Neoliberalism Comes to America

Key Takeaways

• Nixon ended gold standard, devalued dollar twice in 1971‑73.
• 1973 oil embargo quadrupled prices, sparking supply‑shock inflation.
• Reagan cut top tax rate from 74% to 25%, tripling debt.
• CEO pay rose from 29x to 129x average worker between 1978‑1995.
• Union membership fell from ~33% to ~6% of private workforce today.

Pulse Analysis

The 1970s inflation surge was not a simple monetary glitch; it stemmed from two coordinated shocks. President Nixon’s 1971 decision to abandon the gold‑linked Bretton Woods system forced a rapid devaluation of the dollar, while the 1973 Arab‑Israeli war triggered an oil embargo that sent barrel prices soaring. Together, these events pushed consumer prices above 10% annually and eroded confidence in traditional Keynesian tools, opening a policy vacuum that Milton Friedman’s free‑market prescriptions were ready to fill.

When Ronald Reagan assumed the presidency in 1981, he embraced that vacuum with a sweeping neoliberal agenda. By slashing the top marginal tax rate from 74% to 25% and financing the cuts through massive borrowing, the federal debt ballooned from about $800 billion to $2.4 trillion. Simultaneously, deregulation of finance, transportation, and labor dismantled many protections, leading to a wave of corporate consolidation, the rise of junk‑bond financing, and a dramatic decline in union density. These moves reshaped the distribution of income: CEO compensation leapt from roughly 29 times the average worker’s pay in 1978 to 129 times by 1995, while wages for most workers stagnated.

The legacy of those choices is evident in today’s economic landscape. Persistent income inequality, a fragile middle class, and a political economy heavily tilted toward corporate interests trace back to the 1970s‑80s policy shift. Trade agreements like NAFTA, born from the same neoliberal mindset, further entrenched offshore production and wage pressure. As policymakers debate tax reform, debt reduction, and labor rights, recognizing the historical chain—from Nixon’s currency moves to Reagan’s tax cuts—provides essential context for crafting solutions that address both fiscal sustainability and social equity.