How Ronald Reagan started the ruination of the USA

Jul 19, 2024
Red, white, and blue campaign pin-back button or badge, with images of bald eagles, a smiling headshot of Ronald Reagan, and the text 'Ronald Reagan, President 1980, ' manufactured in the United States of America, 1980. (). Image: Alamy / Credit Contributor: Gado Images / Alamy Stock Photo / 2A6149W

The continuing descent of the United States into polarisation and violence is widely lamented. The election of Ronald Reagan in 1980 marks the inflection when the descent began in earnest.

The continuing descent of the United States into polarisation and violence is widely lamented. It is fairly widely acknowledged that conspiracy theories and extremism proliferate among people who are desperate. Many also acknowledge that wealth inequality renders many people desperate. Some acknowledge that desperation leads people to support Donald Trump. But why has the US reached this state? Because of Ronald Reagan.

The election of Ronald Reagan as president in 1980 marks an inflection point in US history. With Reagan’s ascent the USA shifted from an expanding industrial economy providing rising living standards to its people to an economy hollowed out of much of its industrial dominance, with its society increasingly mired in debt, with its people’s standard of living stagnant or declining, and its people increasingly divided against each other.

Decisions by the US Supreme Court to allow unlimited corporate funding of electoral candidates, to limit women’s reproductive choice and to grant the president substantial immunity from criminal prosecution mark further steps in the dismantling of the US experiment in democracy. But they were preceded by a long campaign of subversion by regressive Republicans.

Two important precursors were the founding of the Mont Pelerin Society by libertarian economist Friedrich Hayek and others in 1947 and a widely-circulated memo by Republican Lewis Powell, written in 1971, outlining a strategy to take power and remake the US as a corporate-libertarian state, with government’s role restricted largely to defending property rights and the US homelands. Powell soon after was nominated for the Supreme Court by President Nixon. A particular motivation of Powell’s was Ralph Nader’s exposés of corporate abuses, but the open rebellions of the civil rights movement, the anti-war movement, hippie dropouts and the counter-culture frightened the establishment. Powell opposed not only socialism but the mixed democratic socialism of Roosevelt’s New Deal. He conflated the freedom of corporations with the whole US democratic project, though Thomas Jefferson in particular would have taken great exception.

By 1980 there was a powerful network of corporate-funded institutions, such as the Heritage Foundation, promoting the political agenda outlined by Powell. Yet arguably the most far-reaching of Reagan’s actions was the deregulation of the financial system.

There is a fantasy in mainstream economics that free markets yield optimal results, but the theory behind that is pseudo-science. In reality markets go where the profit is. In financial markets the big profits are in debt and speculation. Private banks make most of their profit from ‘loans’ of money they create with a few strokes of a keyboard. They charge interest on a product that costs them almost nothing to produce. So there is a big incentive to load the population with debt. There follows a debt-fuelled boom that continues until people can’t pay back the debt, at which point a cascade of defaults leads to a financial crash. Recessions are caused by excessive private debt, not government debt.

Deregulation also allowed greatly increased speculation, which also tends to drive a boom – again until asset prices are too high to be maintained and a crash follows. What has transpired since is that the rate of trading in financial markets jumped by about a factor of fifty (fifty times, not fifty per cent), with most of the activity being speculation and arbitrage. In other words the financial markets became dominated by unproductive games played for wealth extraction. Worse, the games destabilise the financial markets, and thence the whole economy.

Despite this, US economic productivity continued to rise steadily, as it had post-war, but median incomes of the people levelled off and have hardly increased ever since, in real terms. The extra wealth was creamed off by the already-wealthy. Inequality began to rise rapidly.

Deregulation basically allowed the financial system to break out of its relatively small, useful role and become a huge parasite, sucking wealth to the already-wealthy and depriving the poor and middle class.

At the same time the US trade balance, for decades highly positive, soon turned negative, and the Federal deficit increased because taxes were cut and military spending increased, notwithstanding right-wing railing against government debt and deficit.

Rather than the wealth captured by the wealthy being invested in new productive enterprises, as the capitalist myth would have it, the money has been used to speculate in existing assets, producing stock-market and property booms. They also set about shifting US production to low-wage countries. There has followed a series of booms and busts (savings banks, the dot-com bubble, the Great Recession aka the Global Financial Crisis) that have only increased the dominance of finance over the real productive economy, and over the interests of the people.

Lower and middle class Americans have suffered. Their livelihoods have become increasingly precarious, and many have been impoverished by the financial crashes. They can see the wealth of the one percent, and the way the US Congress serves the rich and not them. Such insecurity and mistrust is highly corrosive of social cohesion. Health has been declining and crime increasing. The consequences of widespread gun ownership have become more and more devastating.

Desperate people look for desperate measures. If Donald Trump says he will smash the system then many are ready to give him another go, though of course he will not actually solve their problems.

The mainstream media have failed to tell this story because they are part of the problem. In such confusion people turn on scapegoats like minorities, and they respond to demagogues. The Bush II administration assaulted many of the US institutions of governance, but the Democratic administrations of Clinton, Obama and Biden have failed to stop the rot. Clinton even aggravated it further. This all set the scene for Donald Trump, who more dramatically unleashed his own chaotic, psychotic personality in furtherance of the destruction of US democracy.

The decline of the US will continue unless the libertarian market ideology is abandoned. Bernie Sanders was the best prospect for beginning this task, but he was blocked by his own misguided Party.

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