How Mumbo-Jumbo Conquered the World

The dominant economic theory of neoliberalism is bad for society at large.

Have you ever wondered why rich people keep getting richer while the poor only fall deeper into poverty?

The answer boils down to the fundamental philosophy that shapes most mainstream Western politics, whether on the right or left of the political spectrum: neoliberalism. Neoliberalism is a belief that free markets rather than government intervention are the path to economic prosperity.

This belief is often associated with the “supply-side” economics that rose to popularity in the 1980s. However, supply-side economics was just a clever rebranding of the long debunked “trickle down” theories, which said the rich getting richer would allow wealth to run “downhill” within a society to lower- and middle-class people.

The proponents of this philosophy maintain that such a system is far more effective at redistributing wealth than government. But history tells a different story. In fact, the neoliberal policies that entered the UK and US mainstream in the 1980s have proven disastrous.

For instance, as the UK Conservative Party entered office in 1979, then-Prime Minister Margaret Thatcher began slowly dismantling the welfare state, a social safety net set up at the end of World War II.

She slashed government spending in her first year in power and such policies quickly proved detrimental to the country. For instance, inflation rose by 11 percent, the manufacturing sector hit a deep recession and by the end of Thatcher’s third year, unemployment had risen from 5.7 percent to 13 percent.

Meanwhile, on the other side of the Atlantic, Ronald Reagan entered the Oval Office in 1981, cutting the top income tax rate from 70 percent to 50 percent. As a result, the national debt went from $900 billion to $3 trillion over a five-year period.

These policies decimated the working and middle classes. Under Reagan, real wage levels dropped and jobs were offshored to cheaper labor markets such as China. The result was a ten percent unemployment rate in 1982, the highest since the Great Depression.