America Since 1980: A Right Turn Leading to a Dead End

U.S. politics took a sharp turn to the right in 1980 with the election of Ronald Reagan as president. Domestically, Reagan touted an agenda that would lead to a sharp upward redistribution of income. Internationally, Reagan explicitly rejected the "détente" framework for engaging the Soviet Union that had been accepted by the leadership of both major parties since the beginning of the Cold War. In its place, Reagan put forward a doctrine of U.S. unilateralism in which the United States basically claimed the right to do whatever it wanted, unconstrained by allies or international institutions.

The welfare state in the United States was always weaker than in West Europe, but in 1980 it was reasonable to believe that West Europe presented a model that the United States would follow. Medicare and Medicaid were still relatively new programs, having been established just 14 years earlier. Having recently seen a massive expansion of publicly provided healthcare coverage, many people believed that it would not be long before healthcare coverage was extended to the entire population. Other features of European welfare states, such as long vacations, short work weeks, and paid parental leave (generally maternity leave at the time), also seemed feasible political goals.

Reagan's election changed the political reality. His agenda was rolling back the welfare state, and his budgets included a wide range of cuts for social programs. He was also very strategic about the process. One of his first targets was Legal Aid. This program, which provides legal services for low-income people, was staffed largely by progressive lawyers, many of whom used it as a base to win precedent-setting legal disputes against the government. Reagan drastically cut back the program's funding. He also explicitly prohibited the agency from taking on class-action suits against the government -- law suits that had been used with considerable success to expand the rights of low- and moderate-income families.

The Reagan administration also made weakening the power of unions a top priority. The people he appointed to the National Labor Relations Board were qualitatively more pro-management than appointees by prior Democratic or Republican presidents. This allowed companies to ignore workers' rights with impunity. Reagan also made the firing of strikers an acceptable business practice when he fired striking air traffic controllers in 1981. Many large corporations quickly embraced the practice. Also, his high dollar policy in the mid-'80s was a severe blow to manufacturing unions, who suddenly had to compete against low-cost imports that were essentially subsidized by an overvalued dollar.

The net effect of these policies was that union membership plummeted, going from nearly 20 percent of the private sector workforce in 1980 to just over 7 percent in 2006. Inequality soared, as the vast majority of the gains from economic growth over the next quarter century went to high-end wage earners (e.g., doctors, lawyers, CEOs) and profits. The wages of typical workers increased little from 1980 to 2006.

On the international side, Reagan followed through on his campaign promise to reject the arms control agreements that previous administrations had negotiated with the Soviets. He insisted on going back to the drawing board and negotiating proposals for arms reduction, not just freezes. While Reagan eventually found a more accommodating enemy than he had anticipated when Mikhail Gorbachev came to power in the Soviet Union, his belligerence towards the Soviet Union was a deliberate break with prior administrations.

Reagan was also willing to act aggressively, and often alone, in other foreign policy matters. For example, throughout his presidency he sustained a guerilla war against the democratically elected government in Nicaragua. This war often put the United States at odds with its allies in West Europe. When Reagan invaded the tiny island nation of Grenada in 1983 (population @100,000), he couldn't even enlist the support of British Prime Minister Margaret Thatcher, his conservative political soul mate.

The United States has largely continued Reagan's policy of unilateralism through subsequent administrations. It has consistently refused to be bound by important international agreements regarding issues such as human rights, war crimes, and greenhouse gas emissions. And of course, the fact that United Nations would not support an invasion of Iraq did not deter the Bush administration or even prompt the Democratic leadership in Congress to oppose the invasion.

But, the right-turn path may be reaching a dead end. In terms of the economy, we have had a quarter century of top heavy growth in which the vast majority of economic gains have gone to the richest 10 percent of the population. While the economy has generally been boosted by a virtuous cycle in which productivity growth lead to wage growth, which in turn lead to consumption growth and then further productivity and wage growth, the key stimulus for growth in the last decade has been financial bubbles, first in the stock market and more recently in the housing market. With the latter bubble beginning to unwind, the economy's prospects do not look bright.

Internationally, the days when the United States was the biggest boy on the block are rapidly coming to an end. The United States is still the world's largest economy, but China's economy is almost 80 percent of its size and growing very rapidly. It will not be long before China's economy is larger than our economy. As its economy begins to surpass the size of the U.S. economy, its military strength will likely soon exceed that of the United States as well.

Even barring any military conflict with China, which is highly unlikely, the ability of the United States to impose its will on China is very limited at this point, as it has very few cards to play. In fact, the ability of the United States to impose its will on much of the world has been sharply constrained by the fact that it is now a huge debtor nation that is borrowing $800 billion a year and that it has most of its military bogged down in the Iraq War.

This is a bad situation for a bully to be in. After a quarter century of not caring about the concerns of other countries, the United States is facing a situation where other countries may not care much about our plight. We may soon wish that we had spent more effort building up meaningful international institutions when we had the opportunity.

Dean Baker is co-director of the Center for Economic and Policy Research.