Tag Archives: Milton Friedman

Libertarianism in Honduras

13 Oct

My friend Greg Grandin writes on Facebook:

One of the stranger fallouts from the 2009 Honduran coup has been the scheme hatched by an NYU economist, Paul Romer, along with free-market libertarians—including Milton Friedman’s grandson, Patri; you can’t make this shit up—to start a bunch of “year-zero” cities in the country, free-market utopias with their own laws, etc. It’s like Empire’s Workshop meets The Shock Doctrine meets Fordlandia (except Henry Ford at least had his year-zero city provide free health care). If they were to come to fruition, they would be little more than free-trade maquila zones, like the kind that run along the US-Mexican border, except more savage.

In any case, the plan has hit a snag in that a committee of the Honduran Supreme Court has declared them unconstitutional, though that ruling could be reversed by the full court. Recently, a lawyer who argued for their unconstitutionality was gunned down, joining the long list of decent people killed as a result of the US-endorsed coup.

By the way, related to the discussion Corey Robin had on his blog about whether Hayek’s and Friedman’s support for dictatorships were inherent to their thought or just situational, Patri Friedman has cleared that point up, saying, in relation to these kind of start-up cities, that “Democracy is the current industry standard political system, but unfortunately it is ill-suited for a libertarian state.” Peter Thiel, founder of Paypall and bankroller of FB and another supporter of the Honduran scheme, wrote: “Most importantly, I no longer believe that freedom and democracy are compatible.” Glad that particular contradiction has gotten resolved. Adelante.

We’re Going To Tax Their Ass Off!

30 Aug

This past Sunday, I appeared on Up With Chris Hayes, where I spoke briefly about the rise of austerity politics in the Democratic Party (begin video at 2:13). My comments were sparked by Bruce Bartlett’s terrific piece “‘Starve the Beast’: Origins and Development of a Budgetary Metaphor” in the Summer 2007 issue of The Independent Review. Barlett is a longtime observer of the Republican Party, from without and within. He was a staffer for Ron Paul and Jack Kemp, as well as a policy adviser to Ronald Reagan and a Treasury official under George HW Bush.  Now he’s a critic of the GOP, writing sharp commentary at the New York Times and the Financial Times. He and I have argued about conservatism before. When it comes to fiscal policy, however, he’s one of the savviest analysts of the GOP out there. What follows is an extended summary/riff on Bartlett’s piece and what I said on Hayes’s show: to understand how austerity works in (and for) the Democratic Party, you have to understand how it once worked for the Republicans. Long story short: not so well.

• • • • •

Growing up in the 1970s, I had an almost primal association to the GOP as the party of the thrifty and the flinty. Republicans were the grownups at the table, forever cautioning the children against taking that extra piece of cake. Averse to spending money the country didn’t have, they were as leery of deficits as they were of rhetoric. Plainspoken, economizing men of austerity: that was the GOP.

There was some truth to this picture, extending back several decades. Herbert Hoover helped send the Republican Party into twenty years of exile via his ill-timed effort to balance the budget with a hefty tax increase in 1932. One of the first things Eisenhower did upon coming into office was to insist on balancing the budget. Thanks to the Korean War, tax rates were high, and many Republicans wanted Eisenhower to reduce them. He refused, saying “we cannot afford to reduce taxes, reduce income, until we have in sight a program of expenditures that shows that the factors of income and of outgo will be balanced. Now that is just to my mind sheer necessity.” Upon taking office, both Nixon and Ford pursued similar paths, and resisted similar tax-cutting calls from their party.

But by the time I was in middle school, that picture of the Republican Party had become a faded sepia print. During the 1970s, a new breed of conservative had emerged, calling into question the wisdom of balanced budgets. Men like Jude Wanniski, Milton Friedman, and Alan Greenspan took the lead in challenging the frugal dispensation on the right, claiming that Republicans had become what Newt Gingrich would later call “tax collectors for the welfare state.”

Interestingly, the most salient arguments of these new conservatives were less economic than political, focusing on the enabling dynamic of shitfaced Democrats being shepherded to safety by their designated drivers in the Republican Party, only to resume their drunken revels the following evening.

Here’s Friedman writing in Policy Review in 1978:

By concentrating on the wrong thing, the deficit, instead of the right thing, total government spending, fiscal conservatives have been the unwitting handmaidens of the big spenders. The typical historical process is that the spenders put through laws which increase government spending. A deficit emerges. The fiscal conservatives scratch their heads and say, “My God, that’s terrible; we have got to do something about that deficit.” So they cooperate with the big spenders in getting taxes imposed. As soon as the new taxes are imposed and passed, the big spenders are off again, and there is another burst in government spending and another deficit.

What was the takeaway for Friedman? In Newsweek, he wrote: “I have concluded that the only effective way to restrain government spending is by limiting government’s explicit tax revenue—just as a limited income is the only effective restraint on any individual’s or family’s spending.”

Greenspan made a similar claim before the Senate Finance Committee in 1978: “Let us remember that the basic purpose of any tax cut program in today’s environment is to reduce the momentum of expenditure growth by restraining the amount of revenue available and trust that there is a political limit to deficit spending.”

But it was probably Wanniski, more than anyone, who best understood the political ramifications of a shift away from deficits and balanced budgets. With an almost Schmittian attention to what he called “the political tension in the marketplace of ideas,” Wanniski insisted that conservatives frame the Glaubenskrieg of the two parties as a struggle “between tax reduction and spending increases.” Without that stark choice, he wrote, the Republicans would forever play the part of the disappointed, disapproving, and ultimately powerless parent: “As long as Republicans have insisted upon balanced budgets, their influence as a party has shriveled, and budgets have been unbalanced.”

Bartlett shows how this argument—the so-called “starve the beast” theory—got support from a surprisingly diverse array of voices on the right: James Buchanan’s public choice theory, the Proposition 13 movement, and the Kemp-Roth tax proposals.

Politically, it came to a head under Ronald Reagan. Unlike his Republican predecessors, Reagan did not resist the calls for tax cuts first, balanced budgets later. Having internalized the new thinking of the 1970s, he declared in a February 1981 television address:

Over the past decades we’ve talked of curtailing government spending so that we can then lower the tax burden. Sometimes we’ve even taken a run at doing this. But there were always those who told us that taxes couldn’t be cut until spending was reduced. Well, you know, we can lecture our children about extravagance until we run out of voice and breath. Or we can cure their extravagance by simply reducing their allowance.

In his 1982 State of the Union Address, Reagan doubled down on that claim:

Higher taxes would not mean lower deficits….Raising taxes won’t balance the budget. It will encourage more Government spending and less private investment…So I will not ask you to try to balance the budget on the backs of the American taxpayers.

Defenders of the Reagan-the-pragmatist thesis (with its corollary complaint that post-Gipper, the GOP has become a nest of anti-tax ideologues, fanatics, and zealots) like to point out that despite his philosophical opposition to taxes, Reagan repeatedly raised taxes throughout his administration—11 times no less.

But what’s often forgotten in these laments is that Reagan came to regret his tax increases, declaring them a colossal mistake. After he left office, he wrote in the Wall Street Journal:

Despite the “assurances,” “promises,” “pledges” and “commitments” you are given, the spending cuts have a way of being forgotten or quietly lobbied out of future budgets. But the tax increases are as certain to come as, well, death and taxes.

In 1982, Congress wanted to raise taxes. It promised it would cut federal spending by $3 for every $1 in new taxes. Being a new kid in town, I agreed to this. Unfortunately, although the new taxes went into effect, Congress never cut spending by even a penny.

James Baker came to a similar conclusion as Reagan. And taking to the Senate floor in 1993, Republican Bob Packwood—another moderate GOP declinists like to hold up against the anti-tax fundamentalists of today—spoke out against Bill Clinton’s proposed tax hikes on the same grounds.

The history of the U.S. Government is that when we increased taxes, we spent them; we did not apply it to the deficit. It does not matter that the President has stated, “Let us have a deficit reduction trust fund.” We have never followed that; we instead spent it. I predict that if we raise these new taxes, we will spend them, also. We will not cut spending. We will spend it on new programs or expansion of existing programs.

Of course, Packwood was proven wrong. By the end of the Clinton presidency, there was a surplus, and Gore ran on a platform in 2000 of using that surplus to—among other things—help pay down the debt.

Despite the record of austerity the Democrats had accumulated during the 1990s, George W. Bush refused to hold onto the surplus. Having come to maturity—to the extent one can say Bush ever matured—in the party of Reagan, Friedman, and Wanniski, he thought it imperative that any money the government had be returned to the tax payers. Neither debt nor deficits mattered. Tussling with Alan Greenspan over whether the surplus should be saved or spent, Bush insisted that “Mr. Greenspan believes that money around Washington, D.C., will be spent on a single item—debt reduction. I think it will be spent on greater government. He has got greater faith in the appropriators than I do.”

So we got tax cuts. Big time. If Lyndon Johnson’s Great Society was an extension of the New Deal, George W. Bush’s tax cut was the fulfillment of Reaganism.

• • • • •

Almost all of the above—the quotations, chronology, and narrative—comes from Bartlett.  But here are my three takeaways.

First, as I already suggested, we need to rid ourselves of the notion that the anti-tax fundamentalists of today’s GOP are somehow new arrivals, alien imports from the land of Grover Norquist. The anti-tax position in the GOP has been gestating on the right for decades. Whatever temporary concessions Reagan might have made, the forward thrust of the party has been in the opposite direction for nearly a half-century. The assault on George HW Bush for renouncing his no tax pledge was not a dramatic turning point; it was the consummation of a tendency decades in the making.

Second, the “starve the beast” argument sits uneasily with the basic claim of supply-side economics: that tax reductions will spur growth and generate revenues, which will pay not only for the tax cuts but also for other expenditures, ultimately leading to a balanced budget. The two arguments don’t contradict each other—indeed, both are designed to lend support for tax cuts—but they press in different directions: towards a balanced budget in the case of supply side, toward shrinking government in the case of starve the beast. The Republicans, of course, haven’t been terribly good at the former, but they haven’t been terribly bad at the latter. Today, the ratio of public-sector employees to the overall population is the lowest it’s been since 1968. That, of course, isn’t the only measure of the size of government, but it’s a pretty damn good one.

Third, though Bartlett’s piece is about the GOP, it’s hard not to see how the Democrats have come to play the same role in the contemporary political order that Republicans once played under the New Deal.

Starting with Walter Mondale’s famous pledge in 1984 to raise taxes in order to bring down the deficit—one of Barlett’s footnotes reveals this delicious and disturbing anecdote: just after announcing his tax pledge at the DNC convention to wild applause, Mondale turned to Dan Rostenkowski and said, “Look at ‘em. We’re going to tax their ass off.”—Democrats have become the party of austerity. (Doug Henwood, Josh Freeman, and David Harvey have shown that that process actually began in 1975, during the New York City Fiscal Crisis, when Wall Street Democrats successfully pushed for drastic cuts in government spending. But it was the Mondale campaign that crystallized the shift at the national level.)

[Mondale's pledge is at 1:25, and check out a very youthful Rich Trumka at 1:38.]

Like Republicans of yore, the Democrats have repeatedly sought to reduce the debt and deficits, only to find themselves held hostage to the other side’s designs of depriving the welfare state of much needed cash.

Consider the two major presidential cycles of the last three decades: Reagan/Bush-Clinton and Bush-Obama.

During the 1980s, the Republicans cut taxes and ran up huge deficits. Then Bill Clinton came into office and announced his intention to reduce deficits. Anxious to appease Robert Rubin and the bond market, he abandoned whatever pretense of a progressive economic agenda he had set out during the campaign. He and the Democrats raised taxes and allowed government spending to decline dramatically as a percentage of GDP. By the end of his second term, Clinton had managed to generate a surplus—with the explicit purpose of not only reducing the debt but also shoring up Social Security—only to have the Bush White House squander that surplus through massive tax cuts and increased military spending.

When Barack Obama assumed office in 2008, he faced a similar conundrum as Clinton. The Bush Republicans had run up massive deficits and debt. Though the financial crisis (and his overwhelming victory) seemed to give Obama the warrant to spend—remember when we were all Keynesians again?—he was constrained by congressional Republicans and conservative elements in his own party, including the Wall Streeters who had been among his earliest supporters and happened to have a disproportionate influence in the White House. All of these forces seemed to worry more about the deficit than they did about the recession. The result, of course, was a much smaller stimulus package than many progressives had hoped for.

Then came the health care bill, which also has to be understood in the context of—indeed cannot be separated from—the politics of deficits and debt reduction. Throughout the health care negotiations, Obama took great pains to stress that his bill would not increase the deficit (CBO scores became as important to the national conversation as health care itself). Incredibly, this was an entirely Democratic, and self-imposed, constraint, which made the passage of health care reform more difficult than it might have been. As Jonathan Chait pointed out in 2010:

“Paygo” was a reform imposed by the 1990 budget agreement that required Congress to offset the cost of any new entitlement program or tax cuts with entitlement cuts or tax hikes. It was a significant factor in the decline of the deficit through the 1990s. Republicans hated it because it required them to offset the cost of tax cuts with either spending cuts or increases in other taxes, thereby making the trade-offs of tax cuts explicit. When they took control of Congress in 2001, Republicans ended the Paygo rule, which allowed them to pass a series of tax cuts along with a Medicare prescription drug benefit without any offsetting measures. The structural deficit exploded.

When Democrats recaptured Congress, they re-imposed pay-go rules, leaving an exception for extension of the Bush tax cuts for income under $250,000. That’s one reason why the Affordable Care Act had to be offset with hundreds of billions of dollars in politically-painful Medicare cuts, rather than financed solely through borrowing like the Medicare prescription drug law. Naturally, this made the Affordable Care Act much harder to pass through Congress as well as less popular — bills that hide their cost pass more quickly and with less complaint than bills that make make explicit who is going to pay for their costs.

Just as the White House and Congress were wrapping up their negotiations on the health care bill in the early months of 2010, Obama announced that the great challenge of the age was debt reduction. Though it’s often argued that Obama was pushed into that position by the Republican takeover of the House in November 2010, the fact is that he created the Bowles-Simpson Commission in February 2010, with the declared purpose of balancing the budget by 2015 and reducing the debt. The committee’s membership, chosen by Obama, included on the Democratic side deficit hawks like Max Baucus and on the Republican side…Paul Ryan.

At every step, then, of the two major initiatives of his administration—the stimulus and health care bills—Obama shouldered the load of debt and deficits. Whether that was by default or design remains the subject of much debate. But what’s not in dispute is that the debt has become the Democrats’ burden and/or vocation, which the Republicans are free to flout at will.

This became especially clear during the debt-ceiling crisis of 2011 and since. Once the Republicans began to threaten a default in the spring of 2011, Obama made one concession after another in a desperate attempt to make a deal. He offered to cut Social Security benefits, raise the Medicare eligibility age to 67, increase premiums, and more. Thankfully, GOP intransigence saved those proposals from becoming part of the deal.

The final deal, announced at the end of July 2011, included $1 trillion in cuts, divided evenly between defense and non-defense spending. There would be no tax increase. Instead, the White House tellingly emphasized that the cuts would “reduce non-defense discretionary spending to its lowest level since Dwight Eisenhower was President.” The deal also created a bipartisan congressional super committee tasked with coming up with an additional $1.5 trillion in savings. If the committee failed, an automatic process of savings measures would be triggered, which would include tax increases and spending cuts, with Social Security, Medicaid, and a few other programs exempted from the cuts.

Since the announcement of that deal, we’ve seen two developments. First, the congressional super committee tried—and failed—to come to an agreement. At each phase in the negotiations, which ended in November, the Democrats played the responsible adult, the Republicans the wild child. The Democrats came in with a proposal to raise taxes by $1.3 trillion and cut spending by $1.7 trillion (including cuts to Medicare and Medicaid). The Republican response: $2.2 trillion in cuts (not much more than the Democrats) and no tax increases. By the end of the negotiations, the Democrats had reduced their tax increase proposal to $400 billion and were offering nearly a $1 trillion in spending cuts; the Republicans tendered $640 billion in spending cuts and $3 billion in tax increases. In other words, not only were the Democrats promising to cut far more than were the Republicans, but they also promised to reduce the debt overwhelmingly through spending cuts rather than tax increases.

Second, now that that the super committee has failed, the GOP has predictably begun to balk at the defense cuts mandated by the deal. (I say predictably because just after the deal was announced, I got into a heated argument with a political scientist over that very issue. Where he was elated by the defense cuts, I warned that the Republicans would almost certainly renege on them.) Throughout this past summer, the GOP promised to make the so-called sequester a major issue in the election, and the 2012 Republican Party platform (see page 40) enshrines their opposition to it:

Sequestration—which is severe, automatic, across-the-board cuts in defense spending over the next decade—of the nation’s military budget would be a disaster for national security, imperiling the safety of our servicemen and women, accelerating the decline of our nation’s defense industrial base, and resulting in the layoff of more than 1 million skilled workers. Opposition to sequester is bipartisan; even the current Secretary of Defense has said the cuts will be “devastating” to America’s military. Yet the current President supported sequestration, signed it into law, and has threatened to veto Republican efforts to prevent it. If he allows an additional half trillion dollars to be cut from the defense budget, America will be left with the smallest ground force since 1940,the smallest number of ships since 1915, and the smallest Air Force in its history—at a time when our Nation faces a growing range of threats to our national security and a struggling economy that can ill afford to lose 1.5 million defense-related jobs.

So here we are, entering a campaign with Obama begging the media to recognize him and the Democrats as the party of austerity—for being willing to make difficult and deep cuts to Medicare and Social Security—and Republicans happily calling for a constitutional amendment requiring congressional super majorities for tax increases (see page 4).

• • • • •

Ironically, it was during the heyday of the New Deal that we first got a glimpse of the way we live now—from none other than John Kenneth Galbraith. As Bartlett shows, when Galbraith learned of Kennedy’s plans for a large tax cut in 1962, he shrewdly observed in his diary that “lower tax revenues will become a ceiling on spending.” Though the economics of the tax cut were impeccably Keynesian, Galbraith was far more concerned about the politics, which he thought were dangerous. As he explained in his testimony to Congress in 1965:

I was never as enthusiastic as many of my fellow economists over the tax reductions of last year. The case for it as an isolated action was undoubtedly good. But there was danger that conservatives, once introduced to the delights of tax reduction, would like it too much. Tax reduction would then become a substitute for increased outlays on urgent social needs. We would have a new and reactionary form of Keynesianism with which to contend.

What Galbraith could not have foreseen—ensconced in the New Deal consensus as he was—was that that the real ceiling on social spending would be set not merely by the Republicans but also, and perhaps more fatally, by the Democrats.

Once upon a time Republicans were tax collectors for the welfare state. Now Democrats are the austerians of reactionary Keynesianism.

• • • • •

This post has been cross-posted at Crooked Timber of Humanity, where I am now also blogging.

Update (3 pm)

Digby has a great follow-up to this post, which includes this lengthy quote from an interview Obama just gave to Time‘s Michael Scherer.

My message to Democrats is the same message I’ve got to Republicans and independents, and that is, I want a balanced approach to deficit reduction that combines additional revenue, particularly from folks like me who can afford it, with prudent cuts on both the discretionary side and the mandatory side but that still allows us to make investments in the things we need to grow.

And that means I’m prepared to look at reforms in Medicaid. I’m prepared to look at smart reforms on Medicare. But there are things I won’t do, and this is part of the debate we’re having in this election. I do not think it is a good idea to set up Medicare as a voucher system in which seniors are spending up to $6,000 more out of pocket. That was the original proposal Congressman Ryan put forward. And there is still a strong impulse I think among some Republicans for that kind of approach.

I’m not going to slash Medicaid to the point where disabled kids or seniors who are in nursing homes are basically uncared for. We’re not going to violate the basic bargain that Social Security represents.

Now, the good news is, if you’re willing to raise taxes on millionaires and billionaires, then you can make modest reforms on entitlements, reduce some additional discretionary spending, achieve deficit reduction and still preserve Social Security and Medicare and Medicaid in ways that people can count on. The only reason that you would have to go further than that is if there’s no revenue whatsoever. And that’s a major argument that we’re having with the Republicans.

As Digby observes:

Well hell. I’m sure glad he isn’t willing to cut Medicaid to where the disabled aren’t “basically” cared for. And, you know, it’s good that he’s not going to violate the “basic bargain” that social security “represents.” Big relief.

Vote Obama/Biden 2012 — We won’t cut your benefits quite as much as the other guys.

Update (August 31, 12 pm)

Two follow-up posts you should check out.

Alex Gourevitch offers a fascinating take on the incoherence of the Democrats’ austerian position:

Now, the Democratic Party is a mere pastiche without purpose….With no welfarist project, maintained by a contingent set of historical forces, what is left? The project of responsible government, of taxing mainly for the purpose of balancing budgets….Even the Buffet Rule is not so much an invocation of a principle of social justice as it is an acknowledgement of indecency in the tax code. Only the party of Romney-Ryan can make that elemental act Mugwumpery look like more than what it is – an empty, election year gesture.

David Dayen drives home the political costs of the austerian position:

The fact that you can draw a line in inverse proportion between what party embraces austerity and what party has the dominant position in the politics of the age should tell you what you need to know about its importance. By and large, we saw a liberal era in the 1950s and 1960s (regardless of what party actually ruled) followed by a conservative era in the 1980s that stretches to this day. And the factor of austerity politics plays a big role in that.

Over time, Republicans stopped trying to be the responsible “tax collectors for the welfare state,” and started becoming the starve-the-beast Republicans we know now. These theories are flawed – cutting taxes does not, actually, lead to cutting spending, at least not when Republicans are in office – but politically they force the other side into an extremely disadvantageous position.

Update (August 31, 8:30 pm)

Thomas Nephew alerts me to the fact that today’s Democrat and liberal actually embraces the identity of being an Eisenhower Republican. I did not know that.

Viña del Mar: A Veritable International of the Free-Market Counterrevolution

17 Jul

This is the second in a two-part post.  Part 1 is here.

• • • • •

The 1981 Mont Pelerin Society (MPS) meeting at Viña del Mar was “one of the largest and most successful regional meetings” (p. 1) the MPS had ever held, claimed Eric Brodin, author of an eye-opening report for the MPS newsletter.

Two hundred and thirty men and women from 23 countries attended, making it a veritable International of the free-market counterrevolution. It featured such luminaries, as I reported, as James Buchanan, Gordon Tullock, Milton and Rose Friedman, and Reed Irvine. (For a complete list of attendees, which included higher-ups in the Pinochet regime, corporate heads and bankers, and US officials, see pp. 16ff of this pdf of archival material from the Hoover Institution).

The inevitable backdrop to the Viña conference was the bad rap “the often maligned land of Chile” was getting in the international media. The conference provided its participants with an opportunity “for becoming better acquainted with the land which has had such consistently bad and misrepresenting press coverage (and, perhaps for that reason, it was appropriate to have Reed Irvine, head of Accuracy in Media as one of the first speakers in the first session.”) (pp. 1-2)

Propaganda and PR were thus essential to the mission of the conference. Despite the fact that the media was banned from the Viña proceedings, the organizers made sure to trot out selected dignitaries from the US and Europe for select interviews. One of the critical themes at Viña—“the limitations of democracy,” which featured a paper by James Buchanan—got special notice in the press; Buchanan also gave an interview on the topic. Other themes like “the Morality of Capitalism” and “Education: State or Private” got equal billing. (p. 2)

But the real propaganda target at Viña was the visitors themselves, that international brigade of free-market luminaries who were lavished with the kind of special treatment pilgrims to the Soviet Union once received (for a complete schedule of the conference, including excursions and entertainment, see pp. 1-11 and pp. 10-11).

According to Brodin:

[Conference organizer] Pedro Ibáñez made an excellent choice when he called for assistance the TRES organization whose charming and sophisticated “ladies in Fuchsia” were always on hand to provide services of many kinds (p. 1).

The visitors met with top government ministers and the head of the Central Bank of Chile, and had a session at the Centro de Estudios Publico in Santiago, a public policy institute that was “concerned with the lack of a sense of moral philosophy in the classical tradition of Adam Smith’s The Theory of Moral Sentiments in contemporary economics” and that was “supported by the heavy-weights in classical liberalism in Chile including Sergio de Castro, Juan Carlos Mendes (former budget director), Jorge Cauas (former Minister of Finance) and others” (p. 5).

Conference participants took in the opera (Rossini) and “enroute to the vineyard estate of Pedro Ibáñez” made a pit stop at the Escuela de Cabaileria, “the equestrian training grounds of the Chilean army” (pp. 5, 3).

Having been, in its time, trained by the Germans, one could see in the choice of both music and formations, the influence of the old Prussian cavalry traditions. A ride in a horse drawn landau proved popular with a few lucky ones (p. 3).

The sessions themselves, particularly those featuring the Chileans, were designed to inculcate in the visitors the sense that Chile, Hayek, and Friedman were one and the same. Freely mixing metaphors from the movement, Ibáñez said that with the election of Allende (p. 51),

we were no longer free to choose: after forty years of socialist recklessness [Allende had been a government minister as early as 1939] only one road remained open to us—“Friedmanism”—always provided that we had a government strong and courageous enough to establish it.

Chile has regained her liberal traditions and therefore come closer to the spirit of Mont Pelerin.

Message received. As Brodin reported (p. 11):

The laboratory conditions of today’s Chile, with its bold economic programs, some with which both an Adam Smith and a Milton Friedman could identify, is worth a dispassionate and careful study.

And like the pilgrims to the Soviet Union, the travelers came away with a sense that if there was a dark cloud on the horizon, it lay not over the land they visited but the home to which they were to return.

According to Brodin, it might be true that “Chile’s bold and radical economic reforms” were, as a Fortune article put it, the “Brave New World of Reaganomics” (pp. 5-6).

But even David Stockman, in his most ambitious budget cutting dreams, could not envision what is politically possible in the land of Augusto Pinochet. The Fortune article claims that in Chile, “the market’s invisible hand is an iron fist.”…

But what is politically possible in authoritarian Chile, may not be possible in a republic with a congress filled with “gypsy moths” for whom political expediency often takes precedence over economic realities, especially in an election year.

Far from turning a blind eye to the tyranny of Pinochet, the MPS freely acknowledged it. And far from diminishing the stature of Chile’s free-market counterrevolution, Pinochet’s tyranny was held up as a point in Chile’s favor—at least in comparison to America, whose electoral democracy might prove a major obstacle on the road to Mont Pelerin.

All in all, the conference was a success. Even so, Brodin signed off on a vaguely plangent note:

The MPS meeting in Viña overlooking the grey chill of the Pacific Ocean, turned out to be for all participants, despite a somewhat too crowded agenda, an exhilerating [sic] program. Muchas gracias to our hosts and we’ll met [sic] in another embattled and much misunderstood city: Berlin in September.

Which prompts of course these two videos (though stay tuned, after you’ve watched, for my postscript!)

 

 

Postscript

A few months after the Viña conference, the Frankfurter Allgemeine Zeitung published a cartoon comparing Pinochet’s Chile to Jaruzelski’s Poland (p. 2).

Hayek was incensed. He fired off a letter to the editor, which was published on January 6, 1982 (p. 1):

I cannot help but protest in the strongest possible terms against the cartoon on page 3 of your publication of the 30th of December equating the present governments of Poland and Chile. It can only be explained by complete ignorance of the facts or by the systematically promoted socialist calumnies of the present situation in Chile, which I had not expected the F.A.Z. to fall for.  I believe that all the participants in the Mont Pelerin Society conference held a few weeks ago in Chile would agree with me that you owe the Chilean government a humble apology for such twisting of the facts.  Any Pole lucky enough to escape to Chile could consider himself fortunate.

Message received.

Note: Many thanks to Thomas Nephew for the expert and speedy translation of Hayek’s letter to the FAZ.

The Road to Viña del Mar

17 Jul

Who decided to hold the November 1981 meeting of the Mont Pelerin Society (MPS) in Viña del Mar, the Chilean seaside resort city by the sea where the 1973 coup against Allende was planned? Was it Friedrich von Hayek, as I claimed in The Nation and The Reactionary Mind?

The short answer is: it’s complicated.

And in that complexity we get a glimpse of Hayek’s intimate involvement in the Pinochet experiment and the deep affinities he and his associates saw between his ideas and the regime’s actions.

That, at any rate, is what I discovered after a week of digging in the archives of Stanford’s Hoover Institution, where the Hayek and the MPS papers are held. This post is Part 1 of my findings; Part 2 will come out later today or tomorrow.

• • • • •

In November 1977, Hayek traveled to Chile to receive an honorary degree from the Universidad Técnica Federico Santa María in Valparaiso. He gave interviews to the media, delivered lectures to professors and the public, and met with businessmen and government officials, including Pinochet himself. (For a copy of Hayek’s itinerary, see pp. 116-17 of this pdf of the archival material.)

The trip had a tremendous impact on the regime, claimed Carlos Cáceres—one of Hayek’s hosts, member of Pinochet’s Council of State, and soon to be a high-ranking minister in the regime—in a letter to Hayek of April 28, 1978 (p. 144):

In several occassions [sic], the President of the Republic as well as the members of the economic committee, have made public statements acknowledging your comments about the chilean economy.

Cáceres thanked Hayek for getting him invited to a meeting of the MPS that was to be held later that year in Hong Kong. “I consider that the topic to be discussed, ‘The Order of Freedom,’ is of extreme importance to what is going on in Chile and in the free world in our days.” Alas, he informed Hayek, he could not go; Pedro Ibáñez, president of the Valparaiso business school where Cáceres was dean, would go instead. While there Ibáñez would “make a formal proposal in order that the 1980 General Meeting [be] held in Chile.”

This is the first mention I’ve found in any of the MPS or Hayek archives of a possible meeting in Chile. Significantly, it’s in a letter to Hayek. My best guess is that Ibáñez and Cáceres originated the idea—perhaps in consultation with Hayek while he was in Chile (the offhand tone suggests Hayek was already familiar with the idea), though that’s speculation.

On July 8, 1978, Ibáñez wrote Hayek (pp. 146-147). Like Cáceres, he affirmed the importance of Hayek’s trip to Chile the previous year: “There is an increasing debate on the new political Institutions. Hence your ideas constantly emerge as frequent subjects of discussion.”

He then turned to the real subject of his letter: the possibility of holding the MPS meeting in Chile.

As I am presently working on my plans to attend the Hong Kong meeting, I feel I should let you know in advance of a request I would like to put before the Board of Mont Pelerin.

I sincerely feel that there are good valid reasons to consider Chile as the place for the 1980 meeting of the Society. Economic as well as political developments in my country may be worth reviewing and analyzing on the spot.

Needless to say, a group of top economists, business leaders and government officials would be only too glad to co-operate and welcome the members of the Society.

I can assure you that the Chilean group could arrange an interesting and appropriate programme, including of course entertainment of such a distinguished group.

Although Chile might be considered by some people to be at the end of the world, I doubt whether Hong Kong is really any closer!

If you share my view regarding the above, do you think I could count on your support and backing, when the time comes to set forth this suggestion to the Board of the Society?

Looking forward to meeting you at Hong Kong…

I haven’t been able to find any response from Hayek to Cáceres or Ibáñez in the archives.

But here’s what we know: A full three years before the MPS meeting was held in Viña del Mar, and a full two years before the MPS Board voted to hold it there, Hayek—who was honorary president of the MPS and a board member—was  brought in on ground-level discussions by what seem to be the two originators of the idea. I was not able to find any other record of a high-level MPS official being consulted; from the point of view of the Chileans, Hayek was the man to convince.

Also note Ibáñez’s promise that the Pinochet regime would be involved in the meeting. Clearly the Chileans thought that, for Hayek, the government’s presence was a feature, not a bug. Note as well that Ibáñez emphasized not only the economic but also the political significance of the Chilean setting (many of Hayek’s—and Milton Friedman’s—defenders think the free marketeers’ sole interest in Chile had to do with economics rather than politics.)

The subject doesn’t come up again in the archives until December 1980, when the Board announced that the MPS decided at the “recent General Meeting” (p. 1) to hold a regional meeting in Viña del Mar in November 1981. Hayek was at that meeting: in fact, as he explains in a letter to Edwin Feulner, treasurer of the MPS and also head of the Heritage Foundation, he personally had the MPS change the general meeting dates to September 7-12 so that he could attend (p. 6).

Subsequent to that decision, the Board—including Hayek—was closely involved in the planning and financing of the Viña conference. On December 2, 1980, Ibáñez sent MPS President Chiaki Nishiyama the first rough draft of the program and asked him for his “comments and observations” (p. 44). On December 16, he sent the same draft to Feulner and said, “I will much appreciate your comments, suggestions and if necessary your criticisms to what I propose above. The programme is totally tentative” (p. 46). On April 10, 1981, he wrote to Feulner that the planning committee of the Viña conference would be meeting in Santiago on April 24 and that Hayek and Nishiyama would attend (Hayek already had informed Cáceres on February 17 that he would attend; see p. 156). Ibáñez added that Hayek and the Chileans would “discuss the Speakers responses (fairly good) members attending, agenda, guests to be invited, etc.” He also promised to send Feulner the third draft of the agenda (p. 47).

At that April 24 planning meeting, Hayek discussed with the Chileans the contents of the Viña program and the financing. According to Cáceres, “a number of decisions were adopted concerning the topics to be dealt with and the speakers and panelists who it was thought should take part in the debates” (p. 12). Nishiyama promised the Chileans that the MPS would provide anywhere from twenty to forty thousand dollars in funding (p. 13). That promise would later prove to be a source of controversy between the Chileans and the Board because of the size and cost of the Viña meeting and because of Nishiyama’s promise to fund part of it (pp. 9-10). In the end, MPS gave the Chileans $30,000 to fund the meeting (pp. 59, 63).

After Hayek left Chile, Cáceres wrote him (on May 27, 1981), once again extolling the impact of his visit on the country (p. 161).

It was a rewarding and unforgettable experience to talk to you about so important and relevant contemporaneous political problems. The press has given wide coverage to your opinions and I feel no doubt that your thoughts will be a clarifying stimmulous [sic] in the achievements of our purposes as a free country.

So, Hayek was in on the decision—from the beginning—to hold the meeting in Viña, and he also played a large role in planning the meeting and in discussing its finances.

In my next—and final post—I look at the Viña meeting itself. Hear the Mont Pelerin Society kvell to its members: “Even David Stockman…could not envision what is politically possible in the land of Augusto Pinochet.”

Friedrich Del Mar*: More on Hayek, Pinochet, and Chile

11 Jul

In my first post about Hayek and Pinochet, I quoted a statement that I had written in the Nation in 2009 and had repeated in my book The Reactionary Mind:

Hayek admired Pinochet’s Chile so much that he decided to hold a meeting of his Mont Pelerin Society in Viña del Mar, the seaside resort where the coup against Allende was planned.

The Mont Pelerin Society (MPS) was a group of intellectuals and activists that Hayek helped found after World War II to advance the cause of the free market. In recent years, it has become the subject of some great new scholarship; judging by the fall catalogs it looks likely to be an even hotter topic in the future. Hayek was president of the MPS from 1947 to 1961 and honorary president after that.

I had learned about the meeting in Viña—and Hayek’s role therein—from Naomi Klein and Greg Grandin.

Once my Hayek von Pinochet post came out, a Hayek enthusiast began questioning—among other things—my claim about Hayek’s role in the Viña meeting on Twitter.

Truth is: this was the first time I had heard anyone question the claim about Hayek and Viña, but I decided to follow it up.

I emailed a past president of the MPS, who informed me that a regional meeting such as this one would have been proposed by local members of the Society to the Board, which would have had to have given its approval. My informant wasn’t sure if Hayek was on the board in 1981—honorary presidents, he said, weren’t usually on the board—and he also told me that the Chileans to whom I might pose some questions were “not around.”

So far, so nothing. I emailed a few scholars about the meeting, but didn’t hear back from them.

Then I stumbled across this 1979 letter from Hayek to Joaquin Reig, an MPS regular from Spain who wanted to organize a regional meeting in Madrid. In the letter, Hayek makes plain his preferences for the meeting’s location:

I believe I mentioned to you that I would rather like to have the meeting take place at Salamanca, but that may be, as you pointed out, impracticable. But I want still strongly to urge that we have there a one day public meeting entirely devoted to “The Spanish Origins of Economic Liberalism!”

For several years, Hayek had been growing increasingly excited about the possibility that “the basic principles of the theory of the competitive market were worked out by the Spanish scholastics of the 16th century.” For reasons still obscure to me, he seemed positively ecstatic about the notion that “economic liberalism was not designed by the Calvinists but by the Spanish jesuits.” (In his History of Economic Analysis, Schumpeter also had argued “that the very high level of Spanish sixteenth-century economics was due chiefly to the scholastic contributions.” But it didn’t seem to transport him in the way it did Hayek.)

Hayek insisted that the conference be shipped for a day 132 miles northwest of Madrid in order “to celebrate at Salamanca”—the university town where this specific branch of early modern natural law theory was formulated—”the Spanish origins of liberal economics.”

He got his way: the MPS members dutifully got into their buses and, like medieval penitents following their shepherd, made their pilgrimage to the birthplace of free-market economics. According to one participant:

A particular memory was of a small group accompanying Hayek descending from the newer Gothic Cathedral down a circular stairs to the older Romanesque Cathedral and encountering a small group accompanying Lord Lionel Robbins ascending the stairway. Hayek and Robbins engaged in a conversation, and then the respective parties continued their tours of the cathedrals.

Clearly, whether he was in or out of office, Hayek’s voice held sway at the Society.

But still no word on Hayek and Viña.

Then earlier today I got a copy of this cache of documents, the originals of which are housed in the archives at the Hoover Institution at Stanford, where the papers of both Hayek and the MPS reside.

The documents don’t establish who came up with the idea—or initiated the effort—of holding the 1981 MPS meeting at Viña.  An announcement stamped December 1980 merely states:

At a recent General Meeting at the Hoover Institution, our Society decided to hold a Regional meeting in Chile in November of 1981. Preliminary arrangements have already been made for this Meeting with the cooperation of distinguished economists and business leaders of the country.

In regard to those arrangements our President Dr. Chiaki Nishiyama has approved the nomination of an Executive Committee for the Regional Meeting, made up as follows: Paulo Ayres (Brazil), Ramón Díaz (Uruguay), Alberto Benegas Lynch Jr. (Argentine[sic]), Carlos Cáceres (Chile) and Pedro Ilbáñez (Chile) as President; Hernán Cortes acting as the Committee’s Secretary.

Hayek’s name appears nowhere on this announcement—except on the letterhead (“Honorary President”). The announcement does add that “leading Members of Mont Pelerin are assiting [sic] us in organizing the meeting, deciding on the programme and inviting the main speakers and discussants.” But it doesn’t specify who those leading members are.

But then I found this follow-up announcement, dated June 1981:

Final arrangements for the event were approved at a recent meeting of the Executive Committee for the Regional meeting attended by our President Dr. Chiaki Nishiyama and our Honorary President, Professor Friedrich von Hayek.

So it seems that Hayek did attend the meeting that approved the “final arrangements” for the Viña conference. So much for the Hayek enthusiast who also had tweeted at me:

Whether Hayek formally voted at that meeting or not remains unclear. Given his interventions two years earlier in the Salamanca affair, however, it’s hard to conclude that he didn’t play a significant role. At a minimum, he didn’t veto the meeting place, which he could easily have done. And he most likely had a hand in those final arrangements, which included the adoption of a program and a tentative list of speakers.

The list is of interest in its own right. It’s a veritable who’s who of mid- to late-century conservatism and libertarianism: William F. Buckley (on “Freedom of Expression and Misinformation of the Western World”); George Gordon Tullock and George Stigler (on “Decentralization and Municipal Autonomy”); James Buchanan (“Direct or Indirect Taxation. New Approach to Taxation Policies”); Martin Anderson (“Social Security, A Road to Socialism?”), with Thomas Sowell as a discussant; Irving Kristol (“Ethics and Capitalism”); Milton Friedman (“Monetary System for a Free Society”); and Friedrich von Hayek (“Democracy, Limited or Unlimited?”)

In the end, several of these tentative’s,  including Hayek and Buckley, proved to be no’s. On the final agenda, however, some new names appeared. One of them was Gary Becker—with a “t” next to his name. Tentative.

In the last few months, I’ve been engaged in an ongoing battle with the libertarians about their lack of interest in workplace freedom. The operating assumption of those conversations seems to be that however indifferent libertarians are to coercion in the private sphere, when it comes to the state, they’re the real deal. Yet here we have some of the leading lights and influences of the movement —Tullock and Buchanan were listed as “confirmed” speakers; not sure yet what happened with Becker—convening in the very place where the Pinochet regime launched its bloody rule.

There is a large discourse on the left of intellectuals and activists trying to come to terms with their erstwhile support for Stalinism and revolutionary tyranny. Indeed, a great deal of 20th century intellectual history is driven by that discourse, with entire literatures devoted to the Webbs in Russia, Sontag in Vietnam, Foucault in Iran. Yet where is the comparable discourse on the right of intellectuals coming to terms with their (or their heroes’) support for Pinochet, Salazar, and the like? With the exception of John Gray, I can’t think of a single apostate from—or adherent of—the right who’s engaged in such a project of self-examination: not breast-beating or mea culpas, but really looking at the relationship between their ideas and their actions. Now there’s a road to serfdom that’s yet to be mapped.

I’ve now ordered a whole bunch of additional documents from the Hoover Institute.  I’ll keep you posted on what I find. In the meantime…

* The title of this blog comes from Tim Barker.

 

Update (12:15 pm)

Because sharp and smart readers like Kevin Vallier have misinterpreted this, I wanted to clarify something about my post.  In bringing up the Salamanca story, I was not trying to make the case that there was any connection between Hayek’s interest in Spanish Scholasticism and his support for Pinochet. I was trying to establish a very different point: despite not being the head of the Mont Pelerin Society, Hayek could and did intervene in decisions about where its regional meetings were held.  Sorry if that was unclear.

For anyone who’s ever despaired of arguing with her critics…

8 Mar

In the midst of the controversy over the Phillips Curve, Nobel Laureate Paul Samuelson wrote to economist Alvin Hansen:

Milton F[riedman] is a bloody nuisance. In the end he is not right in his provocative stands, but it takes valuable time rebutting his arguments….Having just returned from UCLA where (as in Virginia and Washington) the place is jumping with energetic libertarian nuts, I realize that so much of one’s scientific life has to be occupied in sterile debate.

h/t Yann Giraud (and Doug Henwood for forwarding this post to me)

 

Norwegian Terrorist Knows His Conservative Canon

24 Jul

Anders Behring BreivikAnders Behring Breivik, the guy who’s confessed to the Norwegian terrorist bombings, doesn’t just have ideas about multiculturalism and Muslim immigration (in case you haven’t heard, he’s not crazy about either)—though you wouldn’t know that from the media coverage, which focuses almost exclusively on Breivik’s identitarian interests.  Breivik also has a fair amount to say about capitalism and its critics.  In his lengthy manifesto, he proffers opinions about Naomi Klein (dislikes) and Friedrich Hayek and Milton Friedman (likes). He also seems more than passingly familiar with some of the leading figures of conservative thought like Roger Scruton. I haven’t had time to immerse myself in Breivik’s statement—it’s 1500 pages!—but from the bits I’ve read, it’s clear that there’s more here than Islamophobia.

Follow

Get every new post delivered to your Inbox.

Join 6,158 other followers