To many liberals, the post-WWII period in America was a time of near economic perfection. The government taxed the wealthy over 90 percent and unions became powerful organizations demanding a fair share for workers. It was a period that progressive economist Paul Krugman has always been quick to praise, writing in his 2009 book, “The Conscience of a Liberal”:

“The political and economic environment of my youth stands revealed as a paradise lost, an exceptional moment in our nation’s history.”

This period, which can be called the Keynesian era, was indeed a time of great economic growth and increased economic equality. Looking back today, it does seem like an exceptional time to be in the working class. (As long as you were white, of course.) It was an age of compromise, between the capitalist class and the working class, and perhaps the most democratic period in our liberal capitalist society. During that epoch, it certainly looked as though a form of socialism was on the horizon, with the middle class growing and forming a previously unimaginable kind of egalitarian society within capitalism.

But of course, it was not to be. By the ’70s, the economy had seemingly become diseased, with both inflation and stagnation, or what was coined stagflation. At the time, most economists were dumbfounded. In neoclassical theory, inflation and recession were opposites, they did not happen simultaneously. Hence the monetary policy of low interest rates during a recession, and high interest rates during a period of high inflation.

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The stagflation crisis, along with increasing globalization, created an opening for the capitalist class, who embraced the thinking of Milton Friedman. The crisis of Keynesianism created a wave of propaganda, which ultimately resulted in the election of Ronald Reagan. At the same time, the high interest rate policies of Fed chairman Paul Volcker attacked inflation head on, and drove the American economy into a deep recession, while undermining the working class. To top this off, the major tax cuts for the wealthy and the war on unions during the Reagan presidency dismantled what was left of the Keynesian-era middle class.

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