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February 11 - March 26, 2019
he valued economic liberty so much more than political freedom that he simply did not care about the invitation to abuse inherent in giving nearly unchecked power to an alliance of capital and the armed forces.
Whereas Friedman’s name became permanently and embarrassingly paired with Pinochet’s, Buchanan, the stealth visitor, largely escaped notice for the guidance he provided.
But, then, unlike Friedman, Buchanan never craved the spotlight. He was content to work in the shadows.
The year after the Mont Pelerin Society celebrated in the resort city of Viña del Mar, Chile’s economy went into a tailspin, contracting by more than 14 percent.
Chile’s now unregulated banks engaged in reckless lending that threatened to sink the entire economy when the reckoning arrived.37
The only thing that averted a total collapse was Pinochet’s firing of the Mont Pelerin Society zealots,
Pinochet replaced the ideologues with individuals who were willing to enlist government to right the ship.
The outcome will sound familiar to Americans who lived through a virtual replay in 2008: “During the boom, Chile’s economic gains had been privatized; now, in the crunch, the country’s losses were socialized.”
Among those hardest hit were those who had invested their life savings in the new individual retirement accounts in corporate mutual funds that failed.38
they used its provision for a 1988 plebiscite to achieve surprising success—only to discover how its “tricky” mechanisms,
The call for a yes vote was “an effort to institutionalize a new type of authoritarian regime that has not been seen in a Western country like Chile since the 1930s.”39
On October 5, lines formed early and stayed late, until the stunning result was announced: despite a manifestly stacked deck, voters refused General Pinochet the additional term he sought by a margin of 55 percent to 43 percent.
“The free market model as applied under Pinochet had an enormous social cost,” explains one political scientist. “Whereas in 1970, only 23 percent of the population was classified as poor or indigent, by 1987 that proportion had reached 45 percent—almost half—of the population,” while wealth had become more concentrated among the richest.
labor “flexibility”
“Precarious and low-income work [became] the staple for over 40 percent of the Chilean labor force,” a marginality compounded by the fact that individuals were now forced to save the full cost of their retirement pensions, with no contribution by their employers, and pay for other goods that had previously come with citizenship.
“Today there are two Chiles”: “one with credit cards and computers, and one that is just trying to survive.”
That first elected government proposed and won overwhelming approval of fifty-four amendments, among them one to eliminate the requirement that supermajorities of two successive sessions of the congress must approve any future constitutional amendments. Yet the skewed electoral system still remains in place, with its provision effectively granting the one-third minority of right-wing voters the same representation as the typical two-thirds majority attracted by center-left candidates.44
It is deeply troubling, then, that Chile is held up today as an exemplary “economic miracle” by the Cato Institute, the Heritage Foundation, and others on the U.S. right.
Charles Koch, too, cites Hong Kong and Singapore as model “free societies.” Admitting that they lack the “social and political freedom” of other countries, he stresses what matters to him: “the greatest economic freedom” and “thus some of the greatest opportunities.” For whom, he does not specify.45
A nation that once stood out as a middle-class beacon in Latin America now has the worst economic inequality it has seen since the 1930s—and the worst of the thirty-four member states in the Organization for Economic Cooperation and Development (OECD).
The imposition of nationwide school “choice” had dire effects as well.
Pupil performance diverged sharply, owing to “increased sorting” by income, which naturally took place with the voucher system.
Meanwhile, college tuition costs now equal 40 percent of the average household’s income, making a higher education in Chile the most expensive on t...
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In 2015, prosecutors charged leaders of the Penta Group, among the top beneficiaries of pension privatization, with massive tax evasion, bribery, and illegal financing of right-wing politicians.
“The depth of corruption is enormous,” observed a law professor at the University of Chile in 2016. “Public interest has been subordinated to private interest, and when there is no clear distinction between them, it opens the door to endless opportunities for corruption.”
She won almost two-thirds of the vote, yet she still found it difficult to carry out the platform. “Democratic processes are held back by authoritarian trammels,” President Bachelet complained in 2014. “We want a constitution without locks and bolts.”50
George Mason, now a university, recruited its first marquee professor: James McGill Buchanan.
The campus—or rather, members of its economics department and law school—created the research and design center of a right-wing political movement determined to undo the modern democratic state.
Convinced that he was meant, like an Ayn Rand hero, to be the dominant force in whatever he did, even going so far as to suggest at one point that his “embodiment of authority” was “genetically determined,” he didn’t have that many options when disagreement arose.
Certain that ultimate control should belong to him, Buchanan was shocked when others wanted to negotiate important matters that affected them, too.
“the sort of person who has to have his way with everything. He w...
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Orr was rightly concerned that its graduates would not be marketable for faculty positions because they lacked the mathematical skills and technical training that most economics departments valued.
Why should he share power? His team had built an international reputation, so “we felt our opinions should count for more.”
Through relocation, he was able to protect his minority rights from the majority will in a manner he would soon suggest to corporations for the avoidance of taxation and regulation. Some might call it secession; Buchanan did.9
The new hire would never teach undergraduates, in a school where other faculty taught four courses each semester, and so would have more time to hobnob and fund-raise. Before the year was out, Buchanan had brought in $800,000 in corporate contributions for his center’s research, graduate student training, and outreach programs (over $2 million in 2016 dollars).
“Literally millions of dollars” came to George Mason in the 1980s owing to Buchanan’s “presence,” the university’s then senior vice president later reported. He specifically noted that the incoming economist’s “very strong support from corporations and foundations” enabled the school to start producing economics doctorates, among other things.14
Charles Koch was among those taking an interest in George Mason’s economics program even before Buchanan’s arrival. He paid expenses for participants in Karen Vaughn’s Austrian Economics Forum, which studied the ideas of his idols Ludwig von Mises and F. A. Hayek, among others.
“We’re gonna be like Malcolm X,” Fink goaded them. Except where Malcolm X promoted Black Power and pride, the GMU alumni would be “Austrian and proud.” He urged that they be “in your face with the Austrian economics.”
Buchanan predicted to the patron, more aptly than he could have imagined, “Richie Fink will make his mark in the years ahead.”16
Among those friends in Washington that his team could now better assist in applying public choice ideas were the Cato Institute and the Heritage Foundation. Both hosted receptions to welcome Buchanan.
Indeed, within a few years of Buchanan’s arrival, a Wall Street Journal writer dubbed George Mason “the Pentagon of conservative academia.”20
important resource for the Reagan administration,”
Success at the polls, while heartening, must not “distract attention away from the more fundamental issue of imposing new rules for limiting government.”
even such an ideologically driven president could succumb to the pressures of modern majoritarian democracy.23 That proved a prophetic reading.
But something went terribly awry in the heady rush of the first year. The budget director, it turned out, had failed to make clear to the president and his political advisers—much less to the American people—that the colossal Kemp-Roth tax cut, as it came to be known, would necessitate tearing up the social contract on a scale never attempted in a democracy.
Was it that the electoral wing of the Republican right had for so long racially coded “special interests” and “government spending” that they genuinely failed to realize that slashing on this scale would hurt not only poor blacks but also the vast majority of white voters, among them many millions of Republican voters?
The president could rail all he wanted about “welfare queens” and government “waste,” but Social Security, veterans’ benefits, and Medicare “accounted for over half the domestic budget”—and
“By 1982,” Stockman reported, “I knew the Reagan Revolution was impossible.” It simply could not happen in “the world of democratic fact.”
“The democracy had defeated the doctrine.”27
Stockman concluded that trying to impose an ideologically driven “exacting blueprint” on the people of “a capitalist democracy” was a mistake of the highest order.
