How the Policy Consensus Changes in America

There are two theories of how major policy changes happen in the United States of America.  One theory is popular, widely believed and mistaken.  The other is correct.

The mistaken theory is the one held by most Americans who are involved in politics, policy and political commentary.  Call this the partisan purge theory of major policy change.

According to the partisan purge theory, a sectarian group in exile formulates a coherent ideology, like New Deal liberalism or Reagan conservatism.  The sectarian ideologues then take over one of the two major parties and purge all dissenters.  In the final stage of reform, the newly-purified party with its coherent program wins a supermajority in government, freezing out the other party for years or decades.  Extended one-party rule makes it possible to impose what was originally the vision of the sectarian minority on the country as a whole against all opposition.

This was the vision of Buckley-Reagan-Goldwater “fusionist” conservatism.  First take over the Republican Party, then take over America (and then, according to the neocon wing, take over the world).

This is also the vision of most of today’s progressives.  The left will come to power in the Democratic party, purging the neoliberal centrists.  Then, at some point in the future, the new left-wing Democratic party’s control of the presidency, a Supreme Court majority, and both houses of Congress, with the help of a veto-proof majority in the Senate and abolition of the filibuster, will allow the party to impose its vision on America against all opposition.

It doesn’t work that way.  It never has.

In any given era in U.S. history, there has been a dominant policy consensus, shared by the major factions in both of the two national parties (we have two national parties instead of more only because our first-past-the-post or plurality electoral system punishes third and fourth parties).  For example, in the 1930s and 1940s, the New Deal of President Franklin D. Roosevelt was opposed by many conservative Democrats and supported by some progressive Republicans.  Following World War II, “modern Republicans” like Eisenhower and Nixon accepted the basic New Deal framework, including Social Security and the legitimization of trade unions, while seeking to make it more solvent and business-friendly.

The bipartisan New Deal policy consensus was succeeded in the 1970s and 1980s by the bipartisan neoliberal consensus, which is still the dominant consensus in both parties today, despite its manifest failures and the ineffectual challenges from Bernie Sanders and Donald Trump.  According to conservative establishment mythology, Buckley-Goldwater-Reagan fusionist conservatism came to power with the election of Ronald Reagan to the presidency in 1980.  Nonsense.  Nixon, who engaged in wage and price controls and proposed a universal health care mandate on employers, was the last New Deal president.  The neoliberal era really began under Jimmy Carter, who presided over the dismantling of much New Deal era regulation and the destruction of regulatory agencies like the Civil Aeronautics Board.  Reagan continued what had begun under Carter.

The focus of neoliberals of both parties was not on rolling back social insurance like Social Security and Medicare, which were left in place, but on deregulation, privatization, and liberalizing trade and investment.  This neoliberal agenda has been shared by Bill Clinton and Barack Obama along with Reagan and the two Bushes.  Joe Biden is its embodiment.  Similarly in Europe, center-left parties and center-right parties adopted the neoliberal consensus at roughly the same time.

Contrary to popular belief, then, the replacement of one policy consensus or framework by another does not happen because the left or right wing of one party takes over that party and then wins a lasting majority and imposes its vision on the country as a whole.  Instead, the transition from one policy consensus to another usually takes place in all major parties around the same time, though one party may adopt it first.  It could hardly be otherwise, given the many veto points in the U.S. political system and frequently shifting party control of different branches.

In most cases, there is a triggering event that discredits—or, more important,  appears to discredit—the older policy consensus that both parties shared.  In the case of the New Deal consensus, the triggering event was the 1929 stock market crash and the global Great Depression that followed.  In the case of the neoliberal consensus, the triggering event was the “stagflation” of the 1970s, blamed on excessive New Deal era regulation and overly-powerful unions whose wage demands drove inflation.

The winners write the history, so according to its adherents, the new bipartisan policy consensus was the direct result of rethinking public policy in response to the triggering event.  This is almost never the case.  Usually, the triggering event is merely an excuse to undertake reforms and adopt new policies that had been proposed long before but without success.  For example, many elements of the New Deal system, including social insurance and bank deposit insurance, had been pushed by populists and progressives for decades before they were adopted during the Great Depression.  Neoliberal privatization, deregulation and anti-labor policies were promoted by libertarians for half a century before the stagflation of the 1970s provided a convenient excuse for implementing them.

If the triggering crises that lead to the replacement of one national policy consensus by another are merely excuses to implement plans that have already been drawn up, then what is the real, underlying cause of transitions from one generations-long policy consensus to another?  In The Next American Nation, Land of Promise:  An Economic History of the United States and other books I have argued that the underlying driver of shifts from one paradigm to another has been the mismatch between structural changes in the economy driven by technological evolution and demographic change and legacy institutions.  The gap between the evolving society and the obsolete institutions grows until there is a fairly rapid transition from an old bipartisan consensus to a new one.

In the case of the New Deal consensus, electrification and motorization enabled enormous national and multinational corporations to form, industrialization had created an urban majority and immigration had created a huge European ethnic working class.  But at the beginning of the 1930s the U.S. government had last been renovated substantially during Reconstruction.  Government structures and policies suitable for the small-town America of Presidents Grant and Garfield were archaic in the era of automobiles, big cities, and mass production factories.

In the case of neoliberalism, the older New Deal consensus, designed for an economy based on unionized manufacturing workers, was showing its age by the 1970s, when service sector workers of both kinds—well-paid professionals and poorly-paid, mostly non-unionized service workers—were growing as a share of the workforce, while the share held by members of the old Farmer-Labor alliance was shrinking.

The neoliberals of the 1970s and 1980s, including “Atari Democrats” like Gary Hart and libertarian conservatives, were correct that 1930s-vintage industrial, financial and labor regulations needed to be replaced by new regulatory systems suitable for a computerized economy with a service sector majority (and a still important manufacturing sector).  Unfortunately, instead of modernizing the national regulatory state, neoliberal Democrat and Republicans just dismantled it.  Policymakers of both parties engaged in widespread, indiscriminate deregulation—of industry, banking, trade and immigration—claiming that the deregulated market would unleash a bonanza of income gains for most Americans, with generous subsidies to the “losers.”

The neoliberals of both parties were wrong.  As a result, while the New Deal improved the lives of most Americans, the neoliberal consensus has chiefly benefited small numbers of rich investors and affluent professionals, while many Americans are worse off than their parents and grandparents.  Instead of opening markets to U.S. exports of manufactured goods from clean, highly-automated factories, trade deals like NAFTA and the WTO exposed the U.S. market to subsidized imports from the mercantilist regimes of East Asia—China, Japan, South Korea and Taiwan—and allowed U.S.-based multinationals to shut down factories in the U.S. and open them in other countries with cheap, unfree, non-union labor.  Manufacturing as a share of the workforce would have declined over time anyway  But there is a difference between a dynamic neo-industrial country with highly-automated factories employing a small number of well-paid workers, with exports to growing global markets helping to pay for a high-wage domestic service sector and good public services, and a rotting, post-industrial country polarized among rent-seeking professionals and financiers in a few big cities and their impoverished retinues of menial servants and service providers.

As this suggests, the replacement of one bipartisan policy consensus by another is not necessarily an improvement.  This is also the lesson of the early history of the American republic.  Alexander Hamilton and other Federalists had an ambitious vision of state-sponsored industrialization of the infant U.S.  Tragically, the domination of the federal government by the Southern planter aristocracy between Thomas Jefferson’s election as president in 1800 and the Civil War resulted in the destruction of both the First and Second Banks of the United States and the abandonment of plans for a coherent federal infrastructure.  The defeat of strategic plans like Henry Clay’s “American System” for national infrastructure and industrial development meant that individual states pursued their own independent plans for economic growth.  The result was a lopsided pattern of industrialization in the North and the expansion of the slavery-based commodity economy of the South, which fell further and further behind the North.  The region did not catch up until the federal government modernized the South in an economic and social revolution from above during the New Deal and Civil Rights eras.

Today the equivalent of the antebellum economic gap between the industrial North and the agrarian South is the growing gap in the U.S. between plutocratic hub cities with elites enriched by financial and intellectual property rents, on the one side, and outer suburbs, exurbs and countryside where most of the working-class members of all races live.  The increasingly Democratic elites of major cities like New York City, San Francisco, Los Angeles, and Austin support toppling Confederate statutes in the name of antiracism.  But they themselves are the functional equivalents of the Southern planter class today.  Like the old Southern planters, many of America’s economic elites owe their income and wealth, directly or indirectly, to the exploitation of cheap and unfree workers, who in this case are invisible because they toil in other countries, like the oppressed Chinese workers in Apple factories.  And like Scarlett O’Hara, the members of the national overclass rely for their luxurious lifestyles on retinues of poor servants and service providers—nannies, maids, gardeners, cooks–many of them foreign-born.  Meanwhile, many immigrants and natives alike flee the caste-ridden, high-tech plantation cities dominated by our socially liberal, economically parasitic overclass for lower living costs and a chance at homeownership in working “flyover country,” which becomes less non-Hispanic white and more nonwhite and mixed-race every year.

Unless the U.S. rejects neoliberalism, America’s future is likely to become a failed state, with high-tech, affluent First World enclaves surrounded by Third World poverty and squalor.  The neoliberal consensus shared by mainstream Democrats and Republicans needs to be replaced, not by democratic socialism, but by what Robert D. Atkinson and I have called national developmentalism—a twenty-first century version of the state-sponsored national industrial capitalism of Hamilton, Clay, Lincoln, Theodore Roosevelt, Franklin Roosevelt and his New Deal Democrat successors and modern Republicans like Eisenhower and Nixon.

If history is any guide, national developmentalism will not replace neoliberalism because a national developmentalist faction—if such can be imagined—hijacks one of the two major parties, enjoys one-party domination and imposes a new system.  Instead, the shift from one economic policy consensus to another will take place in both parties at roughly the same time, although one party can be expected to take the lead.  There must be a triggering crisis serious enough to shake the faith of centrist Democrats and Republicans in outmoded neoliberal orthodoxy—a faith which unfortunately has not been shaken enough by the Great Recession and the COVID-19 pandemic.  Plans and programs must be drawn up in advance.  Cadres of sympathetic potential politicians and political appointees must be waiting in the wings for an opportunity, if and when the final discrediting of neoliberalism within the U.S. establishment occurs.

Until then, critics of neoliberalism in both parties should repudiate mindless partisanship and work with each other across party lines to formulate a replacement for the neoliberal consensus in political economy.  Democratic and Republican national developmentalists need to agree on national industrial policy and the legitimacy of regulating offshoring, immigration and capital mobility in the national interest.  They do not have to agree on affirmative action, abortion, gay rights, school choice or other issues.  While divided on these social and cultural issues for the last half century, the two parties have shared a common neoliberal consensus.  Similarly, in the generations ahead, the two parties can agree on replacing neoliberalism with national developmentalist economics while agreeing to disagree on much else.

That is how change really happens in America.