Park, Mich., one of Detroit’s ubiquitous blue-collar suburbs, for an afternoon cookout at the modest home of a laid-off steelworker. There he got his second shot: the soon-to-be president of the United States standing over a grill packed with kielbasa, barbecue tongs in one hand, a beer in the other. The free market revolutionary as an average Joe, chatting up the workingman.

It was a marker of one of the two political transformations that drive Gary Gerstle’s enlightening new book, “The Rise and Fall of the Neoliberal Order.” For almost half a century families like those that lived in Allen Park had backed what Gerstle, the Paul Mellon professor emeritus of American history at Cambridge, calls “the New Deal order.” At its core lay Franklin Roosevelt’s commitment to using government power to counter capitalism’s instability and inequality. From that principle emerged an array of public policies, some meant to regulate troublesome sectors of the economy, others to assure the aged and the poor a minimal standard of living, still others to give working people the income they needed to buy the goods their factories produced and the homes they dreamed of owning. As the programs flowed out, the support flooded in: By 1936 Roosevelt had added a huge bloc of blue-collar voters in the urban North to the Democrats’ traditional base in the white South, a combination so powerful it gave the party almost unassailable control of national politics for two generations.

The coalition started to splinter in the mid-1960s, when Lyndon Johnson’s support of the surging civil rights movement drove the white South to the Republicans. Gerstle sees the fatal blow coming with the following decade’s economic crisis. The trouble started with the Vietnam War, which triggered an inflationary spiral that the oil shocks of the 1970s accelerated. Rising prices opened the economy to a rush of lower-cost imports that American industries didn’t see coming until it was too late. Suddenly auto plants were cutting shifts. Steel mills were shuttering. And Ronald Reagan was standing over a couple of dozen sizzling sausages, telling a yard full of struggling steelworkers that it was time to give up on the New Deal order.

Gerstle carefully recreates the new order Reagan wanted to put in its place. It had its origins, he says, in classical liberalism’s faith in the free market as the guarantor of both individual liberty and the common good. In the mid-20th century a handful of European intellectuals and their American acolytes gave that faith a new name — neoliberalism — and an institutional home in a scattering of generously funded research institutions and iconoclastic university economics departments. From there it seeped into the right wing of the Republican Party, where Reagan embraced it as the revelation he believed it to be. But Reagan was no intellectual. He was a popularizer, skilled at turning neoliberalism’s abstractions into sound bites that in the dire circumstances of the late 1970s managed to seem simultaneously common-sensical and inspirational.

Government wasn’t the solution, he said again and again. It was the problem. Cut its regulation, slash its taxes, lower its trade barriers and capitalism’s genius would be released, the American dream restored.

Reagan also insisted that the government had overreached in its promotion of racial change, a position that was meant, Gerstle says, to anchor the white South’s vote. There’s a great deal of truth to that argument, but it doesn’t go far enough. When Reagan denounced affirmative action or busing or welfare queens, he was playing to the racial animus that coursed through places like Allen Park, where whites made up 97 percent of the population, as much as he was playing to Mississippi’s prejudices. In November he lost majority-Black Detroit. But he swept its segregated suburbs.

Over the next eight years Reagan laid the neoliberal order’s foundations. Gerstle emphasizes its market side — the administration’s busting of the air-traffic controllers’ union, its deregulation of key industries, its dramatic reduction of the wealthiest Americans’ tax rate and its attempt to construct a Supreme Court hostile to the New Deal order — which, as it turned out, released the force of greed more than it did the genius of the marketplace.

The administration’s racial policies, Gerstle says, centered on the drug war it waged on young Black men, though he could have chosen any number of other positions as well — from the ravaging of public housing to the quiet resegregation of public schools — so thoroughly was race embedded in the Reagan Revolution.

What Reagan created, Bill Clinton consolidated. The economic story is straightforward. Having stumbled through his first two years in office, Clinton claimed neoliberalism as his own, proudly promoting the globalization of manufacturing, the deregulation of banking and telecommunication, and a fiscal policy designed to convince investors that they could make as much money under a Democratic government as they could under a Republican one. By the turn of the 21st century the American economy had been remade, its old industrial base replaced by the wondrous world of high tech, high finance and high-end real estate.

The racial story was more complicated. Clinton celebrated multiculturalism as a marker of the nation’s vitality, Gerstle says. But he also doubled down on Reagan’s racialized law-and-order campaigns and completed the assault on the welfare state, even as the new economy was hitting poor communities with particular force. By the end of the Clinton years, Allen Park’s median household income was 15 percent lower than it had been when Reagan stopped by for a beer. Detroit’s had tumbled by 39 percent.

There the neoliberal order remained, all but untouchable in its orthodoxy, until the crash of 2008.

 In that seismic event Gerstle sees a dynamic much like the one that had shattered the New Deal order. At its center stood Barack Obama, the erstwhile champion of hope captured, in Gerstle’s telling, by a coterie of Clinton-era advisers convinced that neoliberalism could right itself. To Obama’s left a new generation of social Democrats demanded a state-directed reconstruction of the economy, while a new generation of Black activists turned the horror of racial violence and a brilliantly phrased hashtag into a mass movement.

But it was the right that brought down the neoliberal order with a candidate who understood how to exploit the frustrations and furies of those whites the new economy had left behind. Donald Trump’s mix of anti-elitism, hyper-nationalism and raw racism didn’t win him the popular vote in 2016. But it won him Allen Park.

He lost it four years later, by three-tenths of a percent. Maybe the blue-collar voters who still lived there had seen the hollowness of his populism. Maybe they simply grew tired of the chaos Trump had caused. But there is a darker reading than the one Gerstle’s fine book suggests. Maybe the fact that the election had been so close, despite the year’s upheavals, shows that what matters most in American politics isn’t the shape of the nation’s economy but the enduring appeal of its racism."