Americans’ lives are inexorably linked to politics. In the United States, the political sphere is inexorably linked to the economy. However, the economic system is far from natural: it is chosen and enforced. In the 1930s, FDR introduced liberal capitalism, which he supported with strong social welfare. Through the 1960s, though the US was involved in various worldwide wars, the US economy was strong and wealth inequality was low. However, in the 1970s and 1980s, a new economic system was introduced and adopted: neoliberalism. Wrenn (2014) describes not the history of neoliberalism, but rather its stated goals. They are to privatize state provided goods and services, deregulate industry, and eviscerate the welfare state (p. 478). Neoliberalism hinges on the supremacy of the free market, and insists on hierarchy as a natural phenomenon. Ignoring the faults of this ideology, of which there are various arguments, the United States acts to reinforce and perpetuate this economic ideology through the individual citizen, to sectors of industry, to the national economy, and through the global economy. How does the United States reinforce and perpetuate neoliberal capitalism in these aforementioned sectors? With the individual bootstraps myth, endorsing the subversive methods of businesses, supporting the harmful tactics of the fiduciary backbone of the national economy, and using underhanded tactics in international economic relations, the United States government is able to forcefully perpetuate neoliberal capitalism. This report will move sequentially through the micro to the macro, first observing the individual, then onto American industry. Next, it will discuss the overall American economy, and, finally, finish with the enforcement of neoliberal capitalism around the world.

Personal Ideology

Americans believe in self-sufficiency (Sternberg Greene, 2017, p. 240) and personal responsibility for themselves - and especially for others - for economic stability. One of Putnam’s (2015) respondents, Chelsea - a proletarian herself, or, a wage earner - notes, “you have to work if you want to get rich… If my kids are going to be successful, I don’t think they should have to pay other people who are sitting around doing nothing for their success” (p. 25). The policies and ideology of neoliberal capitalism has ushered in the adoption of this cultural mindset which enforces self-sufficiency and personal responsibility for one’s economic success. 

The New Deal & The Welfare State

Welfare started in earnest in the United States with the passage of the New Deal in 1933 in response to the unmitigated inequality of the gilded age of the late 19th and early twentieth centuries (Chancel et al., 2022, p. 94; Gerstle, 2022, p. 81-2). While economic inequality peaked during the gilded age, the policies set forth by President Franklin Roosevelt, such as rent control, financial market regulations, and a highly progressive capital gains tax (Chancel et al., 2022, p. 76) - as high as 91% for top earners (McIntosh, 2012) - began to reverse the course and strengthened the economic stature for a majority of Americans. Putnam (2015) recalls, “in that era…, few of our families experienced joblessness or serious economic insecurity” due to high employment and full unions (para. 22 - p. 12), and, undoubtedly, a fully-funded social safety net provided by the federal government. By the time Ronald Reagan took office in 1980, welfare “offered more stability” than the average job (Sternberg Greene, 2017, p. 243). According to political scientist Susan George, anyone “would have been laughed off the stage or sent off to the insane asylum” if they proposed instead what Americans had in their toolkit today (Giroux, 2004, p. XIII).

It was then, however, that the public perception of welfare started to change. As governor of California, Reagan stripped the state of its welfare funding and denied families from receiving assistance, naming the needy as the “undeserving poor” (Gerstle, 2022, p. 116). He then took this mindset to the White House. It was during his campaigning that he coined the phrase “welfare queen” with her “eighty names” and “four non-existent deceased husbands” to scam welfare money from the once-honest system (Sternberg Greene, 2017, p. 248). While Reagan was ultimately unsuccessful in reforming the national welfare program (Sternberg Greene, 2017, p. 248), his bootstrap antipoverty rhetoric struck a chord in the American psyche, and the public quickly adopted his ideology.

Neoliberalism Takes Hold of America

Although Reagan did not invent neoliberalism, he was enamored by its creators, who considered the “regulated capitalism” of the New Deal to be “a Trojan Horse through which communism” would take over America (Gerstle, 2022, p. 94). The social narrative started to turn from one of stability and relative economic parity between the classes to one that harkened back to “the heroic age of capitalist enterprise” of the gilded age in which people would be free - read: required - to get “a real job that you could risk your soul in and make good or be damned” (Gerstle, 2022, p. 99). 

Throughout the 1980s, Reagan’s policies were focused on dismantling the social safety net that had defined the New Deal and the previous half century. Most notably, the tax system was revamped in its entirety, and by the end of Reagan’s two terms, the top tax rate had become “lower than it had been anytime in the previous half-century,” reducing the top bracket to a comparatively miniscule 28% (Anderson, 2020, p. 107, 120). This, of course, “contributed to boosting top wealth shares” amongst the richest Americans (Chancel, et al., 2022, p. 93), and that was only the beginning. In the 1980s, the market was deregulated so thoroughly that upward mobility - the very phenomena that Putnam and his class had experienced so effortlessly - started to become “much more unlikely” (Anderson, 2020, p. 121). 

Also under attack by the Reagan administration, just like during his governorship, was the federal welfare system. According to neoliberals, the social safety net under the New Deal had created a culture of dependency and disincentivized working (Sternberg Greene, 2017, p. 236), enabling welfare recipients to become “lazy and irresponsible” (Anderson, 2020, p. 111). This stigma was so powerful, she found, that many instead would apply for credit cards that they could not afford in order to support themselves, in turn, trapping themselves in an endless cycle of debt (Sternberg Greene, 2017, p. 268).

By the 1990s, Democrats had long-since abandoned their strong social policies of the New Deal and had adopted the same neoliberal ideology of the free-market hounds (Anderson, 2020, p. 104). In 1996, towards the end of Clinton’s first term in office, Congress passed the Personal Responsibility and Work Opportunity Reconciliation Act (PRWORA), of which the President noted, “the best anti-poverty program is still a job” (Sternberg Greene, 2017, p. 235-6, 237). The changes made to the welfare state would ultimately slash the number of recipients from its peak of 14.2 million in 1994 to 2.7 million by 2016, an 81% decline (Sternberg Greene, 2017, p. 236-7, 252). The stigma associated with welfare has meant that today, only 30.7% of those who qualify opt to receive welfare (Sternberg Greene, 2017, p. 268). This, as determined by the inventors of neoliberal capitalism, is by the design of those seeking to empower the capitalist class at the expense of the majority of Americans: in 2022, the World Inequality Report found that the level of economic disparity between the classes is quickly approaching the levels experienced during the gilded age (Chancel et al., 2022, p. 76). Yet, as evidenced by the results of Sternberg Greene’s (2017) interviews and Putnam’s (2015) experience in studying the class gap, Americans have become dug into their narrative of self-sufficiency and personal responsibility.

The Psychology of Self-Sufficiency

The cognitive dissonance required to live with the disparate conditions of today while clinging to this provenly destructive ideology is striking, and only leads to more questions about the ideology’s enforcement under neoliberalism. Political scientist Benedict Anderson points out, however, that there is nothing to distinguish myth from truth if they are both believed with the same intensity (Gerstle, 2022, p. 97). Sternberg Greene (2017) encountered this ideology again and again during her research, in which her participants would try anything and everything for financial stability, except for government welfare (p. 275). Instead, they turned to credit cards, and when that failed, debt consolidation in order to improve their lives. In the end, they would often experience downward mobility as a result of their internalized self-sufficiency narrative leading to debt cycles (p. 277-8). Sternberg Greene (2017) calls this, “the bootstrap trap” (p. 284). These narratives of self-sufficiency, she notes, leads to “pride and motivation” to work towards one’s own economic success, but put its believers at particular risk for “financial catastrophe” as a result of their commitment to their adherence to the ideology (p. 285).

Throughout Sternberg Greene’s (2017) research, she encountered a number of people who appealed to a higher religious power to either guide them to financial stability or to hand down an unexpected cash infusion. “Find a way, God lead me to find a way,” one of her respondents clamored (p. 267). This faith, instead of negating the notion of personal responsibility, actually puts them at higher risk for ideological internalization. Wrenn (2019) details the “Prosperity Gospel” preached throughout, specifically, Evangelicalism, which works to reinforce the neoliberal narrative. According to the Prosperity Gospel, “oppressive frameworks… are irrelevant” and any hardship experienced is “the result of moral failings of individuals” (p. 428). Televangelist Kenneth Copeland notably extolled that poverty is “a spiritual problem, [which] requires a spiritual solution” (Wrenn, 2019, p. 426). This coincides with another resounding theme of Sternberg Greene’s (2017) research, in which a number of respondents specifically noted their differentiation from those who sought out welfare for aid. They wished to “distinguish themselves” as “moral citizens” from those “they deemed to be taking advantage of the system” (p. 274). It is clear now that when Chelsea says, “I don’t think they should have to pay other people who are sitting around doing nothing for their success” (Putnam, 2015, p. 25), she has internalized Reagan’s notion of the “undeserving poor.”

Perhaps most interestingly, there seems to be a disparity between the beliefs of the narrative of self-sufficiency and a belief that the government should do something to help the downtrodden. Despite many respondents considering those who accept welfare or declare bankruptcy as “failures” (Sternberg Greene, 2017, p. 275), Ferrari’s (2021) research concluded that low-income, less-educated Americans - those at most risk of falling into credit card debt cycles - are much more likely to believe that the government should act to reduce income inequality (p. 9). However, he finds, the less-educated lack the civic efficacy to translate their beliefs into voting for those who could implement such policies: these voters often support the right-leaning parties due to “religion” or “because they disproportionately weight only a few factors” (p. 14). Perhaps, their internalized self-sufficiency narrative presupposes their proclivity to vote against such policies simply because it may also help the “failures.”

…

It has become strikingly obvious, as per Chancel et al. (2022), Sternberg Greene (2017), and Putnam (2015) that poor, downtrodden Americans are in desperate need of financial help. However, the enforcement of the narrative of neoliberal self-sufficiency has precluded those struggling to seek out that help except from credit card companies - who only seek to profit - or from God. The data is abundantly clear: if nothing changes, and quickly, America will reach levels of inequality never experienced before.

Corporate Malfeasance

In the United States, higher productivity no longer equates to higher pay. While during the mid-twentieth century as a result of the New Deal wages and productivity were intertwined, the rise of neoliberal deregulation of the late 1970s and 1980s has decoupled the two trends (Goshen & Levitt, 2022, p. 36; Shakya, Plemmons, & Sayago-Gomez, 2022, p. 670). Today, despite Americans being more educated than any previous generation (U.S. Census Bureau, 2022) and workers becoming more than four-and-a-half times more productive than workers in years past (Goshen & Levitt, 2022, p. 36), wages have stalled out and the share of labor’s income has fallen to its lowest point since World War II (Council of Economic Advisers, 2016, p. 1). Monopsony, similar to its counterpart monopoly, is the power of a concentrated firm or industry to affect wages by controlling the demand for labor (Bivens et al., 2018, p. 1; Caldwell & Naidu, 2020, p. 35; CEA, 2016, p. 2; Goshen & Levitt, 2022, p. 7). Through corporate consolidation at every level and deliberate legal actions such as the issuance of non-compete agreements - and sometimes, illegal actions such as collusive no-poach agreements - taken by consolidated firms, monopsony has resulted in the stagnation of wages while productivity and profit have skyrocketed.

Superstar Firms & Conditions of Concentration

The archetype of monopsonist industry exists today in large, publicly traded, indexed firms. The economic history of the second half of the twentieth century and two decades of the twenty-first is rife with allegorical evidence of large firms swallowing up smaller competitors or driving them out of business. According to Autor et al. (2020), many firms have “legitimately” gained market share through healthy competition and superior efficiency, but then use their market power to sustain their position and crush competition (p. 704). This can be observed most obviously in the “winner take most” economy of the high-tech industry (Autor et al., 2020, p. 673). Thus, according to the CEA (2016), since the 1970s, industry has seen a “general reduction in competition” while corporate profits have ballooned (p. 1). Apart from increasing corporate profits, according to Bivens et al. (2018), this consolidation and “a lack of credible competition” gives employers the power to “set prices, rather than simply having to accept the going rate” for labor (p. 3). Shapiro (2019) notes that this departs from what people generally think as healthy capitalist competition, and is known as an “imperfectly competitive” market (p. 87).

In economic terms, productivity has historically been measured by sales or market value per employee. But while productivity has grown, the number of employees per firm has only grown at sixty percent of the rate of market value (Autor et al., 2020, p. 700-1, 703). In other industries, it has even shrunk: in the companies comprising the S&P 500, employment rates have dropped from 40% of the American population in 1973 to just 29% in 2019 (Goshen & Levitt, 2022, p. 5). Thus, there are now less employees making more money for their respective companies. Likewise, there are now more workers competing for less available jobs. Though courts have consistently been reluctant to allow mergers that may result in monopoly (Hafiz, 2020, p. 397), “no merger has ever been blocked” for creating monopsony (Shapiro, 2019, p. 88). During that same time, average employee pay has stagnated while executive pay has skyrocketed (Bivens et al., 2018, p. 4). According to Caldwell & Naidu (2020), even a small amount of concentration results in a twenty percent reduction in the productivity-pay scale (p. 38).

As a result of this concentration in the labor market, employers gain power over the labor pool. Firms have developed other methods to limit employee power - some legal, others illegal. (Legal policies will be addressed in the forthcoming section on wage elasticity and will focus on worker options.) Illegal actions, however, are representative of the power and influence that has been afforded to these mega-companies, regardless of antitrust prosecution, for them to act so brazenly. According to the CEA (2016), companies have colluded by agreeing “not to hire each other’s workers… in order to avoid competitive bidding” for workers (p. 4). As mentioned previously, the DOJ’s Antitrust division has doled out over $10 billion in monopoly cases, but monopsony has received much less attention (Shapiro, 2019, p. 72). The biggest case to date has been against six tech firms in Silicon Valley who were prosecuted for “entering into no-poaching agreements” to limit their workers’ leverage (CEA, 2016, p. 708; Bivens et al., 2018, p. 17). However, according to Hafiz (2020), other employers can evade these accusations due to the strict nature of the lawsuit’s requirements (p. 395). In such cases, workers have little recourse.

Wage Elasticity & Job Hunting

Another type of corporate monopsony has an effect on wage stagnation: wage elasticity, or the ability for workers to acquire a different job as a result of changed working conditions (Goshen & Levitt, 2022, p. 26-7). As a result of corporate consolidation and other conditions, workers have less options to leave an underpaid job. With the costs associated with job search or the constraints of geographic mobility, even unconsolidated firms can “behave as if there were” monopsonistic to restrict worker options in job mobility (Shapiro, 2019, p. 87; Bivens et al., 2018, p. 16). In a healthy and fully competitive market, labor must “be able to switch employers easily” (CEA, 2016, p. 2), but these disincentives and further consolidation have made that impossible, such that today, workers are less likely to quit to find a new job than they were thirty years ago (CEA, 2016, p. 10). Described above is the phenomenon “job lock” (CEA, 2016, p. 6) which can result from myriad conditions, in which employers play a large role. According to Caldwell & Naidu (2020), “workers don’t have many tools” at their disposal in their job hunt, and therefore will “end up accepting lower wage offers than would be predicted in a competitive market” (p. 32, 37). These “frictions” - employer imposed or otherwise - result in firms acting “as if there were concentration in the labor market” even when there is not, or making it worse if there is (Bivens et al., 2018, p. 16).

While job lock can come from individual employee life conditions, employers can also manufacture synthetic job lock in the form of non-compete agreements. Unlike the no-poach collusion as described above, the issuance of non-compete agreements is completely legal, no matter their necessity in protecting trade secrets. According to the CEA (2016), over thirty million American workers - 18% of the workforce - are currently restricted under non-compete agreements (p. 5, 8), spanning from high-level technical employees to a growing number of low-wage fast food employees (Shapiro, 2019, p. 89). The Supreme Court has ruled that non-competes are “ancillary restraints” (Hafiz, 2020, p. 397-8), meaning that they are often necessary to the success of the business. While they can be understandable for protecting trade secrets, the CEA questions their justification for low-wage workers (CEA, 2016, p. 5). However, these non-compete agreements can have significant effects on wage stagnation: these legal non-compete agreements lead to “lower wage growth,” decreasing “job-to-job mobility,” and “lower initial wages” (Caldwell & Naidu, 2020, p. 40; CEA, 2016, p. 8).

The Limits of the Monopsony Lens & Common Ownership

It has become clear now that monopsony, whether from the employer or employee level, has had an impact on wage stagnation despite increasing worker productivity and corporate profits. However, economists disagree on the degree of that effect. For example, Bivens et al. (2018) find that “concentration has not risen enough… to account by itself for an economically important share of the divergence between economy-wide productivity and the typical worker’s pay in recent decades” (p. 2). Likewise, Shakya et al. (2022) find that interstate labor markets and employers can have positive or negative effects on typical wages (p. 681), and Yeh et al. (2022) find that the view of monopsony’s effect on the productivity-pay gap is “inconsistent” (p. 42). Finally, Shapiro (2019) finds that “most labor markets are reasonably competitive” (p. 87-8). However, the scope of monopsony is narrow, and much of the considerations that these economists find as having a larger effect on the productivity-pay gap, including the presupposed worker frictions, is better described as “dynamic monopsony” (Bivens et al., 2018, p. 16). To that end, upwards of one-third of the increase in the gap can be attributed to the decline of labor market power due to the decline of unionization (CEA, 2016, p. 13) and the “intentional policy assault” on American labor market power (Bivens et al., 2018, p. 12). While nominally different, the assault on worker power is played in a zero-sum game with employer power to control the demand for labor.

Furthermore, there is another facet of corporate monopsony that has only been recently introduced into economic academia: common ownership. Common ownership is the process of large institutional investors controlling shares to multiple firms, often in the same industry (Goshen & Levitt, 2022, p. 4). While O’Brien & Waehrer (2017) finds that common ownership has very little effect on prices (p. 729), this has had a significant effect on the decoupling of wages from productivity. According to Goshen & Levitt (2022), common ownership has gone hand-in-hand with the theory of “shareholder primacy” (p. 19), which encourages higher dividends and stock buybacks to increase executive payout. This, in turn, entices management to reduce investment, including labor wages. Thus, “this hiring shortfall artificially depresses wages” which moves “wealth from workers to shareholders” (p. 7). This is monopsony at the highest level of the American economy. The demand for labor is artificially made lower in order to compensate shareholders at gilded age levels. This neoliberal ideology goes so far that Mishel & Bivens (2021) prefers to describe this as “wage suppression” rather than stagnation (p. 2). They find that American workers have been systematically robbed of nearly $10 per hour (approximately $20,000 per year) in the average median wage since 1979 (p. 3), despite companies drowning in higher productivity and more revenue. How would the average worker’s life look with an extra $20,000 per year?

…

It is clear that corporations afforded any degree of consolidation, at any level, work to depress wages almost exclusively artificially. What is even clearer is that classical monopsony itself has not had large enough of an effect on the decoupling of wages from productivity, but the more narrow form in common ownership and corporate shareholder primacy has been extremely effective in depressing wages. Whether or not workers face a difficult time finding a well-paying job without a non-compete clause seems to have gone out the window in terms of its effect on wage stagnation. Instead, what faces relevance is the monopsony caused by shareholders and the perverse incentives of management in hiring new labor - or not. One thing has become immeasurably obvious in this research: workers face an uphill battle to reclaim those $10 per hour and more, and will require a complete upheaval of the corporate economy in order to realign the progress of productivity and wages.

Dedication to the Ideology

The financial crisis of 2007-08 rocked national economies and the global financial system as a whole. This was the largest crisis since the Great Depression seventy years prior and spanned over months of turmoil (Greenberger, 2019, p. 207). The United States economy recoiled in 2008 and has had lasting effects felt still today. While the catalyst for the recession had its epicenter in the United States, nations across the globe felt the hurt of the static shock to the economy. In Iceland, the three largest banks imploded within a week, dragging down 97% of their financial system, losing the equivalent of $180 billion. This was the third largest financial crisis on record in terms of real dollars lost - and the largest crash Iceland had ever experienced - putting the country’s crisis on par with the massive losses of the culprits in the US, Lehman Brothers and Bear Stearns (Benediktsdóttir, Eggertson, & Þórarinsson, 2017, p. 191; Kovras, McDaid, & Hjarlmarsson, 2018, p. 181). While the US’ banks saw similar losses in dollar amounts to the whole of Iceland, comparatively, Iceland’s loss dwarfed the US’ losses when compared to its GDP (Benediktsdóttir et al., 2017, p. 191). 

However, Iceland has since seen remarkable and unpredictable recovery from the crisis as a result of the government’s swift and unrelenting actions taken in the wake of the epic downturn. According to Bilkova (2021), Iceland ranked “extremely high” in median 2017 income and GDP per capita (p. 339, 341). The 2021 levels are even higher, in which the median income in Iceland is over $1,000 greater per week than that of the US - a total of $52,000 per year (“Wages,” n.d.). On the other hand, while the United States ranked alongside Iceland and a handful of countries as per Bilkova (2021), the U.S. has ultimately been historically slow to recover. For example, according to Schoen (2017), previous economic downturns in the United States saw more than twice the current rate of recovery, and predicted a 7% growth rate in the aftermath of the 2007-08 financial crisis. In reality, the US has experienced only a 2.5% growth rate (p. 807). Ultimately, banks have recovered and are stronger than ever in terms of capital (Greenberger, 2019, p. 213-4), but the average American is on pace for an average lifetime loss of over $70,000 in income (Barinchon, Matthes, & Ziegenbein, 2018, p. 4). Through the lens of government intervention, much can be learned from Iceland’s response to the 2007-08 financial crisis due to the marked differences in actions taken compared to those of the United States, as they have had a remarkable recovery and have since created systemic changes that ensure the avoidance of future financial crises, in which the US is severely lacking and at ever-increasing risk.

Asset Guarantees & Bailouts

The most recognizable facet of the 2007-08 financial crisis are the bank bailouts provided by the federal government. There has been much debate whether these bailouts were justified or necessary, making the argument that government assistance for big banks works to privatizing “risk-taking” and socializing losses (Jarque & Price, 2015, p. 77) But ultimately, bailouts play “an important stabilizing role” in times of financial crisis (Bianchi, 2016, p. 3608). Thus, both the United States - famously - and Iceland had no choice but to bail out their fledgling institutions. However, the mere expectation of bailouts can cause moral hazards within institutions, causing riskier investments as these firms internalize the likelihood that they will be bailed out (Árnason & Nordal, 2018, p. 118; Bianchi, 2016, p. 3638). Thus, economists have divided types of bailouts into “systemic” or “broad-based” - which apply evenly to all institutions - and “idiosyncratic” - which apply unevenly to just a few select firms (Bianchi, 2016, p. 3608, 3609), each epitomized by Iceland and the United States, respectively.

Bear Stearns - the fifth largest bank in the US - was the first to fail. It was quickly followed by Lehman Brothers, the fourth largest (Maciuch, 2018, p. 266). Invoking its emergency powers, the Federal Reserve and the New York Federal Bank authorized a $12 billion loan through JP Morgan Chase Bank, and two days later authorized an additional $29 billion loan to JP Morgan for its acquisition of Bear Stearns (Mellor, 2010, p. 118; Schoen, 2017, p. 816; Scott, 2015, p. 322). Ultimately, the US “chose to ‘save’” Bear Stearns, but it let Lehman Brothers fail. The reasoning was to “send out a strong message” that the government was not there to clean up the banking industry’s mess, but rather, to “let the market take its course” (Chandrasekhar, 2009, p. 67; Mellor, 2010, p. 119). As consistent with Bianchi’s (2016) observations, the failure of Lehman Brothers resulted in a striking “loss of confidence” in the entire banking system, reaching seismic proportions (Mellor, 2010, p. 119). Additionally, “polarization and supermajoritarian features” stalled out government support for the banking industry and “profoundly shaped and hampered” their policy response (Chwieroth & Walter, 2017, p. 1126), so that nearly a half-year after Bear Stearns’ failure, Congress finally allocated over $8.5 trillion for bailouts, of which $3.5 trillion was given to the banks (Chen, Koch, Richardson, & Sharma, 2020, p. 42; Maciuch, 2019, p. 266; Mellor, 2010, p. 125; Schoen, 2017, p. 819; Wilson, Wu, & Prejean, 2014, p. 22). 

As happened in the US also happened in Iceland, but approximately half a year later. The Icelandic banks had only recently been privatized at the time of the crash, and had moved towards emulating the pro-shareholder mindset as in the States (Árnason & Nordal, 2018, p. 124-5). Thus, within one tumultuous week, the three largest Icelandic banks crashed, losing a value of $180 billion (Benediktsdóttir et al., 2017, p. 191). In reality, the only option to save the entire economy was to bail out the banks, but the incumbent right-wing Independence Party moved more systematically than the American Federal government (Chwieroth & Walter, 2017, p. 1128): for example, Iceland prioritized domestic deposits to avoid an insolvency-causing run on the banks, during which time depositors could recover 100% of their funds (Benediktsdóttir et al., 2017, p. 194, 234). This guarantee was only made possible by the nationalization of the Icelandic banks. Less than a week after the banks’ crash, the government passed the Emergency Act which allowed regulators “unprecedented authority” to absorb both the equity and the liabilities of the banks (Benediktsdóttir et al., 2017, p. 233-4, 236). According to Kovras et al. (2018), the nations, like Iceland, that requested IMF assistance were able to spread the consequences of the crisis out over a longer period or mitigate them entirely (p. 178), as is evidenced by their remarkable recovery (Árnason & Nordal, 2018, p. 130; Bilkova, 2021; “Wages,” n.d.). Similarly, as per Bianchi (2016), the systemic changes that occurred within Iceland’s banking system pose the nation to mitigate any future risk (p. 3608), much of which will be addressed in the third section.

Investigations & Truth Commissions

As a result of the economic crash and its immense financial burden on their respective governments, both the United States and Iceland deputized truth commissions to determine the cause - and culprits, if any - of the crisis. The United States established the Financial Crisis Inquiry Commission (Fox, 2018, p. 71), and Iceland the Special Investigation Commission (Árnason & Nordal, 2018, p. 117-8; Benediktsdóttir et al., 2017, p. 193; Kovras et al., 2018, p. 181). According to Kovras et al. (2018), independent and impartial truth commissions are “tasked to investigate and document patterns of past human rights violations” (p. 174-5). While both nations sought to uncover the causes of the financial crisis, what each did with their findings could not be more different. 

Kovras et al. (2018) goes on to explain the difference between institutional and instrumental investigations, the former of which allows for the rebuilding of trust and the ability to protect institutions in the future (p. 179). Icelandic leaders, faced with public pressure to determine the cause of the crash, moved swiftly to announce their investigation, the first to do so in Europe (Benediktsdóttir et al., 2017, p. 193; Kovras et al., 2018, p. 179, 181). All secrecy laws were lifted to grant them access to the banks’ balance sheets and the commission was granted subpoena power to relevant parties, of which they recalled nearly 150 persons (Benediktsdóttir et al., 2017, p. 193; Kovras et al., 2018, p. 182). Ultimately, the SIC found that the moral hazards present within the banking system, allowing bankers to take excessively dangerous risks, were not properly mitigated by the government and its regulators (Árnason & Nordal, 2018, p. 125). Despite the government’s own culpability, the truth commission remained bipartisan, “highlighting the priority of reinstating the legitimacy of the political system” (Kovras et al., 2018, p. 182). Critically, a special prosecutor was appointed and filed charges against the CEOs of the three major banks, two of whom have been convicted and are serving jail time, while the other still has his case pending (Benediktsdóttir et al., 2017, p. 193, 230). Ultimately, although the Icelandic public lost faith in the Independence Party, electing a left-wing party to replace them (Kovras et al., 2018, p. 182-3), their faith in both the financial and the governmental systems remained intact. 

While the United States also commissioned an inquiry, the FCIC, they did not move as swiftly as Iceland. It was not until well after the inauguration of President Obama, a year after the start of the crisis, that the commission came together (Financial Crisis Inquiry Commission, 2011, p. xi). This is in line with Kovras et al.’s (2018) observations regarding instrumental investigations, which are formed not to reinstate trust, but rather to create favorable narratives (p. 179). According to Braitwaithe (2022), Wall Street executives pushed the narrative that these market forces “were difficult for anyone to control” and the Clinton-Bush-Obama era political elite “did not want to be blamed for allowing a wave of macrocriminality,” so they adopted Wall Street’s story (p. 518). This was despite the commission finding that there was immense hubris in the ability of these banks’ risk management and that the public saw the top management teams as culpable (Fox, 2018, p. 79). The commission also revealed that many institutions reported fraudulent numbers in order to receive government assistance during the crisis, and that corporate donations to members of Congress increased a firm’s bailout by nearly 20% (Vukovic, 2021, p. 217-8, 236). According to Mellor (2010), firms used bailout funds to pay millions in executive bonuses, and lobbied against President Obama’s cap on bonuses at $500,000 (p. 129-30). Eventually, the banks were hit with fines totaling a bit more than $3.76 billion (US SEC, 2016), approximately 1% of the funds they received. In a 2016 interview, the Chair of the FCIC, Phil Angelides, said there should have been “a serious… effort by prosecutors,” but, “if you don’t look, you won’t find” (Carter, 2016). To this day, no executive has been prosecuted as a result of the financial crisis (Angelides, 2018). 

Aftermath Actions & Crisis Prevention

While the bailouts were a defining moment of both nations’ financial crisis, they were not the sole action that have caused the two nations to diverge. Similarly to the handling of the crisis commissions, the safeguards that are imposed ex post are critical to restoring trust and mitigating any future risk of financial crisis. While both nations saw regime changes immediately following the crash (Chwieroth & Walter, 2017, p. 1123), the actions taken by both were remarkably similar. The United States enacted the Dodd-Frank Wall Street Reform and Consumer Protection Act (Greenberger, 2019, p. 208; Maciuch, 2018, p. 263; Schoen, 2017, p. 827), and, in addition to nationalizing the banks, Iceland instituted capital controls to “stem the ongoing flight and continuous drop in the value” of the króna (sometimes krónur - Icelandic currency) (Benediktsdóttir et al., 2017, p. 236). It was not until 2015 that the financial sector met government-imposed stability conditions in order to relinquish their payouts to shareholders, which amounted to only about 20% of the total assets of the estates (Benediktsdóttir et al., 2017, p. 269).

The Dodd-Frank Act in the United States also sought to mitigate any future crisis with the stated goal of “improving accountability and transparency” in the financial system and ending the quasi-policy of “too big to fail” (Greenberger, 2019, p. 208; Jarque & Price, 2015, p. 78; Sjostrom, Jr., 2015, p. 820). However, since its enactment, these policies have yet to be tested. Furthermore, parts of the Act, particularly the Orderly Liquidation Authority, or indeed, the entire Act itself, has been criticized for “institutionalizing” bailouts and doing nothing to reform the moral hazard of bank executives expecting a bailout, despite the Act’s intention to never use taxpayer funds to bail out insolvent banks (Greenberger, 2019, p. 211-2; Jarque & Price, 2015, p. 81-2; Maciuch, 2018, p. 270; Schoen, 2017, p. 827). Critically, under President Trump, regulations of bank scrutiny have been relaxed, and banks with less than $10 billion in assets have been granted the authority to trade stocks with depositors’ money (CQ Almanac, 2017). Seventeen Democrats joined Republicans in voting for the Dodd revision, and it was found that “for every $100,000 that Democratic representatives received” from financial lobbies, they were 13.9% more likely to break their party line (Greenberger, 2019, p. 261). Ultimately, however, there has been no movement to address the financial engineering that caused the financial crisis in the first place, and now, 37% of global financial institutions are considered “highly leveraged,” 5% more than that on the eve of the financial crisis. In that same time, subprime mortgage securities are on the rise (Greenberger, 2019, p. 285, 287). “If any lessons had been learned” from the financial crisis, according to Mellor (2010), “they were rapidly being forgotten” (p. 130). 

…

Comparing Iceland and the United States may seem like comparing apples and oranges; the United States has ten times the population of the tiny Nordic island. However, this is quite the contrary. Both nations’ average income was strikingly similar at the time of the crisis, as was their per capita GDP. And by the time of the crash, Iceland faced an even larger crisis than the US in terms of its relative size to GDP (Benediktsdóttir et al., 2017, p. 194). Even facing that, their response has poised their nation to eliminate the mere consideration of another financial crisis, while the United States’ response left not only the window cracked but the safe wide open for another crisis. However, after analyzing Iceland’s succinct and effective response to their financial crisis, one can only hope that the United States learned to be systemic instead of idiosyncratic, institutional instead of instrumental, and commit to everlasting change than to allow a return to normal.

Global Enforcement

In 1970, Chile inaugurated the first freely elected Socialist president in the world (Tedeschi, Brown, & Fee, 2003, p. 2013). Discontent had been growing in Chile for over a decade at this point, and the newly elected Salvador Allende succeeded the center-left Allesandri Frei (Fleming, 1973, p. 599; Gedicks, 1973, p. 12). While Frei’s center-left government had already begun to toy with the “Chileanization” of industry, Allende earmarked multiple features of the Chilean economy to be fully socialized. The United States had multiple stakes in Chilean industry, and in the larger context of the Cold War and its crusade against communism, the federal government took multiple steps to aid in the military overthrow of Allende (Davis, 1985, p. 320; Domínguez, 1999, p. 42; Gedicks, 1973, p. 20; United States Congress, 1975, p. 10). Due to Allende’s socialist policies which financially harmed United States industry and its overall threat as a viable alternative to capitalist hegemony, the United States was forced to intervene. 

Foreign Nationalization

Chile had already begun to take on a controlling role in their prominent copper mining industry by the time that Salvador Allende was elected. These mines, owned by American companies, had been operating in Chile since the early twentieth century (Fleming, 1973, p. 595). Before Chile elected Allende, a nationalistic movement started to grow in regards to the Chilean mines. Since their inception, the mines had already “siphoned abroad” $10.8 billion from Chilean resources, more than Chile’s national patrimony of $10.5 billion (Fleming, 1973, p. 595). Thus, President Frei proceeded with a $500 million plan to purchase controlling shares of the mines (Gedicks, 1973, p. 12-3). However, the “Chileanization” of the copper industry fell short of the political demands of the populous, so, when Salvador Allende was elected, the Chilean Congress “voted unanimously” to nationalize Kennecott, Anaconda, and Cerro (Gedicks, 1973, p. 1). 

Interestingly, the United States had dealt with myriad nationalizations of foreign industry diplomatically. For instance, Mexico nationalized U.S. oil holdings in 1938, which was not met with a violent overthrow of its government (Walli, 1976, p. 43). However, where Chile differs from its Mexican counterpart is the reaction from the United States government and the copper industry when Allende refused to remunerate as a result of its expropriation. The arguments for or against remuneration get convoluted and are marked by global legal economic jargon, but, simply, Allende argued that the companies have already stolen from Chile more than Chile would ever have to pay (Gedicks, 1973, p. 611). Thus, while the nationalization of Chilean copper would not ultimately cause the United States to take such an extreme stance against the Allende government, it certainly set the pretense for their subsequent heavy handedness. 

Economic Punishment

Since the end of World War II, the United States has sought to open the world to economic growth via free trade. The Bretton Woods agreement in 1944 marked the creation of the International Monetary Fund, World Bank, and World Trade Organization (Center for Strategic & International Studies, 2018). However, these systems were designed to bolster the American capitalist economy by “protecting its business interests, seeking commercial and investment opportunities, and raw materials abroad” (Walli, 1976, p. 43). In fact, President Truman in 1947 admitted “The whole world should adopt the American system… The American system can survive in America only if it becomes a world system” (Walli, 1976, p. 43). This ideology is present throughout the Cold War and especially with the United States’ relationship with Chile immediately before and during Allende’s presidency, and extreme economic actions were taken against Chile as a result of their divergence from this American-centric hegemony. 

The lawsuits brought against Chile on behalf of the US-based copper industries served multiple purposes. First, the companies sought to sow distrust in the worldwide market in Chile as a reliable supplier (Fleming, 1973, p. 629; Gedicks, 1973, p. 19). Thus, the flow of exports was severely hampered, and, with copper being its primary export, by 1972 Chile was hardly able to keep their industry running (US Congress, 1975, p. 33). In 1972, Allende told his Congress, “The power of [multinational] corporations is so great that it transcends all borders… We are facing a… collision between the great… corporations and sovereign states… [But the corporations] do not have to answer to anyone and are not accountable to… any parliament” (Davis, 1985, p. 124). 

Second, the United States sought to weaponize its financial aid via the World Bank and International Monetary Fund. The lawsuits brought against Chile resulted in the “embargo of Chilean funds in New York bank accounts” (Gedicks, 1973, p. 19). In addition, the United States admonished Chile as a responsible creditee to creditor nations, and Chile’s funding from foreign nations shrunk by 90% (US Congress, 1975, p. 32). Simply, the United States wanted to put the “squeeze” on Chile and demonstrate to them the “political realities of life” (Gedicks, 1973, p. 20; US Congress, 1975, p. 28). According to Walli (1976), economic aid was the US’ diplomacy of choice during the Cold War to open the door to free trade, essentially blackmailing a tottering nation into supporting American liberal capitalism (p. 44-5). Any nation that refused or toyed with nationalization of its industry would see its aid rescinded and would be labeled as a rogue nation (Hoff, 2001, p. 382). In this, Allende was remarkably observant: “We are the victims of a new form of imperialism, one that is more subtle, more cunning, and for that reason, more terrifyingly effective… External pressure… has tried to cut us off from the world, to strangle our economy… The financial-economic blockade against us… is oblique, subterranean, and indirect… We find ourselves facing forces operating in the twilight, without a flag, with powerful weapons… We are the victims of almost imperceptible actions, generally disguised in phrases and declarations that extol respect for the sovereignty and dignity of our country” (Davis, 1985, p. 124-5). 

Sending a Message

Ultimately, however, the economic embargo could not tamp out Allende’s socialist flame. While the economic toll that Chile had taken on US industry and its interests in the western hemisphere were concerning, the US’ reactionary embargo was simply a means to an end: the US could not have a “viable alternative” to its capitalist hegemony emerge and threaten its influence in the worldwide economy (Gedicks, 1973, p. 20; US Congress, 1975, p. 27). Thus, throughout the Cold War, the United States launched a “holy war” against those deemed a threat to their capitalist influence (Walli, 1976, p. 43). While aid was used as an incentive to play the US’ game, more heavy handed tactics - including the fomenting of a coup d’etat was the stick to aid’s carrot (Walli, 1976, 44-5). 

The extreme tactics of a military overthrow were deemed justified for a number of reasons. According to Gedicks (1973), the United States and its industry was “gravely concerned” that the Chilean model could entice other nations to socialize their holdings (p. 2). Thus, the Americans were concerned that their business would be “greatly impaired” “without control over [natural re]sources” (Gedicks, 1973, p. 16). Thus, as early as 1970, before Allende’s inauguration, President Nixon “express[ly] request[ed]” that the CIA “foment a military coup in Chile” (US Congress, 1975, p. 2). While the United States ultimately did not send troops nor kill Allende directly, the US had prioritized “destabilization… with a vengeance” (Davis, 1985, p. 328). Hoff (2001) found that “American exceptionalism” allowed leaders to act with “impunity” in the name of “liberal capitalist internationalism” (p. 389-90), and thus, the American leadership did so. 

During the Cold War, the United States had been seriously traumatized by its tenuous relationship with Cuba, and thus, all their future relationships with anti-capitalist nations were “derived principally from ideological fears” (Domínguez, 1999, p. 41-2). In fact, Henry Kissinger, Secretary of State under Nixon, said “I do not see why we need to stand by and watch a country go Communist because of the irresponsibility of its people” (Walli, 1976, p. 45). This ideology was wrought by the “self-righteous American insistence that capitalism inevitably leads to democracy” (Hoff, 2001, p. 381-2). While the United States maintained its narrative that it did not promote the military coup (Davis, 1985, p. 309-10), they nevertheless had “the desire to frustrate Allende’s experiment in the Western Hemisphere and thus limit its attractiveness as a model” (US Congress, 1975, p. 27). Ultimately, “the means chosen to address those fears were disproportionate and inappropriate” (Domínguez, 1999, p. 42)

…

The actions taken by the United States government as a result of Allende’s nationalization of its copper industry and its commitment to socialist practices moved from economic embargo to covert CIA action to foment a military coup d’etat. In the backdrop of the Cold War and the Vietnam War, the United States utilized interventionist policies throughout the world. While the United States’ ideological commitment to stomping out communism was part of their holy war against the Soviet Union, this could not have been a result without their initial determination to coerce the world into liberal capitalism. This is evidenced by the myriad actions throughout the Cold War and their antithetical policies against anti-capitalist nations. It is revealing, then, that foreign policy throughout the Cold War and still today is highly influenced by the determination to promote capitalism around the world.

Conclusion

There are myriad examples given of how neoliberalism is enforced and perpetuated that were presented above. They stemmed from the personal with the bootstrap myth, the corporate malfeasance present in everyday businesses, a dedication to the current economic system, and the enforcement of the American system around the world. While only four examples were given in this research, there are multiple examples of the way that the practitioners of the American political economy enforce and perpetuate neoliberal capitalism. By forcing the ideology into the individual’s very psyche, by entrapping them in a system that suppresses the amount of reward for their labor, by choosing to trade recurrent crises for profit, and by condemning any oppositional system, the practitioners of this American system are open to become profiteers. While the American government remains deeply entrenched in the economy’s pocket, and not the other way around, nothing will change. This is all of our lives - from you to me to us to them - who are at the detriment of this system. While much is still to be learned about alternate political economic systems, they mustn’t be disregarded simply because they no longer perpetuate the current system, but rather, they must be allowed to attempt to flourish.