(Note, I recommend reading the first installment of this series for necessary background.)
The so-called Democratic centrist think tank known as “Third Way” was initiated by the followers of a multi-millionaire Republican investment banker named Peter G. Peterson. Peterson was Secretary of Commerce for the Nixon administration, a CEO of Bell And Howell, and the mid 80’s CEO of Lehman Brothers investment bank.
https://en.wikipedia.org/wiki/Peter_G._Peterson
For background, it is important to remember that both Nixon administrations were a horror show of radical monetarists and free-market ideologues associated with the “Chicago School” and its promoters from among the followers of Milton Friedman, as well as the so-called Austrian School of Fredrick Von Hayek and Ludwig Von Mises. George Shultz (later Reagan’s Secretary Of State) and converted Republican John Connally (former Texas Democratic Governor) were prominent figures in this team.
The use of the term “radical” to describe their ideology is not rhetoric, it is scientifically precise. The stated objective of the Nixon team was to systematically dismantle, to the extent politically possible, the array of recovery and development policies instituted by President Franklin Roosevelt which are commonly referred to as “The New Deal.”
The policy blueprint upon which the Trump regime is operating today known as “Project 2025” is actually the unrealized full program of the anti-government Nixon administration. Budget austerity, deregulation, ending of protections of labor through “right to work” laws, and the August 1971 effective ending of the Bretton Wood’s world monetary system via the decoupling of the dollar from gold were the opening salvos, followed by wage and price controls “to fight inflation.” And perhaps the most destructive and precedent-setting action was Nixon’s creation of the HMO system, facilitating the looting of our then non-profit health care system (which was unmatched globally) by the private insurance cartel.
And like today, the Nixon administration cynically used an oil shock which was engineered by Kissinger’s Middle East war rigging operations to sell people the idea that such a “structural reform” was needed, “to manage scarcity.” In their vocabulary, burning down a building was how you reform a structure.
Their polemics in favor of Laissez Faire were based upon the biggest of big lies originating with “Economics 101” as it is still taught in universities today. Which is that monetary inflation is our greatest economic danger, and that the cause of it is deficit spending by government. That not only is it inflationary and wasteful, but unfair to people who pay taxes.
There are so many falsehoods built into that assertion that it would require a ten-part class series to debunk all of them. For the sake of brevity we will say the following. Deficit spending is not inherently inflationary. Why, you are asking? Because it is a form of credit, since the government borrows to fund itself, as well as collecting taxes. Credit, if invested in long term projects to add, maintain, and improve life enhancing economic infrastructure, durable goods production, housing, agricultural production, upgrading living standards, education, and science, is not inflationary, because it has a multiplier effect in the form of payback to both the civilian economy and the tax revenue base. Even military spending in the aerospace/R&D sector has spin-off effects as realized through new inventions and innovation.
For example, that little supercomputer we carry around in our pockets came out of the 1960’s Apollo lunar landing project and its emphasis on miniaturization of technology components. Lasers for surgery and machining, breakthroughs in the life-sciences, were all driven by NASA spending during the crash program started by JFK, and later with the Shuttle program. NASA, according to a Chase econometrics study done in 1976, had a 23-1 payback to the civilian economy in the form of technological spinoffs. That figure was later revised to 14-1, but the impact was nevertheless axiom busting, proving that government spending was not wasteful or inflationary by definition.
However at the time our space agency was strictly controlled by the government in partnership with the private sector and was a national security program, not like the irresponsibly run private sector space program of today associated with former trillionaire Musk, who has no interest in his program functioning as a science driver for the civilian economy, much less our national interest.
Another good example was the greatest public works project in history up to that time, the Tennessee Valley Authority. We are still living off of the benefits of that program today, and it paid itself off entirely within ten years of its completion. This is a history we will revisit for those who are interested.
Conversely, if the government is borrowing to pump liquidity into speculative markets, quick buck mergers and acquisitions in the financial services sector, bailing out bad paper, giving tax cuts to corporations with which to buy back their own stock in order to inflate their equity values, or to give subsidies to defense contractors to underwrite wars which are against our national interests, then there is no “payback.” That is, except that which goes into the pockets of election megadonors and lobbying firms. That kind of spending is a net drain on society. It is borrowing for the purpose of profiteering, asset stripping and looting, engaging in non-productive speculation, and keeping financial bubbles afloat. Therefore, that form of deficit spending is inflationary, both monetarily and structurally.
The issue is, what do we use credit for, not that all government incurred debt is bad.
If you take a mortgage on your house and go to Vegas with it, that is an unproductive use of credit. If you use it to start a useful business which has a burgeoning market, it is a potentially productive use of credit which can create employment, provide local taxes for schools and public services, and improve the operating environment for other local businesses.
What the monetarists do is obliterate that distinction and argue that all borrowing and spending by the government is inflationary therefore bad, and that the key to building and maintaining monetary values and preserving one’s wealth is to stop inflation through implementation of draconian cuts in government spending across the board. And they manipulate perception by arguing that because these are across the board cuts, they are inherently fair because everyone suffers equally. They never explain why we have to suffer at all.
If it is true that this is a fallacy, or even a calculated lie, why then are they repeating it as if it is a biblical injunction?
Because at the heart of every monetarist is a Social Darwinist, who believes in “survival of the fittest.” They believe that certain categories of people are not fully human, nor are they part of the anointed ones. Instead they are seen as dregs or drones who in fact constitute “waste” and unnecessary overhead, without whom as a burden, the so-called “entrepreneurs” would have more disposible wealth to invest in their “innovation.” (A buzzword intended to mask over the self-serving design of increasing shareholder values at the expense of working families, (trickle down) ie: conspicuous consumption feeding their lifestyles.)
Therefore in the monetarist schema, government programs which enhance quality of life, equal opportunity, life expectancy, health and welfare, need to be eliminated, especially if they are life sustaining. Government is subsidizing the right to life of the wrong kinds of people, in their view. And their boogeyman of inflation is how they sell this malarkey to both uneducated people who know very little, or those who took Economics 101 in College and know even less.
The “safety net” which is the legacy of the FDR traditional Democrats, has all along been the target of the monetarist fiscal conservatives who are out to get rid of “undesirables” by killing the programs which keep people alive, for whom they claim to be carrying an unfair burden. And not to be overlooked, our entitlements system is the biggest reservoir of untapped loot. It is targeted for dismantling for the same reason that Willie Sutton robbed banks. “That's where the money is.”
That was the doctrinal outlook of Nixon’s radical Chicago/Austrian School fanatics 50 some years ago, and it is the same outlook informing the Heritage Foundation Project 2025 ideologues today who control the Trump White House. It also is typical of the cult of Ayn Rand’s Libertarian narcissist followers who fawn over Elon Musk and Peter Thiel.
Not coincidentally, Friedrich Von Hayek is considered the intellectual founding father of the Heritage Foundation. (THF) Also not coincidentally, THF is funded by the the same wealthy blue-blood families which supported racial eugenics in the 1920’s, and still do to this day, such as Cordelia Scaife-May of the Mellon family.
Social Darwinism, racial eugenics, and unbridled greed, ie; shareholder value, are the lead agenda items of the monetarist fiscal conservatives. They have fooled a lot of people with their “balanced budget” mantra which argues that austerity is the only solution to inflation. It is not. That is a lie they are selling in order to get us to accept bone-crushing reductions in living standards and health care, as well as for us to go along with the dismantling of the social safety net. This is not economic science. It is economic triage.
How They Package The Lie--
The basis of the fraud they perpetrate is that a national economy should be run like a household budget. It is a brainwash program which was built in from childhood in most cases by our parents. “You can’t spend more that what you are taking in, because debt is the greatest evil.”
The founders of the USA, Hamilton in particular, created a federal system, which both allowed the federal government to borrow to meet its needs (which because of our unpayable Revolutionary War debt we had to) and to also have a monopoly on public credit through our national bank, meaning that the states were prohibited from borrowing to run their affairs, nor could they create their own currencies. The US Mint was created to this end. The reason so many conservatives oppose federal borrowing today is because they are unreconstructed Confederates who oppose in principle the idea of a federal government itself.
Yet, Franklin Roosevelt never once agreed with this false equivalence between the household budget and the federal budget. The Great Depression and Adolf Hitler were in his mind far greater dangers than deficits. You and I would not be here if he had gone along with Wall Street and put achieving a balanced budget first.
Third Way Is A GOP Trojan Horse-
Third Way was co-founded in 2005 as a “Democratic centrist “ think tank by Jonathan Cowan, which was loosely affiliated with a group called Americans For Gun Safety, (AGS) founded to promote the idea of making a few reforms in gun safety measures which would appeal to moderates in both parties. At one point Joe Lieberman and John McCain lent their names to it. This was “the hook” meant to fill up their donors wagon, to build a contributors list, and they glommed onto support for the Brady Bill in order to raise cash.
Cowan, then fronting as a Democrat, was originally given his start by Peter Peterson in 1992 when he founded the organization “Lead Or Leave,” which in itself is revealing. Cowan had at one time been a former staffer and protege of GOP Senator Warren Rudman of New Hampshire, and also had ties to centrist Democrat Paul Tsongas of Massachusetts.
The so-called crowning achievement of Rudman in the Senate was the passage of the Gramm-Rudman-Hollings Deficit Reduction Act, passed into law in December 1985 during the Reagan years.
https://en.wikipedia.org/wiki/Gramm%E2%80%93Rudman%E2%80%93Hollings_Balanced_Budget_Act
Texas Senator Phill Gramm in his day set the bar for being the stupidest Senator in modern times, blazing a path for Senator Tommy Tuberville today as a reference point. We used to joke about his “Gramm-sized brain” back in the day. Even one gram would be an exaggeration in retrospect. Senator Fritz Hollings was the Joe Manchin of his era, a long time South Carolina Democrat in name only, who was both ambitious and mediocre and ran a couple of fruitless campaigns for President.
(I should acknowledge that several of these former leaders we are discussing appear as moral/intellectual giants in comparison to the MAGA garbage dumpster we are fighting today. However, we are identifying key figures and moments where the Democratic Party went astray, setting the stage for our current situation.)
What this group did was push for the special project launched by Peter Peterson, whose bailiwick in politics was fiscal austerity, deficit reduction, and fighting inflation. He wanted a balanced budget Amendment. His approach was that described earlier in the composition and outlook of Nixon’s team.
To make it all a bit more intelligible, had the Gramm-Rudman-Hollings Bill been US law in 1933, we would have never had a recovery from the Great Depression. Had it remained in place through 1938, the Nazis would have conquered Europe to reign hegemonic globally for generations, because everything done by FDR to fund the mobilization against both would have been illegal. The Bill institutionalized a balanced budget, and its provisions kicked in automatically according to a formula.
As you will read here, it was determined finally to be unconstitutional and was reworked in 1987, and has been amended three times, the last being in 2023 with the Fiscal Responsibility Act. The later iterations of Gramm-Rudman-Hollings were not nearly as binding or dangerous, nevertheless are symptomatic of decades of obsession with budget slashing and austerity as a supposed solution to economic crises.
https://en.wikipedia.org/wiki/Gramm%E2%80%93Rudman%E2%80%93Hollings_Balanced_Budget_Act
This Third Way grouping was a stealth operation run by Wall Street to carve out a political bloc which would pose as liberal on social issues, but more to function as a transmission belt for neo-conservative economic thinking into the Democratic Party, which would carry out a gradual tear-down of FDR’s New Deal revolution. But it was understood that in order to be marketable they could not make even a hint about messing with entitlements, such as Social Security and Medicare, a guaranteed political death sentence. But that was always an item high on their agenda.
Now, twenty-years later they use euphemism and buzzwords to mask the same hidden agenda. They call what they intend to do with entitlements “reform.” And they use the same lying Chicago School language and fabricated statistics about why these programs are headed for insolvency. They argue that in order to reduce our deficits we need to end our dependency on government “handouts.” (A pejorative and largely fake characterization I would add.)
Therefore they don’t use the words “cut” or eliminate.” They substitute the word “privatization.” First, they convince us that government bureaucracy is incompetent, redundant, and wasteful, and that the private sector is much better at managing everything because of the profit motive. Then they make the case for why states should decide how to care for those thrown off of the safety net. Which of course they can’t, because they can’t borrow.
It is easier for unregulated corporations to engage in profit-taking and “eliminate waste,” because under Laissez Faire, they can rationalize anything with the excuse of “market forces” determining their actions. Market forces is the modern equivalent of the old Laugh-In skits by Flip Wilson, who did bad things in his drag outfit and would say “the devil made me do it.”
In other words, corporations free of government regulation can game the markets to steer and rig them. The classic case is what happened with the Bush family’s Texas friends at Enron, to see how they made a killing on the speculative markets and securing loans by manipulating energy prices.
Third Way’s program is Wall Street’s way. They are gaming the electorate, posing as a fusion between social liberals and fiscal conservatives to appeal to people who feel victimized by the corruption of the leadership of both parties. Gun control for the liberals, tax cuts for the conservatives, all bound up in the same package.
But specifically they are posturing now to capture the votes of disatisfied Democrats, who have been sucked into the arguments for fiscal austerity as the solution to their personal struggles with inflation. It’s a ruse. Price inflation is the function of price gouging and market rigging by people committing grand theft and blaming it on the “Devil” of market forces.
They are also using the MAGA culture war manufactured “Trans panic” to convince Democratic voters that the Democratic Party has gone too far to the left. There are some people who virtually lose their reason at the idea of Trans women in women’s sports, or so-called “biological men” using public Ladies Rooms, even though the instances of both are near zero. Media slimeballs like Bill Maher play into that kind of bigoted populist rage, and several Democratic potential presidential candidates intend to play that card to cut into the white moderate suburbanite GOP vote.
In the meantime Third Way is now targeting progressives for representing extremism, anti-semitism, even Marxism, and who are therefore seen as unsuitable to be the “face of the party.” The centrists have been making the utterly false argument that progressives can’t win elections, because the Democratic base is “turning right.” That has been the line of the corporate centrists at the DNC since the 2024 election. This is why behind the scenes Nancy Pelosi and the old Clinton team like Carville are pushing the racist trans-bashing Rahm Emanuel for the Democratic nomination. Emanuel spearheaded the Clinton administration’s “triangulation” with the then Gingrich Republicans, the result of which was NAFTA, the horrific GOP Crime Bill, and the brutal welfare reform.
Now in light of recent election results the belief that progressives are unpopular ranks right up there with the 1948 headline “Dewey Defeats Truman.” The centrists are increasingly discredited by the growing activism of Democrats who object to the non-combatant “conscientious objectors” status of the DNC leadership with respect to the criminal Trump regime.
The adoption of budget austerity by people calling themselves Democrats is in direct opposition to not only the will of the Democratic base, but the historical legacy of the Democratic Party itself. According to a recent CBS poll, 90% of Democratic voters support Medicare For All, a government funded single-payer system which takes the obscene profits out of health care which are used to deny coverage to people of moderate means or low income.
Hakeem Jeffries, slated for House Speaker if the Democrats retake the House, was asked about whether he supports Medicare For All. His answer reminded me of the story of the Chameleon that died of a heart attack when it accidentally wandered onto a swatch of scotch plaid cloth, trying to change colors to blend in.
The only reasonable response one could have which matters takes the form of a question...”how can someone who lives so entirely in the world of politics for appearances sake look at themselves in the mirror?” If there were such a thing as a televised award show for speaking Gobbledygook, Jeffries would have the Lifetime Achievement award named after him.
So, we will come back to this, because the coming elections, strategically important as they are, are not the Alpha and Omega of our continued existence as a nation. More important in the long run is us figuring out what is true as opposed to lies, and exploring how it is that we continue to be fooled again and again by clever liars. If we don’t get somewhere in addressing that, our national sickness known as MAGA will persist, reproduce, and continue to exacerbate our ills.
The best way to do that is to take our most ingrained opinions, most adhered to axioms, such as “the government should run its budget just like a household,” and scrutinize the hell out of them.
That is how they get their hooks into us. And this, in my view, is how we can get free of them.
Next installment...Germany tried Democratic centrism in the early 1930’s under Chancellor Heinrich Brüning. His austerity regime paved the way for Hitler, though he was anti-Nazi.
Addendum in response to questions and comments—
“The other important history of the Chicago School is that the austerity and structural adjustment programs they’ve designed for indebted nations are so destructive that they are referred to as “shock therapy.” Milton Friedman personally set up the economic plan for Chile in the 1970’s. The program was so brutal that it required a fascist dictator to carry it out. Kissinger arranged for the coup against Salvatore Allende and installed General Augusto Pinochet in order to implement Friedman’s plan.
Austerity regimes need dictators to force people to accept having their living standards slashed. They say the debt must be paid to maintain the stability of the banking system. They lie about the causes of the debt to begin with, which has nothing to do with overconsumption by the population. Excessively high interest rates on loans, manipulation of energy/raw materials prices upon which they depend for export revenue. Forced currency devaluations. All factors out of control of the government and the people, yet the people are told they must get used to unemployment, hunger, grinding poverty, and shortages to pay an illegitimate debt. And as our student loan victims today have discovered, the more you pay, the bigger the debt grows anyway. Debt collection is debt slavery in these types of cases.
That policy produces nothing but revolutions, and as was the case in 1920's Germany under similar economic conditions of an unfair peace treaty, some of these revolutions turn out very bad.
Shock therapy was imposed on Russia after the USSR collapsed. Russia was looted by foreigners. The reaction was the growth of Russian ultra-nationalism which facilitated Putin’s rise to power.
Whatever we want to say about the Chicago School, their track record in every country where they were brought in is one of failure, catastrophe, and needless suffering. Because what comes first is defending the arbitrary and fictitious values of money, and the bailing out of financial institutions which are technically bankrupt but still have enormous political power.
Democratic centrism is a fraud. A fiscal conservative pushing austerity by definition cannot have liberal social values, because austerity regimes require state coercion in order to slash budgets and fend off the opposition they create against their own program. It is an illusion. It is like a prison warden allowing conjugal visits to pacify the prisoners.
(Continued… Is the Chicago School a cult?)
Yes, in a way it is a cult. A cult of ideas, not one of personality, which makes it more of a challenge to combat.
Everything they stand for starts with the founding intellectual authors of the free market mythology. Adam Smith, Jeremy Bentham, Thomas Malthus, and Herbert Spencer. They are the ideologues of a system of economics who claimed to know best how to create and manage wealth, while basing their theories on a false concept of what even constitutes wealth. Not coincidentally they were also leading apologists for the colonial British Empire system against which we fought our revolution.
We have to fight them on an epistemological level and not let them pull us into an academic discussion in which abstract or technical concepts are used as sleight of hand distractions from what is fundamental.
Is money wealth? Or is wealth the product of the creative human mind? I start with that. The concept of money is itself a political fiction, with no actual intrinsic value. If human creativity is the source of wealth, then people themselves are wealth, not money. Not “human capital” like a commodity whose labor is bought and sold, but wealth in the form of potential discoveries and inventions, the creations of the human mind. Nothing existing in nature, whether raw materials, land, minerals, precious metals, constitutes real wealth. Rather the human mind discovering the beneficial uses of such things defines value, not the fake law of supply and demand.
Jeremy Bentham’s “hedonistic calculus” is the foundation of the Chicago School. The idea is that humans are ruled by the pleasure/pain principle, pursuing the first and avoiding the former. Adam Smith called this “original instincts.” They assert that this is what determines human economic behavior, and that “the markets” supply/demand dynamic is what determines real value in economies. Adam Smith argued for the existence of an “Invisible Hand” which determined how markets behave.
All of this academic foppery were arguments made in defense of a criminal empire born of a global system of piracy, which fortunes were made from slavery, raw materials extraction, Opium, and committed genocides by stealing the food produced by their colonial possessions. That is what these historical frauds called “free trade.”
That is the Chicago School. A model rooted in the British Empire whose military and maritime power were put at the service of looting, and exploitation of labor and the theft of resources and food.
They argue that free markets are the most productive and profitable. Well, guess what....there never has been such a thing as a free market. It is a fiction, a myth, an imaginary construct. Free markets are free only for oligarchs and cartels, criminal syndicates and empires whose trade delegations are ferried by gunboats.
Most everything the Chicago School asserts as true about economies is bogus, premised on false axioms. I have always joked about them being named after Al Capone, not the University of Chicago.
Don’t get lost in the weeds with refuting their arguments on price theory, monetary policy, demand curves, inflation, market behavior, or analytics. They are apologists for oligarchism, because that is who pays them, publishes and buys their books, and awards them with Nobels. And for what, writing code, spinning new algorithims, and publishing textbook manuals for gouging their labor force?
I would reiterate the question, what would have happened if FDR had lost in 1932 and the Mellon-Morgan-Rockefeller Axis maintained its grip on US economic policy? What would the world look like today in the 21st century? That is one way to look at it.
The other is what will it take and how much will it cost in real economic terms to repair Trump’s damage. How and why would anyone argue that a balanced budget, much less deficit reduction is possible in any universe under such a needed restoration of our government's necessary functions? Is our national purpose to get out of debt, when both the policy, the individual criminals behind it, and the debt itself are illegitimate?
That question will be on the table hopefully very soon, waiting for the right answers.
(Photos, Peter Peterson, third on right, with Nixon, Treasury Secretary Connally, Kissinger. Jonathan Cowan at Third Way conference with Democratic centrist Jim Messina)
No posts
Comments
Nothing yet. Say the first thing.
Sign in to join the conversation.