“Ha-ha! Those suckers will believe anything! “
This article appeared in the October 17, 2011 edition of The Nation
There’s right-wing hypocrisy, and then there’s this: Charles Koch, billionaire patron of free-market libertarianism, privately championed the benefits of Social Security to Friedrich Hayek, the leading laissez-faire economist of the twentieth century. Koch even sent Hayek a government pamphlet to help him take advantage of America’s federal retirement insurance and healthcare programs.
This extraordinary correspondence regarding Social Security began in early June 1973, weeks after Koch was appointed president of the Institute for Humane Studies. Along with his brothers, Koch inherited his father’s privately held oil company in 1967, becoming one of the richest men in America. He used this fortune to help turn the IHS, then based in Menlo Park, California, into one of the world’s foremost libertarian think tanks. Soon after taking over as president, Koch invited Hayek to serve as the institute’s “distinguished senior scholar” in preparation for its first conference on Austrian economics, to be held in June 1974.
Hayek initially declined Koch’s offer. In a letter to IHS secretary Kenneth Templeton Jr., dated June 16, 1973, Hayek explains that he underwent gall bladder surgery in Austria earlier that year, which only heightened his fear of “the problems (and costs) of falling ill away from home.” (Thanks to waves of progressive reforms, postwar Austria had near universal healthcare and robust social insurance plans that Hayek would have been eligible for.)
IHS vice president George Pearson (who later became a top Koch Industries executive) responded three weeks later, conceding that it was all but impossible to arrange affordable private medical insurance for Hayek in the United States. However, thanks to research by Yale Brozen, a libertarian economist at the University of Chicago, Pearson happily reported that “social security was passed at the University of Chicago while you [Hayek] were there in 1951. You had an option of being in the program. If you so elected at that time, you may be entitled to coverage now.”
A few weeks later, the institute reported the good news: Professor Hayek had indeed opted into Social Security while he was teaching at Chicago and had paid into the program for ten years. He was eligible for benefits.
On August 10, 1973, Koch wrote a letter appealing to Hayek to accept a shorter stay at the IHS, hard-selling Hayek on Social Security’s retirement benefits, which Koch encouraged Hayek to draw on even outside America. He also assured Hayek that Medicare, which had been created in 1965 by the Social Security amendments as part of Lyndon Johnson’s Great Society programs, would cover his medical needs.
Koch writes: “You may be interested in the information that we uncovered on the insurance and other benefits that would be available to you in this country. Since you have paid into the United States Social Security Program for a full forty quarters, you are entitled to Social Security payments while living anywhere in the Free World. Also, at any time you are in the United States, you are automatically entitled to hospital coverage.”
Then, taking on the unlikely role of Social Security Administration customer service rep, Koch adds, “In order to be eligible for medical coverage you must apply during the registration period which is anytime from January 1 to March 31. For your further information, I am enclosing a pamphlet on Social Security.”
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The private correspondence between two of the most important figures shaping the Republican Party’s economic policies—billionaire libertarian Charles Koch and Nobel Prize–winning economist Friedrich Hayek, godfather of today’s free-market movement—were obtained by Yasha Levine from the Hayek archives at the Hoover Institution at Stanford University. This is the first time the content of these letters has been reported on.
The documents offer a rare glimpse into how these two major free-market apostles privately felt about government assistance programs—revealing a shocking degree of cynicism and an unimaginable betrayal of the ideas they sold to the American public and the rest of the world.
Charles Koch and his brother, David, have waged a three-decade campaign to dismantle the American social safety net. At the center of their most recent push is the Koch-funded Americans for Prosperity, which has co-sponsored Tea Party events, spearheaded the war against healthcare reform and supported Wisconsin Governor Scott Walker’s attack on public sector unions. FreedomWorks, another conservative group central to the rise of the Tea Party and the right-wing attempt to dismantle Social Security and Medicare, emerged from an advocacy outfit founded by the Koch brothers called Citizens for a Sound Economy. FreedomWorks now exists as a separate entity that champions the “Austrian school” of economics.
Hayek, a founder of that school of thought, is primarily known for two major works. The first, The Road to Serfdom (1944), grudgingly accepts the possibility that some “free” countries might find it necessary to set up a bare-minimum catastrophic social insurance program limited to the very neediest, so long as the benefits do not incentivize productive members of society to abandon free-market retirement savings or medical insurance.
Hayek’s comparatively liberal attitude toward social insurance hardened considerably by the time he published his 1960 opus, The Constitution of Liberty. Despite privately spending the intervening years paying into Social Security, Hayek devoted an entire chapter—titled “Social Security”—to denouncing the modern welfare state as a gateway to tyranny and moral decay. Ironically, one of Hayek’s main objections to government programs like Social Security was the “fundamental absurdity” of using tax dollars to promote their benefits. In other words, Hayek publicly objected to the kind of brochure that Charles Koch sent him. In their private correspondence, however, we could find no objection to this “fundamental absurdity.”
By the mid-1970s, Hayek had fully distanced himself from the modest benefits he’d originally conceded to in The Road to Serfdom. In his preface to the 1976 edition, he explained his “error”: “I had not wholly freed myself from all the current interventionist superstitions, and in consequence still made various concessions which I now think unwarranted.”
Publicly, in academia and in politics, in the media and in propaganda, these two major figures—one the sponsor, the other the mandarin—have been pushing Americans to do away with Social Security and Medicare for our own good: we will become freer, richer, healthier and better people.
But the exchange between Koch and Hayek exposes the bad-faith nature of their public arguments. In private, Koch expresses confidence in Social Security’s ability to care for a clearly worried Hayek. He and his fellow IHS libertarians repeatedly assure Hayek that his government-funded coverage in the United States would be adequate for his medical needs.None of them—not Koch, Hayek or the other libertarians at the IHS—express anything remotely resembling shame or unease at such a betrayal of their public ideals and writings. Nowhere do they worry that by opting into and taking advantage of Social Security programs they might be hastening a socialist takeover of America. It’s simply a given that Social Security and Medicare work, and therefore should be used.
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Shortly after this exchange, in 1974, Hayek won the Nobel Prize in economics. The next year he went on something of a victory tour of the United States, which ended at the IHS, where he spent the summer as a resident scholar. Hayek returned to Menlo Park again in the summer of 1977. The Nation has filed a Freedom of Information Request with the Social Security Administration to discover if, in fact, Hayek received Social Security payments or used Medicare during his residencies at the institute or at any other time. At press time, these requests have not been answered.
Meanwhile, in 1974, Charles Koch founded the Cato Institute (called the Charles Koch Foundation until 1977). This think tank has done more than any other to push for an end to Social Security. In 1983 the Cato Journal published a blueprint of how to destroy Social Security, “Achieving a ‘Leninist Strategy,’” by Stuart Butler and Peter Germanis. The authors acknowledged that a strong coalition of Americans backed Social Security and thus saw the need for “guerrilla warfare against both the current Social Security system and the coalition that supports it.” Victory could be far in the future, “but then, as Lenin well knew, to be a successful revolutionary, one must also be patient and consistently plan for real reform,” they write.
As part of Cato’s campaign, the institute has launched various groups and projects, including the Project on Social Security Choice, whose co-chair is José Piñera, architect of Augusto Pinochet’s controversial pension privatization scheme in Chile. Cato Institute members and alumni also dominated President George W. Bush’s commission on Social Security in his first term and spearheaded Bush’s failed attempt to privatize the program in the early months of his second term.
Thanks in part to Hayek’s writings and to the Koch brothers’ decades-long war on the social safety net, Americans are among the Western world’s few citizens without universal healthcare. Not surprisingly, life expectancy here has fallen to forty-ninth place in the world, while medical costs are double those of other Western nations. By contrast, Hayek’s native Austria, which has a public health plan that covers 99 percent of the population, boasts a healthcare system ranked ninth in the world by the World Health Organization.
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When Texas Governor Rick Perry, a front-runner in the Republican primary for president, derides Social Security as a “Ponzi scheme” or a “monstrous lie,” that rhetoric can be traced back to the work of Hayek and Koch. And yet we now know that in private practice, Hayek was perfectly content to pay into Social Security and that Koch encouraged him to draw upon both Social Security and Medicare. Did they really believe what they wrote? Or were these attacks just scare-talk meant for the rubes, for you and us, “the public”?
Calling this mere hypocrisy downplays the seriousness of their fraud. Koch and Hayek are no more hypocritical than the used-car salesman who knowingly sells a lemon to a gullible buyer, or the financial agency that rates “AAA” instruments it knows are crap. This is a grand swindle played on a trusting, gullible public, a scam whose goal is to con America’s dying middle class into handing over their retirement money to the richest 0.1 percent, convincing them that in doing so, they’re “empowering” themselves and protecting their “individual liberty.”
Another question hangs over all this: Why didn’t Charles Koch offer to put up some of his enormous wealth to pay for Hayek’s temporary medical insurance? One obvious answer: because the state had already offered a better and freer program. But perhaps Koch’s stinginess also reveals the social ethic behind libertarian values: every man for himself; selfishness is a virtue.
Mark Ames is the author of Going Postal: Rage, Murder and Rebellion from Reagan’s Workplaces to Clinton’s Columbine.
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