Neoliberal Economic policies and the Powell Memo
The story of modern American economic policy is, in many ways, a story of the triumph of neoliberalism. From the 1970s onward, a powerful coalition of business leaders, conservative intellectuals, and political figures has worked to reshape the U.S. economy along free-market, pro-corporate lines. Their efforts have been remarkably successful, leading to decades of tax cuts, deregulation, and the erosion of labor power and the social safety net. To understand how we got here, it's essential to trace the key players and pivotal moments that have defined this neoliberal era.
Neoliberalism: An economic and political ideology that emphasizes free markets, deregulation, privatization, and a reduced role for government in the economy.
The roots of the neoliberal revolution can be found in the economic tumult of the 1970s. Stagflation—the combination of high inflation and slow growth—had shaken the post-war Keynesian consensus, creating an opening for new economic ideas. Into this breach stepped a group of conservative thinkers, chief among them Milton Friedman and Friedrich Hayek, who argued that the solution to America's economic woes was to unleash the power of the free market. But it took more than just intellectual firepower to turn these ideas into policy. It required a concerted effort by business leaders to assert their political influence and push back against what they saw as an existential threat from an activist government and emboldened labor movement.
The Powell Memo: A confidential memorandum written in 1971 by corporate lawyer Lewis Powell, later a Supreme Court justice, that called on the business community to become more politically active and defend the free enterprise system against perceived threats from unions, consumer advocates, and environmentalists.
The Powell Memo, written in 1971 by then-corporate lawyer Lewis Powell, was a key catalyst for this business mobilization. Powell argued that the American economic system was "under broad attack" from forces that sought to "entirely restructure our society." He urged the business community to fight back by lobbying aggressively, shaping public opinion through the media and academia, and using the courts to advance their interests. The Powell Memo helped to spur a dramatic increase in corporate political activity in the 1970s, from the expansion of lobbying operations to the creation of new think tanks like the Heritage Foundation and the Cato Institute. These efforts laid the groundwork for the neoliberal revolution that would take hold in the 1980s under President Ronald Reagan.
Reaganomics: The economic policies of the Reagan administration, characterized by tax cuts, deregulation, and reductions in government spending.
Reagan, who took office in 1981 amid a deep recession, was a committed supply-side conservative who believed that cutting taxes and regulations would unleash economic growth. His signature economic policy, the Economic Recovery Tax Act of 1981, slashed tax rates for businesses and high-income earners, with the top marginal rate falling from 70% to 50%.Reagan's advisers, including economists like Arthur Laffer and influential figures like Dick Cheney and Donald Rumsfeld (who had been present at the creation of the famous "Laffer Curve" in 1974), argued that these tax cuts would pay for themselves by stimulating economic activity. But while the economy did recover from the recession, the promised boom in tax revenues never materialized. Instead, the federal deficit ballooned, setting the stage for a long-term fiscal crisis.
The Laffer Curve: A graph that purports to show the relationship between tax rates and government revenue, with the implication that cutting taxes can actually increase revenue by stimulating economic growth.
The Reagan years also saw a major push for deregulation, particularly in the financial sector. The Garn-St. Germain Act of 1982, for example, loosened restrictions on savings and loan associations, contributing to a speculative bubble that would eventually collapse in the late 1980s. More broadly, the Reagan administration's approach to regulation was characterized by a hands-off, business-friendly attitude that critics argued put corporate profits ahead of public health, worker safety, and environmental protection. The neoliberal consensus that took hold under Reagan would prove remarkably durable, shaping economic policy under both Republican and Democratic administrations in the decades that followed. President Bill Clinton, for all his "New Democrat" branding, largely embraced the free-trade, pro-market agenda, signing NAFTA and other trade deals, deregulating the telecommunications and financial industries, and "ending welfare as we know it" with the Personal Responsibility and Work Opportunity Act of 1996.
New Democrats: A centrist faction of the Democratic Party that emerged in the 1980s and 1990s, emphasizing fiscal responsibility, free trade, and market-based solutions to social problems.
Even President Barack Obama, who ran on a message of "hope and change," found himself constrained by the neoliberal paradigm. While he did sign some progressive legislation, like the Affordable Care Act and the Dodd-Frank financial reform bill, his administration also pursued deficit reduction, free trade agreements, and a light-touch approach to regulating industries like tech and pharmaceuticals. It was under President Donald Trump, however, that the neoliberal agenda reached its apotheosis. Trump's signature legislative achievement, the Tax Cuts and Jobs Act of 2017, was a massive giveaway to corporations and the wealthy, with the vast majority of the benefits flowing to the top 1%. His administration also pursued an aggressive deregulatory agenda, rolling back Obama-era rules on everything from environmental protection to consumer finance to labor rights.
The Tax Cuts and Jobs Act of 2017: A major tax bill signed by President Trump that cut the corporate tax rate from 35% to 21% and reduced taxes for high-income earners, while providing only modest and temporary relief for low- and middle-income households.
Trump's economic policies were the culmination of a decades-long project to remake American capitalism along neoliberal lines. But they also reflected the enduring power of the forces that Lewis Powell had identified back in 1971—a business community that was politically organized, ideologically committed, and willing to use its vast resources to shape public policy to its benefit. As we look to the future, it's clear that the neoliberal consensus is facing its most serious challenge in decades. The economic devastation wrought by the COVID-19 pandemic has exposed the deep inequalities and fragilities of our current system, while the growing threat of climate change has underscored the urgent need for a more sustainable and equitable economic model.
Project 2025: A comprehensive plan released by the Heritage Foundation that outlines a conservative vision for restructuring the federal government, including proposals for tax cuts, deregulation, and reductions in social spending.
But the forces of neoliberalism are not going down without a fight. Groups like the Heritage Foundation, which recently released its "Project 2025" plan for a sweeping conservative overhaul of the federal government, remain committed to the free-market agenda. And with allies in high places, from the courts to the halls of Congress to the Mar-a-Lago resort, they still wield enormous influence over the direction of economic policy.The question for the future is whether the American people will demand a new economic paradigm, one that prioritizes the needs of working families over the interests of corporations and the wealthy. The neoliberal revolution that began with the Powell Memo has had a profound impact on American society, concentrating wealth and power in the hands of a few while leaving millions of Americans struggling to get by. As we grapple with the challenges of the 21st century, from inequality to climate change to the rise of artificial intelligence, we will need to find a way to build an economy that works for everyone, not just the privileged few.
A New Economic Paradigm: An approach to economic policy that prioritizes sustainable, equitable growth and the well-being of all members of society, rather than simply maximizing corporate profits and GDP.
The story of neoliberalism in America is a story of the power of ideas, interests, and individuals to shape the course of history. By tracing the key players and pivotal moments in this story, from Lewis Powell to Ronald Reagan to Donald Trump, we can better understand how we got to where we are today—and what it will take to build a better future for all. The road ahead will not be easy, but with courage, compassion, and a commitment to the common good, we can begin to write a new chapter in the American story—one that puts people and the planet first, and builds an economy that truly works for all.