Debunking Common Misconceptions About America's Economic History

A persistent narrative in American political discourse, voiced by figures across the ideological spectrum, claims that the United States once thrived as a manufacturing powerhouse in the mid-20th century. According to this story, the nation enjoyed widespread middle-class prosperity through factory jobs before globalization and neoliberal policies took hold in the 1990s and 2000s. Key events cited include trade agreements like NAFTA and China joining the World Trade Organization, which allegedly led to factory closures, job losses, and growing inequality that fueled political backlash.

However, this popular account is largely flawed and historically inaccurate in many respects.

Firstly, the notion of a period dominated by unfettered market liberalism and globalization does not align with the facts. Contrary to this belief, top marginal tax rates were higher in 2016 compared to 1992. Federal spending on social welfare programs increased, reflecting a more progressive government approach favoring lower-income groups. Additionally, regulatory frameworks largely expanded rather than contracted, and U.S. tariff rates remained mostly unchanged.

The years spanning from the Clinton administration through the Obama presidency were characterized not by laissez-faire globalism but by mainstream leadership attempting to balance economic growth with social support.

Secondly, the timeline presented by this narrative is misleading. While deindustrialization and wage stagnation are real phenomena, studies indicate these trends were most pronounced during the 1970s and 1980s, well before the globalization era commonly blamed.

Economic historian Noah Smith divides recent American economic history into three periods: the post-World War II boom from 1945 to 1973; a phase of oil shocks, productivity slowdown, and wage stagnation from 1973 to 1994; and a renewed period of productivity gains and wage growth from 1994 onward. Notably, median wages have increased since the implementation of NAFTA and the United States’ entry into the World Trade Organization.