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The Brains of the Radical Right (Part 2)

August 11, 2018

privatization

This is a continuation of my previous post on historian Nancy MacLean’s Democracy in Chains: The Deep History of the Radical Right’s Stealth Plan for America, a study of the impact of economist James M. Buchanan’s theories on US public policy.

Ronald Reagan’s inauguration in January 1981 buoyed hopes that Buchanan’s theories might at last be implemented in the US, as had been done in Chile under a military dictatorship. A conservative resurgence seemed to be developing not just in the US but in Europe as well, where Margaret Thatcher was taking an axe to Britain’s welfare state and state-supported industries after becoming Prime Minister in 1979. Reagan had a huge margin in the 1980 election, and his choice for the general to lead the revolution as budget director, David Stockman, was an avid libertarian. The conceptual field had been plowed by conservative think-tanks like the Koch-funded Cato Institute and the Scaife- and Coors-funded Heritage Foundation and American Enterprise Institute, which provided ready sources of like-minded recruits to staff the new administration.

Stockman’s mandate was to radically reduce and restructure big federal programs to shrink the federal budget and the public sector in general–basic libertarian dogma. The ultimate goal would be privatization, and the Great White Whale of federal programs was Social Security. But Stockman soon realized, as he later wrote, that: “A true economic policy revolution…meant risky and mortal political combat with all the mass constituencies” which those programs had engendered, such as “Social Security recipients, veterans, farmers, educators, state and local officials, [and] the housing industry.” By 1982, he had concluded that the Reagan Revolution simply could not happen in “the world of democratic fact.” What happened instead was a massive tax cut without corresponding spending reductions which produced what was then the biggest peacetime deficit in US history. (Does all this sound surprisingly contemporary?)

Social Security survived, but the goal of killing it (or at least taking it private) lived on as well. Buchanan came to much the same conclusion as Stockman about the political impossibility of a direct assault on a program that had such broad support. His solution was to undermine political support with a divide-and-conquer strategy combined with a psyops operation against faith in its viability. He laid out much of his thinking in a 1983 paper published by the Cato Institute called “Social Security Survival: A Public Choice Perspective” in which he memorably labeled Social Security as a “Ponzi scheme”–a meme that remains viral in Republican circles.

The strategy was basically to split the American public into three groups. One would be those who were already or soon would be receiving benefits–they would be reassured their benefits would remain untouched by changes. The second would be those who were a decade or so away from becoming eligible; these would be told that for them to get benefits, there would have to be changes in the rules such as increasing their contributions and raising the eligibility age–changes that would make Social Security less attractive. The third group would be younger people new to the work force; these were to be convinced that it was doubtful the system would even survive long enough to benefit them and that they would be better off by putting their money in private investments. If the rules could be changed for them to opt out, then the demise of the system would become a self-fulfilling prophesy, because the system depends on near-universal participation. Buchanan made no mention of what had happened the year before in Chile, where an economic crisis had just wiped out retirement savings under the newly privatized social security system there.

Indeed, Buchanan’s prescription was partially adopted. In 1983, Reagan signed a law to amend the original legislation, gradually increasing the age for full benefits from 65 to 67 and making up to 50 percent of Social Security benefits taxable. (The taxable portion was increased to 85 percent in 1993). Moreover, for the last 50 years there has been a steady drumbeat of propaganda from the right aimed at dismantling the system. The pitch remains basically the same:  (a) Social Security is a Ponzi scheme that will run out of money in year X, (b) the return to the individual would be higher if invested in private stocks and bonds, (c) the system is unfair to the young and those with higher incomes, (d) the government has no right to take your earnings to fund Social Security when they could get higher yields elsewhere, and therefore (e) the system needs to be radically “reformed” in order to “save” it–albeit in a much changed and diminished form. This has become Republican gospel from Reagan to Gingrich to Bush to Paul Ryan.

That Social Security has survived is testament both to its enduring popularity and to the complexity of the problem. (For an analysis of the later, see here.) But the psyops have had the intended effect on the program’s credibility–especially among younger people who increasingly doubt they will ever get anything from it. However, the fact remains that in 2018 among elderly Social Security beneficiaries, 23% of married couples and about 43% of unmarried persons rely on Social Security for 90% or more of their income. At least one-third of US workers report that they have saved NOTHING for retirement, and more than half of them have put away less than $10,000! For 80 years, however, Social Security has successfully done what it was intended to do: provide the elderly and disabled a basic level of income, which for many would otherwise not exist. The case against it is fundamentally ideological, i.e., that the government should not be doing this because it requires a redistribution of private wealth.

Buchanan’s important role in propagating and providing intellectual respectability for such ideas also got a major boost in the early 80s, when Charles Koch decided to link his vast financial and organizational resources to Buchanan’s academic network.  George Mason University was then an undistinguished state-supported commuter college just outside of the DC Beltway in Fairfax, Virginia, but it had an ambitious president who was eager to get corporate money to build the school’s brand. He was able to lure Buchanan away from his Appalachian redoubt at Virginia Tech in 1983 with a stunning (by academic standards) salary and a promise of virtual autonomy as head of his Center for Study of Public Choice, which would be transferred and largely staffed with Buchanan’s faculty satellites from Blacksburg. GMU had already acquired in 1980 the Koch-financed Center for the Study of Market Practices established by economist Richard Fink at Rutgers as a seminary for the Austrian school of economics. (Fink later became executive vice-president of Koch Industries and, inter alia, chairman of the Charles G. Koch Charitable Foundation and director and co-founder of the Kochs’ Americans for Prosperity PAC.)

The synergy between Koch money and Buchanan’s academic network in the context of a Reagan administration soon transformed George Mason University into what one Wall Street Journal writer called “the Pentagon of conservative academia”. Just 15 miles from the White House, Buchanan’s program was perfectly positioned to supply consultants, interns, and staff to help implement the administration’s policies. GMU also acquired a struggling law school in Arlington, which with lavish private financial backing soon became the analog in legal circles to what Buchanan’s program was in economic ones–staking out legal arguments advocating for the superiority of unregulated corporate capitalism unfettered by government intervention. (The law school was renamed after Supreme Court Justice Antonin Scalia following his death.) Also in the mid-80s, GMU also acquired the Koch-financed Institute for Humane Studies–a kind of libertarian seminary for propagation of the faith which has since become a haven for climate-change deniers. Koch organizations reportedly have given the IHS an estimated $34 million between 1985 and 2015, while other conservative foundations have contributed at least an additional $20 million.

All of this heady activity reached a crescendo in October 1986 when Buchanan was awarded the Nobel Prize for economics. (On the politics of the Nobel economics prize and its slant toward free market theory, see this interview. For a skeptical contemporary view of the award, see here.) Becoming a Nobel laureate made Buchanan virtually unassailable at GMU, and the university administration was content–even eager–to let Buchanan do his thing without interference as long as the corporate money kept rolling in, which it did. Few seemed troubled by the increasingly tight nexus between Buchanan’s autonomous Center at a publicly-funded state university and the obviously partisan political activity that its programs supported. (It is ironic that Buchanan, who on principle did not believe in tax-supported education, spent virtually his entire academic career at state-supported public universities.)

If the Kochs and their allies in the privatization campaign were disappointed by the Reagan administration’s inability to deliver and–a decade later–in the failure of the Republican “Contract for America” led in Congress by Newt Gingrich, Dick Armey, and Phil Gramm, they found a long-game strategy in Buchanan’s ideas that might eventually succeed by changing the basic rules of the system. The strategy was to accomplish as much as possible through boring regulatory changes that attracted little or no attention from the press or the public. The more drastic changes would be repackaged as “reforms” that were presented as fiscally “unavoidable” but would inevitably lead to failure of the programs and the destruction of political support for them–the “starve the beast” approach. The targets would include not just Social Security and Medicare, but environmental regulations, the graduated income tax, public education, and even feminism. Eventually, the same strategy would be applied against Obamacare.

In 1997, Charles Koch made another $10 million investment in a new James Buchanan Center for Political Economy at GMU, which combined both Buchanan’s and Fink’s centers under one organization with Koch and Buchanan as co-chairs of the governing board. It was chartered as a non-profit, tax-deductible 501(c)(3) whose mission was “research, education, and outreach”. MacLean notes that most of the people who were brought in to do the Buchanan Center’s “outreach” were political operatives, not academics, who paid little heed to the restrictions inherent in its tax status, which required abstaining from partisan political activity. In May 1998, board member Wendy Lee Gramm (Senator Phil Gramm’s wife) sent out a fund-raising letter so blatantly in violation of the Center’s charter that it led to a blow-up within the university and eventually to a rift between Buchanan and Koch–basically over control, not philosophy.

Once it became clear that Koch was really totally in charge, Buchanan retired to his rural retreat. In 1999, the James Buchanan Center for Political Economy was replaced by the Mercatus Center, which remains effectively the tail that wags the GMU dog. On the Mercatus Center’s website, the History and Timeline page makes no mention either of the James Buchanan Center or of its predecessor, the Center for Study of Public Choice (nor does it mention Charles Koch). But Koch had gotten what he needed from Buchanan: a respectable economic philosophy to justify private greed and a workable strategy for achieving his goals. When Buchanan died in 2013, neither Koch nor Fink attended his memorial service. In the end, the Nobel prize winner was just “the help.”

If you’re looking for a good end-of-summer read on something that’s really important, buy a copy of Nancy MacLean’s Democracy in Chains.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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