Over the past half-century, U.S. political and economic policy has been shaped by two powerful ideological currents: neoliberalism and neoconservatism.
Neoliberalism, influenced by thinkers of the Mont Pelerin Society such as Friedrich Hayek and Milton Friedman, championed economic liberalization, lower tax rates, and competitive markets. It emerged amid the stagflation crisis of the 1970s that discredited post-war Keynesianism, becoming central to the reforms of Ronald Reagan and Margaret Thatcher before evolving into the “Third Way” centrism of Bill Clinton, who paired market openness with balanced budgets.
At the same time, these economic reforms increasingly fused with neoconservatism: a doctrine advocating assertive foreign policy, the promotion of democracy abroad, and American strategic dominance through military power.
Yet viewed through a libertarian lens (or through Friedman’s own principles), the compatibility between these projects had to crumble. Neoliberalism depended on fiscal discipline, limited state power, and market choice; neoconservatism prioritized military expansion, security states, and ideological interventionism.
This article traces their uneasy alliance from the 1980s to today, showing how neoconservatism gradually derailed neoliberalism’s promise…and why the two ultimately cannot coexist.
What even is Neoliberalism?
“Neoliberalism” is a notoriously elusive term, more often used as an academic pejorative than as a coherent doctrine. Sociologist Loïc Wacquant, for example, frames it as a system of state control combining punitive welfare reform (“workfare”) with mass incarceration (“prisonfare”) to discipline the urban poor. In popular debate, the label is applied so broadly that it can encompass everything from the tax cuts of Ronald Reagan to the fiscal surpluses of Bill Clinton, from the economic reforms of Augusto Pinochet to European competition policy. In short, anything associated with markets is often casually described as “neoliberal.”
For the purposes of this article, however, neoliberalism is defined more precisely through the ideas of Milton Friedman and other thinkers associated with the Mont Pelerin Society. In this sense, neoliberalism refers to a policy-oriented ideology advocating free-market capitalism, deregulation, free trade, selective privatization, and lower…but not zero…government spending to foster competition.
Crucially, neoliberalism does not imply the absence of government. As Friedman argued in Capitalism and Freedom, government remains necessary as “a means whereby we can modify the rules, mediate differences among us on the meaning of the rules, and enforce compliance.” Rather than eliminating the state, neoliberalism seeks to redefine its role: not as a central planner of economic activity, but as a referee that establishes and enforces the rules within which markets operate.
This distinction separates neoliberalism from classical laissez-faire capitalism. Whereas strict laissez-faire doctrine calls for minimal or nonexistent government intervention, neoliberalism accepts a limited but active state that shapes market institutions while avoiding direct economic control.
Reaganomics and its limits
Building on deregulation that began under Jimmy Carter, the administration of Ronald Reagan implemented sweeping tax reforms and regulatory rollbacks intended to revive economic growth after the stagflation crisis of the 1970s. Marginal tax rates were sharply reduced, markets were liberalized, and inflation was brought under control through tight monetary policy.
Reaganomics delivered strong macroeconomic growth, averaging roughly 3.5% annually after the 1982 recession. Yet its effects on low- and middle-income households were more mixed. Expansion of the Earned Income Tax Credit shielded many from income tax, but payroll taxes rose and the overall gains were uneven: after-tax income for the top 1% rose dramatically, while growth for the bottom quintile was far smaller.
Notably, Milton Friedman had proposed a negative income tax as a replacement for the welfare state (an approach designed to provide a simple safety net while preserving market incentives). Instead, policymakers relied on program cuts and block grants which, without sufficient tax relief, often left the working poor worse off.
Meanwhile, although non-military spending fell during the 1980s, federal debt still tripled to $2.6 trillion. If neoliberal reforms emphasized fiscal discipline and limited government, where did this explosion in spending come from? The answer lies in the rising influence of neoconservatism.
Neoconservatism’s Interference
Initially domestic-focused on critique of failed anti-poverty programs via The Public Interest journal, neoconservatism embraced “traditional democratic values,” cultural conservatism, and anti-communism. “Godfather of the movement” Bill Kristol famously described neoconservatism not as a strict ideology but as a “persuasion,” combining skepticism toward social engineering with a belief that liberal democracy required moral and political strength.
By the late Cold War, this perspective increasingly fused with hawkish foreign policy, emphasizing American power and the global promotion of democracy.
By the 1980s, this perspective fused with Reagan-era economic liberalization. While neoliberal reforms cut taxes, deregulated markets, and reduced non-defense spending, neoconservatives pushed for an expansion of military budgets and a morally assertive foreign policy.
Defense spending roughly doubled during the decade, overwhelming efforts at fiscal discipline and overseeing a pattern of state expansion…both abroad and at home.
The 1990s post-Cold War era briefly showcased neoliberal successes. Balanced budgets under Bill Clinton, welfare reform, and global trade liberalization demonstrated the potential of disciplined, market-oriented governance.
Yet neoconservative interventionism persisted in the Balkans and elsewhere, laying the foundation for a permanent foreign-policy apparatus. Simultaneously, domestic coercive policies, such as the War on Drugs and rising incarceration, continued to expand state power in ways inconsistent with neoliberal principles of choice and minimal coercion.
The 2000s marked the apex of this trajectory. After the September 11 attacks, the administration of George W. Bush launched the War on Terror, including the invasion of Iraq, and dramatically expanded domestic surveillance through the Patriot Act. These policies added trillions to the national debt and institutionalized the security state, reinforcing the pattern of growth in state power at the expense of the disciplined, market-oriented ethos of neoliberalism.
The Full Circle
Decades of accumulated military and domestic state concentration reached its height under Trump. Despite having campaigned on ending foreign wars and rolling back globalist policies, his second term has only seen interventions continue in Venezuela, Iran, and other regions.
Domestically, immigration enforcement intensified, deportations increased, and ICE operations expanded – and started impeding civil liberties, showing the persistent growth of state authority over individual liberty. Economically, neoliberal principles were actively reversed: tariffs, industrial policy, and selective state intervention undermined market freedom and fiscal discipline.
In effect, the alliance forged under Reagan…originally an uneasy partnership between market-oriented neoliberalism and assertive neoconservatism…has collapsed under the weight of its contradiction.
The neoliberal commitment to limited state power, fiscal restraint, and individual choice has been subordinated to a coercive, interventionist model of governance. Neoconservatism now dominates not only the military and security apparatus but also shapes domestic and economic policy; the fusion was a failed experiment that ultimately undermined the principles it was meant to complement.
