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

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.

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