Neoliberalism
Neoliberalism is an economic philosophy, dominant since the 1980s, that prioritizes free markets, deregulation, privatization, and the reduction of government intervention in the economy. Associated with Ronald Reagan in the US and Margaret Thatcher in the UK, it reversed the post-WWII consensus that the state should actively manage capitalism to protect workers, and accelerated the transition from a manufacturing to a financial economy.
The core intellectual architects were economists Friedrich Hayek and Milton Friedman, who argued that state interference in markets distorted prices, reduced efficiency, and ultimately impoverished everyone. Markets, left free, would allocate resources optimally. This was a direct response to the dominant Keynesian economics of the post-war era, which held that government spending was necessary to prevent recessions and maintain full employment.
Reagan's 1981 election marked the American turn. His administration cut marginal income tax rates from 70% to 28%, deregulated financial markets, busted unions (most symbolically by firing 11,000 striking air traffic controllers in 1981), and shifted the ideological frame: government wasn't the solution to problems, it was the problem. Thatcher in Britain pursued parallel policies from 1979.
The consequences were substantial. Wealth shifted from labor to capital: in the 1970s, the average CEO made 20 times the average worker; by the 2020s, that ratio was 200–300x. Financial services exploded as a share of profits (now ~40% of corporate profits vs. 10% of the workforce). Manufacturing collapsed as a share of GDP (from 40% to about 10%). The smartest graduates went to Wall Street instead of engineering or science. By making financial speculation far more lucrative than making things, neoliberalism hollowed out the real economy while inflating the financial one.
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Frequently asked questions
What is neoliberalism? ＋
Neoliberalism is the economic philosophy, dominant since the 1980s, holding that free markets are the most efficient way to organize society. Associated with Reagan and Thatcher, it meant deregulating financial markets, cutting taxes on the wealthy, busting unions, and privatizing state services. The result: the richest got richer, wages stagnated, and manufacturing gave way to financial speculation.
How did neoliberalism change America's economy? ＋
Dramatically. Before neoliberalism (1950–1980), manufacturing was 40% of GDP and workers lived middle-class lives with pensions and job security. After neoliberalism, financial services captured 40% of corporate profits while employing only 5% of workers. CEO pay went from 20x to 300x the average worker. The smartest Americans stopped building things and started gambling with other people's money.