Module 1: Crisis and Reaction

Crisis and Reaction

The rise of neoliberalism in the late 1970s and 1980s marked a dramatic shift in economic thinking and policy. Central to this movement was the influence of the Chicago School of Economics, led by Milton Friedman, whose ideas gained prominence during the era of stagflation. The Chicago School argued that free-market capitalism, with minimal government intervention, was the best way to ensure economic growth and prosperity. Friedman's advocacy for monetarism, which emphasized controlling the money supply to curb inflation, resonated with policymakers who were grappling with the twin problems of rising prices and stagnating growth. This philosophy provided the intellectual foundation for the neoliberal policies that emerged in the U.S. and the U.K., where leaders like Ronald Reagan and Margaret Thatcher embraced deregulation, tax cuts, and privatization as the keys to reviving their economies.

Under Reagan’s presidency, the U.S. adopted many of these neoliberal principles, including "trickle-down economics," a concept based on the belief that cutting taxes for the wealthy and corporations would lead to greater investment, job creation, and eventually benefit all layers of society. Reagan's tax cuts, particularly for the rich and for corporations, were intended to stimulate economic growth, but critics argued that this approach exacerbated inequality. While the economy did experience a period of expansion in the 1980s, it also led to a widening gap between the wealthy and the rest of the population. The benefits of the so-called "trickle-down" approach were often uneven, and many argued that the gains disproportionately went to the top 1%. The rise of neoliberalism thus contributed to a shift in economic power, reducing the role of the state in economic affairs while increasing the influence of markets and capital, with lasting implications for income distribution and social mobility.