Will Biden usher in a new people-based framework for American Capitalism?

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History shows us that at times of economic crises, empowered political coalitions and their solutions change the contract with the American people. Will Biden and the Democrats grab the chance?

At the end of the 1920s — after a decade of Republican free market un-regulated capitalistic governance in the United States — the roaring decade ended with the infamous stock market crash of 1929, leaving millions of Americans facing economic disaster. The President in office at the time, Herbert Hoover, tried to right the economic ship with a couple of efforts, which, in the end, did next to nothing to meet the moment that a decade of un-regulated capitalism wrought on the American people.

Franklin Delano Roosevelt was elected to replace Hoover in 1932. As soon as he was inaugurated in March of 1933, he kicked off an activist approach to governing that helped build a regulated economy with a social safety net that put guardrails on American capitalism. Social Security, unemployment insurance, the abolition of child labor, minimum wage and the 40-hour work week, the right to join a union, were all established, alongside market and banking regulations, housing programs, infrastructure investments, and jobs programs. Through institutions, regulations, and new economic relief programs, FDR’s policies established a new social contract with the American people, a New Deal that established a role for the government that redirected American capitalism towards a shared prosperity model.

While not perfect, especially for Black Americans who were denied equal access to programs and opportunities, the New Deal economic framework ushered in an era of American capitalistic political economy that saw years of steady economic growth, fairly low levels of unemployment and inflation, and the establishment of a strong middle class. These years are often called the Golden Age of American Capitalism because of the large segments of the population that benefited from economic growth. Industry earned profits and blue collar workers earned wages that allowed them to own their own home and support their families. Presidents from both parties accepted the economic system that supported this social contract.

This contract — and the New Deal political coalition that continued to support it at the ballot box — began to fray through the late 1950s and 1960s. Throughout most of the New Deal era, its coalition was made up of Southern whites, and northern unionists, Blacks, and urban intellectuals who united around the idea that markets alone would not guarantee prosperity for everyone and that government had a role to play. More and more, the Democrats became the party of civil and human rights across race and gender, and inter-party tensions over President Johnson’s approach to the Vietnam War increased. These created fissures within the Democratic Party that opened up opportunities for Republicans to compete for votes in the “solid South” and among Northern “ethnic” whites, resulting in a political realignment, giving Republican Richard Nixon the presidency in 1968 and 1972.

But it wasn’t until the economic crises in the mid-1970s that the New Deal economic framework, which was based on Keynesian economic theories, was upended once and for all. The multi-dimensional economic crises of that decade, including spiking energy prices, declining productivity and profitability, “stagflation” (high inflation plus high unemployment), and rising international competition all raised questions about the infallibility of the governing Keynesian economic model that had undergirded American capitalism throughout the New Deal framework. In response to the economic challenges of the 1970s, the Federal Government led a policy response which ushered in the version of American capitalism that came next: modern neoliberalism, or “trickle-down” economics.

Nothing about the Federal Government’s response to the Great Depression was inevitable, nor was its response to the economic crises of the 1970s. The fact that the economic challenges were happening in the wake of the collapse of the Democratic political coalition that drove the New Deal order, and the rise of the New Right, created the critical conditions that assured the government’s response.

How did “trickle-down” economics become ascendant in the United States? Throughout the New Deal decades, some segments of society continued to oppose its egalitarian values. The Liberty League of the 1930s, the Dixiecrats of the 1940s, the John Birch Society in the 1950s, were some examples of organized groups that sought to return American capitalism to the days before the Great Depression when extreme economic liberty and property rights ruled the day and there was no meaningful political opposition to it. An entire network of organizations, think tanks, and media outlets that advanced a libertarian viewpoint in government, in policy, and in the economy, was built. Right wing “free market” economic ideology was advanced by economists such as Milton Friedman, Frederick Hayek, James Buchanan, and other members from the Chicago School and the Mont Pelerin Society, all while building economic policy alternatives to the Keynesian consensus of the time. Corporations were organizing themselves, too, in response to what they saw as a generational attack on American capitalism. In 1971, the U.S. Chamber of Commerce commissioned a strategy report, officially titled “Attack on the American Free Enterprise System,” but was more widely known as the “Powell Memorandum”, after its author, Lewis Powell. The memo laid out a plan for how American capitalism could be “saved”. It led directly to increased investments into a conservative policy universe. The conservative think-tank the Heritage Foundation, founded by Coors beer magnet Joseph Coors and conservative religious activist Paul Weyrich, the American Legislative Exchange Council (ALEC), and the libertarian Cato Institute, founded by Charles Koch, were all established at this time. The Powell Memo also called for increased organizing and political lobbying by American businesses, leading to the powerful National Association of Manufacturers moving their headquarters from New York City — the center of American finance — to Washington, D.C. — the center of American politics.

So when political leaders were looking for ways to address the economic challenges of the 1970s, the New Deal coalition partners and their economic values were out of fashion, and the conservative corporatists and economists’ ideas were on the rise, supported by the new, realigned conservative New Right political coalition.

The election of Ronald Reagan as President in 1980 confirmed the ascension to power of the New Right coalition, made up of conservative corporate elites, White Christians, and cultural “family values” voters. Once in power, Reagan was able to advance an economic framework that was informed by the network of right wing libertarian organizations that has had impacts far beyond the economic framework, even touching the media, the judicial branch, and American democracy. Instead of being based on a social contract with the American people that values all levels of the economic order, modern neoliberal economic framework for American capitalism is based on the primacy of private property rights, economic liberty, and the value that the unfettered market results in the most efficient and fair economy.

For 40 years, the economic policy solutions imposed on our country under the neoliberal “trickle-down” framework have been tax cuts for the wealthy, diminished power for unions, deregulation of industry and financial markets, erosion of the social safety net, false austerity and privatization for public services, and a tolerance for massive wage and wealth inequality. Because the conservative policy network has been able to permeate and establish rules that undergird neoliberal economic approaches, we see these results even when a majority of American voters don’t support them.

But the time for change might have arrived. Just as the economic crisis of the Great Depression established a new coalition with political will to advance a new deal with the American people, and the economic crisis of the 1970s ushered in a new coalition with the political will to dismantle that framework, the current empowered political coalition just might have enough political will to finally address the economic needs of the country. The jarring impacts of the past year’s pandemic, exposed racial injustice, and increased attacks on our democracy might finally cause the political system to respond to the vast inequities that have been exacerbated by 40 years of neoliberal economic policies.

We’ve been living under the neoliberal “trickle-down” economic framework for so long that many people, especially younger people, think that the existing system is the only way American capitalism can be organized. Instead, just as the Keynesian-based New Deal economic framework wasn’t inevitable in the 1930s, the triumph of the neoliberal free market capitalism of the last 40 years wasn’t inevitable. They emerged from policy choices made by the governing coalition that made the rules at times of economic crisis that established the economic rules of the game that we lived with for years.

That brings us to today and this moment in time. It is often said, and indeed true, that 2020 ripped open our country to reveal the nasty underside of the neoliberal capitalist system — from the intense Presidential election, the impact of the COVID-19 pandemic and its drastically unequal economic impacts, and the increased awareness of racial injustice brought on by it and the death of George Floyd in the custody of the police. None of the challenges of America’s economic inequality are new. Indeed, they have been building over the past four decades. But if President Biden’s early actions are any indication, the time for America to make a change to how it does capitalism has arrived.