The dismantling of the American economy.
If you are under forty, you have inherited a country where the math does not work. Your parents could afford a house on one income. You cannot afford one on two. Your grandparents retired on pensions that paid them for life. You will work until you can’t, and what you’ve put in a 401(k) will not be enough. The college tuition your father covered with a summer job would take you most of a decade to earn. You make less in real wages than a worker did in 1972, and you carry debts that worker did not have — student loans, medical debt, a credit card balance you cannot quite get rid of. You watch a class of people the country did not have when your parents were your age — the billionaires, of whom there were a handful in 1982 and are now roughly eight hundred in the United States alone — capture an ever-larger share of what the economy produces, while the middle class your family belonged to gets steadily hollowed out around you.
You have been told most of your life that this is just how things are. The forces are global. The technology is unstoppable. No one is in charge, and no one is to blame.
The story most Americans have absorbed is that the postwar economy stopped working sometime in the 1970s, that the world got more competitive, that good jobs went away because of forces no one could control, and that the country has been muddling through the consequences ever since. Globalization happened. Technology happened. China happened. Things changed.
Sure but this is not what happened.
What happened was a project.
It had authors, funders, intellectual headquarters, foreign test sites, and a forty-year implementation timeline. It was carried out across both political parties, through multiple administrations, with the active participation of the people who profited and the bewildered consent of the people who paid. The dismantling of the American economy was deliberate work, executed by identifiable people, in service of identifiable interests, on the basis of a specific economic doctrine. It is possible to name the doctrine, the people, and the steps. That is what this piece tries to do.
The intellectual project began in 1947, in a Swiss village called Mont Pèlerin, when Friedrich Hayek convened a small group of economists and intellectuals to plan the long counter-revolution against the postwar consensus. The consensus they were against was the one that had emerged from the wreckage of the Great Depression and the Second World War: strong unions, high marginal tax rates, financial regulation, antitrust enforcement, public ownership of utilities, robust social insurance, and the broad assumption that markets needed to be governed in the interest of the people who lived inside them. This consensus was tremendously successful by the measures that matter most. Between 1945 and 1973, the American middle class grew larger and more prosperous than any middle class in human history. Productivity gains were broadly shared. Inequality fell. The country built the interstate system, sent men to the moon, defeated polio, and made college affordable to a generation. It was the most successful economic period the United States has ever had, before or since.
The Mont Pèlerin Society did not see this as a success. They saw it as a creeping socialism that would inevitably end in tyranny — the thesis of Hayek’s *The Road to Serfdom* — and their project was to roll it back. The intellectual center of gravity moved across the Atlantic to the University of Chicago, where Milton Friedman and a small group of colleagues built what became known as the Chicago School. Their core claims were simple. Markets, left alone, allocate resources efficiently. Government intervention distorts markets and produces worse outcomes than the problems it tries to solve. The proper role of the state is to enforce contracts, protect property, and otherwise stay out of the way. Inflation is always and everywhere a monetary phenomenon. Corporations exist to maximize shareholder value, and they should be released from any other obligation — to workers, to communities, to the country — because pursuing profit is itself the social good. Friedman published the famous essay making the shareholder-value argument in 1970. It became the operating manual for the next half-century of American corporate behavior.
These claims were presented as the discoveries of a science. They were not. They were a political doctrine that wore the costume of a science, and the doctrine had a clear distributional implication: it transferred power from workers, communities, and democratic governments to capital and the people who held it. The economists at Chicago were not stupid; they understood this. Their funders, who were the wealthiest families in America, understood it most of all. The American Enterprise Institute, the Heritage Foundation, the Cato Institute, the Manhattan Institute, the Hoover Institution, the Federalist Society, the Olin Foundation, the Bradley Foundation, the Scaife family, the Coors family, the Koch family — this is the institutional and financial scaffolding that built the doctrine into the dominant economic ideology of the late twentieth century. The Powell Memorandum of 1971, written by future Supreme Court justice Lewis Powell to the U.S. Chamber of Commerce, explicitly laid out the project: the American business community had to organize, fund, and propagate a counter-narrative against the New Deal consensus, and it had to do so with patience over decades. They did exactly that. The infrastructure they built is still operating today.
The doctrine needed a real-world test, and it got one in Chile in 1973. The story is now mostly remembered, when it is remembered at all, as a Cold War episode. It was something else. It was the first full-scale implementation of Chicago School economics on a national economy, and the people who carried it out were Chicago-trained.
Beginning in the 1950s, the U.S. State Department and the Ford Foundation funded a program that brought Chilean economics students to the University of Chicago to study under Friedman and Arnold Harberger. They became known as the Chicago Boys. When Salvador Allende, a democratically elected socialist president, was overthrown in a CIA-backed coup on September 11, 1973, and replaced by the military dictatorship of Augusto Pinochet, the Chicago Boys became the economic policymakers of the new regime. They had a complete program ready: deregulate the economy, privatize state-owned enterprises, eliminate price controls, smash the unions, open the country to foreign capital, cut public spending, and dismantle the social welfare system. They privatized the pension system, replacing the public scheme with private accounts managed by financial firms. They privatized health care, education, and the public utilities. They turned a Latin American social democracy into a laboratory for neoliberal economics.
The implementation required a dictatorship. This is not incidental. The Chilean people had not voted for any of this and would not have voted for it. The restructuring was imposed by force, and the force was extreme: roughly three thousand people killed, tens of thousands tortured, hundreds of thousands forced into exile, the country governed for seventeen years by a military regime that disappeared its political opponents while the economic team rewrote the rules. Milton Friedman personally visited Chile in 1975 and met with Pinochet. He later claimed he gave only economic advice and bore no responsibility for the political context. This defense does not survive contact with the facts. The economic program he advocated could not have been implemented democratically. It required the elimination of the political opposition that would have stopped it, and the people implementing it were his students. The intellectual alliance between Chicago economics and authoritarian enforcement was not a misunderstanding. It was the only way the program could be installed.
The same pattern played out across Latin America in the years that followed. Argentina under the military junta. Brazil under its dictatorship. Uruguay. Bolivia under Banzer. The script was the same: a U.S.-backed regime change, a Chicago-trained or Chicago-influenced economic team, a wave of privatization and deregulation, a shattering of organized labor, the opening of the country to foreign capital, and the suppression of political opposition during the period of restructuring. The human cost was enormous. The doctrine had been tested. It worked, in the sense that it transferred wealth and power from where it had been to where the people running the program wanted it to go. The people running the program took notes.
By 1980, the doctrine was ready to come home. Margaret Thatcher won the British election in 1979 on an explicit promise to dismantle the postwar consensus in the United Kingdom. Ronald Reagan won the American presidency in 1980 on a similar promise, more genially packaged. They had the same intellectual sources, the same major funders, the same advisors, often literally the same people. Friedrich Hayek and Milton Friedman were policy intellectuals to both administrations. The Mont Pèlerin Society had won.
What followed in the United States is now well-documented and badly understood. Reagan broke the air traffic controllers’ strike in 1981, firing 11,345 federal workers and signaling to American business that the era of organized labor’s political protection was over. Union membership in the private sector, which had been around 35% in the 1950s, began the long collapse to its current level of about 6%. The top marginal income tax rate was cut from 70% to 50% in 1981, then to 28% by 1988. The capital gains tax was cut. The estate tax was weakened. Corporate taxes were cut. The Reagan administration stopped enforcing antitrust law in any meaningful way, ending a half-century of vigorous competition policy and beginning the wave of mergers and consolidations that has continued ever since. Financial regulation was loosened. The Garn–St. Germain Act of 1982 deregulated the savings and loan industry, with results that became fully visible later in the decade when most of the industry collapsed and the public picked up the bill. The administration began the long project of capturing the federal judiciary through ideologically vetted appointments, a project that culminated forty years later in the current Supreme Court.
The argument made for all of this was that it would unleash growth, raise wages, and generate prosperity that would trickle down to ordinary Americans. The argument was false in advance and the falsity has been measurable since. Real wages for American workers stagnated from the late 1970s onward, even as productivity continued to climb. The gains from rising productivity, which had previously been shared with workers, now went almost entirely to capital. The famous chart that economists draw to show this — productivity and median compensation rising together until 1973, then productivity continuing up while compensation flatlines — is the clearest visual record of what the Reagan era actually accomplished. The bargain that had built the American middle class was unilaterally rewritten. Workers continued to produce more; they stopped getting paid more for it. The difference was kept by the people at the top, and the cumulative effect of forty years of that arrangement is the inequality we now have.
The British experience under Thatcher was structurally identical, with local variation. Coal mining communities were destroyed. Public housing was sold off. State industries were privatized at fire-sale prices, with the windfall captured by the private buyers. The financial sector was deregulated in the 1986 Big Bang. The political opposition that might have resisted any of this — chiefly the unions — was systematically broken. By the time Tony Blair’s Labour Party returned to power in 1997, it had abandoned virtually all of its previous economic positions and accepted the Thatcherite settlement as the unalterable framework within which politics would now occur. This was the explicit Blair-Clinton synthesis: the populist parties of the left would manage the neoliberal economy with slightly more humanity than the right, but they would not challenge its fundamentals. They would not. They did not.
The Chilean test case was the prototype, but the global rollout was the main event. The mechanism by which Chicago School economics was imposed on most of the developing world during the 1980s and 1990s went by the polite name of structural adjustment, and it was administered by the International Monetary Fund and the World Bank — institutions that had been founded after World War II to stabilize the global economy and that were now repurposed as enforcement mechanisms for the new doctrine. John Perkins’s *Confessions of an Economic Hit Man* described the operation from the inside, and although his account oversimplifies in places and slips on some particulars, the basic mechanism he described is correct and is now acknowledged even by the institutions that ran it.
The mechanism was this. A developing country needed capital for infrastructure or development. The IMF, the World Bank, and Western private banks would lend it the money, often more than the projects required and often on terms that were predictably impossible to repay. When the country could not service the debt, the lenders returned with a rescue package, and the rescue package came with conditions. The conditions were always the same. Privatize state-owned industries — utilities, railways, mines, telecoms, water systems — and sell them, typically to Western corporations at distressed prices. Open the economy to foreign capital. Cut public spending, especially on the social welfare programs that protected the population. Deregulate labor markets so wages could be driven down. Devalue the currency to make exports cheaper for foreign buyers. Eliminate food and energy subsidies. Allow Western banks to enter the financial system. The conditions were called the Washington Consensus, named for the city where the IMF, the World Bank, and the U.S. Treasury were headquartered, and where the policies were designed.
The countries that submitted to the Washington Consensus mostly did very badly. Latin America’s “lost decade” of the 1980s, sub-Saharan Africa’s lost decades that followed, the Asian financial crisis of 1997, the Russian collapse and the rise of the oligarchs, the Argentine collapse of 2001 — all bear the fingerprints of the same prescription. Privatized water systems became unaffordable for the poor in Bolivia. Privatized food systems failed in country after country. Privatized health care became inaccessible to populations that had previously had access to it. Wealth in these economies concentrated rapidly upward, and the assets of the public were transferred to a tiny class of oligarchs who emerged to own them. The IMF’s own internal review, completed in the early 2000s, conceded that the structural adjustment programs of the 1980s and 1990s had caused enormous and unnecessary suffering. Nobody who had designed or implemented them was held to account. Most of them were promoted.
The Russian case is worth a sentence on its own, because it shows the ideology at its purest. After the collapse of the Soviet Union in 1991, a team of American economists — Jeffrey Sachs from Harvard, the IMF, and the U.S. Treasury — recommended what they called shock therapy: rapid, comprehensive privatization of the Soviet state’s industrial assets, immediate price liberalization, and the destruction of the planned economy in a matter of months. The result was a catastrophe of historic proportions. Russian GDP collapsed by roughly 40% during the 1990s, comparable to the Great Depression. Life expectancy fell. Public health collapsed. Roughly half the country fell into poverty. The state assets were not sold to a broad public but were captured by a small group of well-connected men who became overnight billionaires and whose successors run Russia today. The American architects of this disaster, like their predecessors in Latin America, faced no consequences. Several wrote books defending what they had done.
While the doctrine was being imposed on the developing world, it was being completed at home through three parallel processes, each of which deserves its own name.
Privatization in the United States looked different from the foreign version because there was less direct state ownership to transfer. What was privatized instead was the social commons. Public schools were starved of funding so that charter schools and voucher programs could grow alongside them. Public universities had their state funding cut, were forced to raise tuition, and were progressively financialized into institutions that now run on student debt. Prisons were privatized at the federal and state level, creating an industry whose profits depended on incarceration rates and that lobbied accordingly. Water systems were privatized in a wave that has been going on quietly for thirty years. Public housing was demolished or sold. The Postal Service was systematically defunded and its mandate constrained so that private competitors could capture its profitable routes. Medicare and Medicaid were progressively converted into payment streams for private insurers and private equity-owned providers. The Veterans Administration was repeatedly threatened with privatization. By the 2010s, private equity firms were buying up emergency rooms, nursing homes, hospices, dental practices, and veterinary clinics — and applying the standard playbook of cost-cutting, fee-raising, and asset-stripping to institutions that had previously functioned, more or less, as care.
Deregulation was the second pillar. In 1996, the Telecommunications Act, signed by Bill Clinton, removed the rules that had limited media ownership concentration, allowing the consolidation of American media into a handful of conglomerates and effectively destroying local news. In 1999, the Financial Services Modernization Act — known as Gramm-Leach-Bliley, also signed by Clinton — repealed the Glass-Steagall Act of 1933, which had separated commercial banking from investment banking since the Depression. In 2000, the Commodity Futures Modernization Act exempted credit derivatives from regulation, enabling the explosion of complex financial instruments that would blow up the economy eight years later. NAFTA in 1994 set the template for offshoring American manufacturing; China’s accession to the WTO in 2001 completed it. The Environmental Protection Agency was progressively starved. The Federal Trade Commission stopped enforcing antitrust against most mergers. The Department of Labor stopped enforcing labor law in any serious way. The IRS lost the budget and personnel needed to audit the wealthy. Every regulatory function the government had built up over the previous fifty years was, agency by agency, hollowed from within.
The crucial point about deregulation is that it was bipartisan. The Clinton administration was as central to the dismantling of the New Deal financial regime as either Reagan or the Bushes. The Democratic Party in the 1980s and 1990s, under the leadership of the Democratic Leadership Council, deliberately reoriented itself away from organized labor and toward Wall Street and Silicon Valley as its donor base. Robert Rubin, the Treasury Secretary who pushed Glass-Steagall repeal through Clinton’s White House, came from Goldman Sachs and returned to Citigroup, which directly benefited from the deregulation he had championed. Larry Summers, his deputy and successor, attacked Brooksley Born of the Commodity Futures Trading Commission when she tried to warn that the unregulated derivatives market was dangerous, and helped exempt those derivatives from oversight in 2000. When the crisis they had helped create arrived in 2008, both men returned to advise the Obama administration on how to manage it. The Democratic Party did not stop the dismantling. It executed key parts of it.
Financialization was the third pillar, and the deepest. The American economy steadily transformed from a system that produced goods and services into a system that produced financial claims on those goods and services. The financial sector’s share of corporate profits roughly tripled between 1980 and 2007. Companies that had once been industrial were reorganized as financial firms with industrial subsidiaries; General Electric is the famous case, but the same logic ran through the entire economy. Manufacturing was offshored not because Americans suddenly couldn’t make things but because financial returns were higher when production moved abroad and the resulting cost savings were captured at the top of the company. Stock buybacks, which had been effectively illegal until the SEC quietly legalized them in 1982, became the dominant use of corporate cash flow, transferring trillions of dollars to shareholders that might otherwise have gone to wages, investment, or research. Private equity, which barely existed before 1980, grew into a $5 trillion industry whose business model was to buy productive companies, load them with debt, extract the cash, sell the pieces, and move on. The companies that survived the experience were typically smaller, weaker, and saddled with debt; the ones that didn’t survive went into bankruptcy with the debt still owed to the workers and creditors while the private equity firm walked away with its fees.
Underneath all of this, household debt expanded to fill the gap left by stagnant wages. American families that could no longer afford the standard of living of their parents financed it with credit cards, home equity loans, student loans, and eventually subprime mortgages. The financial sector profited at every step — originating the loans, packaging them into securities, selling the securities, betting on the outcomes. By the early 2000s, the entire arrangement was being held up by a housing bubble, which was being held up by mortgage-backed securities, which were being held up by credit default swaps, which were being held up by the assumption that American housing prices could not fall on a national scale. They could. The assumption was a fiction. The fiction sustained the arrangement until it didn’t.
What happened in 2008 was not an accident or a surprise. It was the predictable consequence of every choice made over the preceding three decades, by people who had been warned and who had ignored or silenced the warnings. The financial crisis was the moment the arrangement broke open, and the response to it was the moment the arrangement was confirmed.
The technical story is now familiar. Subprime mortgages, packaged into mortgage-backed securities, had been sold to investors around the world on the assurance that they were safe. They were not. When American homeowners began to default at scale, the securities collapsed in value. Lehman Brothers failed in September 2008. AIG, which had insured trillions of dollars of these securities through credit default swaps, was hours away from collapse and would have taken most of the global financial system down with it. The Federal Reserve and the Treasury intervened with what eventually became trillions of dollars of emergency lending, asset purchases, and direct bailouts to keep the banks solvent. The banks survived. Almost no one senior went to prison. The same executives who had run the firms into catastrophe collected their bonuses and, in many cases, kept their jobs.
The homeowners did not get a comparable rescue. The Obama administration’s HAMP program, designed to help families avoid foreclosure, was deliberately structured — as Treasury Secretary Tim Geithner essentially admitted — to “foam the runway” for the banks rather than to keep families in their homes. Roughly six million American families lost their homes to foreclosure between 2008 and 2014. The houses they lost were bought, mostly at fire-sale prices, by a handful of private equity firms — Blackstone, Starwood, Invitation Homes, and others — who consolidated them into the largest landlord operation in American history and now rent them back, often to the children of the people who lost them, at rates that consume an ever-larger share of those tenants’ incomes. This single transfer is the largest reason the millennial generation cannot afford houses. It was not the working of an impersonal market. It was a specific transfer, executed by specific firms, enabled by specific policy choices made in 2009 and 2010 by an administration that had been elected to do something else.
The structural meaning of 2008 is that the system did exactly what it was designed to do. The wealthy were protected. The institutions that had caused the crisis were preserved. The losses were socialized, with ordinary Americans paying through lost homes, lost jobs, and a decade of austerity. The gains were privatized, captured by the same financial sector that had created the catastrophe. The political response was insufficient by design. Dodd-Frank, the regulatory reform passed in 2010, was riddled with loopholes and would be progressively weakened over the following decade. No senior financial executive went to prison for the largest fraud in American history. The president who took office in January 2009 surrounded himself with the architects of the crisis and asked them to manage the recovery. There was no New Deal moment. There was no Pecora Commission. There was no breakup of the megabanks, which emerged from the crisis larger than they had been going in. There was no restoration of Glass-Steagall. There was, in essence, no accountability at all.
By the end of the decade that began in 2008, the structure of the American economy was fully broken in the sense that mattered. Wages had been stagnant for forty years. Industrial capacity had been hollowed out. The financial sector was bigger and more concentrated than ever. Wealth and income inequality had returned to levels not seen since the 1920s. Antitrust was dormant. Labor was prostrate. Regulators were captured. The political system had been progressively bought, and the Supreme Court had legalized the buying through Citizens United in 2010 and McCutcheon in 2014. The institutions that might have constrained any of this had been hollowed from within by people who had been working at it, openly, for forty years.
This is the structure that the present moment inherited. Everything that has happened since 2008 — the rise of the populist right, the destruction of the political center, the migration of working-class voters away from the Democratic Party, the failure of the Obama recovery to actually recover for most people, the Trump phenomenon, the increasing capture of both parties by financial interests, the AI build-out, the ongoing transfer of wealth upward — all of it is happening on top of the foundation laid by the long counter-revolution that began in Mont Pèlerin in 1947 and was substantially complete by 2008.
The people who carried out the project mostly did not hide what they were doing. They wrote books about it, gave speeches about it, founded institutions to advance it, and named their plans openly. The Powell Memorandum is publicly available. The Mont Pèlerin Society’s papers are in the archives. Friedman’s writings are in print. The Washington Consensus was a published list. The trade agreements were ratified by the Senate. The financial deregulation was passed in open congressional sessions. None of this was secret. What it was, was unattended to. The people most affected were too busy, too tired, too distracted, or too systematically misinformed to see what was being done to them. The political class that should have been their representatives was largely on the other side. The journalism that should have been documenting it was being financialized into oblivion at the same time. The result is the country we now live in.
The economy was not dismantled by accident. It was dismantled on purpose, by people who knew what they were doing, in service of a doctrine they understood, with consequences they intended. That story is the prerequisite for any honest conversation about what to do next. The story most Americans have been told — that things just changed — is the alibi the people who did it have provided to the people they did it to. The first step in any serious response is refusing the alibi.
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