Following the Roosevelt and Truman Presidencies, the US entered a period of political and economic stability, in part due to the massive amount of government spending required due to World War II. Roosevelt’s New Deal and subsequent policies had set the status quo. It would take massive social and economic unrest for the perception of freedom and prosperity to once again prioritise negative liberties and the absence of government. The era was marked by militant anti-Communism at home, spearheaded by Senator Joseph McCarthy, who seemingly saw Communism lurking at every turn. Despite this, Roosevelt’s popular legacy remained largely intact under the first Republican President for two decades, Dwight Eisenhower.
American liberalism was further spurred on at a domestic level during the Presidency of Lyndon B. Johnson, sworn in as president after the assassination of John F. Kennedy in 1963. Coining his basket of legislation the “Great Society”, Johnson sought to secure civil rights, funding for education and public housing, and in particular new healthcare programs known as Medicare and Medicaid.
Medicare provides public healthcare for individuals over the age of 65 – a pressing need as many Americans receive health insurance through their employer (itself a wartime initiative that remained intact after 1945), leaving retirees in need of insurance. Medicaid provides public healthcare for low income households unable to afford private healthcare. Barack Obama’s eponymous healthcare reform would expand this program to cover more Americans. Johnson’s expensive welfare programs once again drew the ire of his Republican opponents such as Barry Goldwater, who branded these as socialist. However, the public looked upon these favourably. It must be remembered that relative to other western countries such as the United Kingdom and (later) Australia, Johnson’s public healthcare programs were very modest. For comparison, Britain’s National Health Service was established in the years after the war, and unlike Medicare was (and remains) a truly universal program.
Johnson was widely popular up until his escalation of the Vietnam War. His prosecution of a unpopular and bloody conflict, combined with rising crime rates, saw him opt not to seek re-election. Running on a “law and order” platform, Richard Nixon won the 1968 election, marking the beginning of the end of FDR’s “New Deal Coalition” after 36 years of domination. In the eyes of most historians, Johnson’s era was the peak of American Liberalism. After this point, freedom once again began to be perceived through a prism sceptical of government, in the wake of the Vietnam War, and, later the Watergate scandal.
Despite being a Republican President, Nixon, like Eisenhower, largely continued Keynesian style policies of government intervention when necessary, ostensibly confessing to Milton Friedman during a financial crisis that “we are all Keynesians now”. Towards the end of his tenure, the Organisation of Arab Petroleum Exporting Countries (OPEC) instilled an embargo on the United States due to their support of the state of Israel during the 1973 Arab-Israeli War. This led to US oil prices quadrupling. Naturally, given that oil is a production cost in essentially every good and service, inflation rose to unprecedented levels.
This sent shockwaves throughout the world. The general economic consensus at the time was that high inflation had to be accompanied by high economic growth. However, this current inflation was due to supply side pressures caused by rising oil prices, rather than rising demand, which would normally lead to shortages and the bidding up of scarce goods and services. This combination of high inflation, slow economic growth and massive unemployment was named “stagflation”, a phenomena Keynesian economics ostensibly could not explain or immediately rectify. Depending on where people leaned economically at the time, stagflation was either due to the OPEC oil embargo, or ‘excessive’ government intervention which made people and businesses too comfortable and thus unwilling to increase efficiency to reduce inflation. Regardless of the facts of the matter, stagflation required reform in the face of an angry public struggling with an ever-increasing cost of living.
Democratic President Jimmy Carter, elected in 1976 as a Washington outsider in the wake of the Watergate scandal, inherited stagflation. Unlike his predecessors, he began to slowly wind back the government from private industry in an attempt to increase competition, reduce production costs, and hence reduce inflation. An economic policy usually attributed to Republican Ronald Reagan, Carter’s successor, it was actually Carter who set the groundwork for the majority of deregulation during the era. Despite his unpopularity due to his perceived weakness in dealing with Iran during the hostage crisis and not acting quickly enough to reduce stagflation, it is likely that Ronald Reagan would not have been able to instil his reforms without the initial work of Carter.
Hatred of Carter was often attributed to his weakness in espousing American exceptionalism and “freedom”. Whether it be through his management of the Iranian hostage crisis, or telling Americans that it might be sensible to reduce their use of air-conditioning if energy costs are rising, the public began to grow tired of a president who wanted to tell people what to do domestically, yet not force other countries to act in America’s best interests.
America was in a period of massive unrest domestically and internationally. Unrest brings change and Carter lost in a landslide to Republican Ronald Reagan. The economic and political landscape would change forever, as the liberal tide instigated by Roosevelt 50 years before was about to be superseded, at least in the eyes of the public.
From this point on, positive freedoms were out, and the notion of small government was in. Reagan summed up his political philosophy in 1986 when he declared the “most terrifying” words in the English language to be “I’m from the government, and I’m here to help.”
Accordingly, free market freedom was fiercely imposed by Reagan, with growth in government spending halving while the top income tax rate was cut by 20%. Despite this, military spending vastly increased as part of Reagan’s hawkish Cold War foreign policy. The end result was the tripling of the federal deficit from $997 billion to $2.8 trillion.
For American leaders, the championing of free markets became a rhetorical device against the bureaucratic and centrally planned Soviet Union. The pendulum began to swing back strongly to one prioritising negative freedoms – freedom from interference, especially from government. The New Deal era was replaced in rhetorical terms, if not entirely so in reality. Reagan became the dominant political figure of his age, with his legacy eventually coming to be praised by Republicans and Democrats alike. However, his free-market legacy would not last forever, as we will see in Part III.
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