The Deep State (8 page)

By the time of the Powell Memo, twenty-five years of permanent cold war mobilization had mellowed a lot of attitudes. A significant slice of corporate America was by now partially or wholly dependent on defense contracts. That sector of the economy was not enamored of the deep military drawdown advocated by 1972 presidential candidate George McGovern. Neither were the defense sector's executive suites—so many of them occupied by former military officers—in sync with the cultural values implicit in McGovern's candidacy. The military sector's complaint about the political and social changes during the 1960s broadly corresponded with those of Lewis Powell: they believed they just couldn't make a living anymore because of the leftist, regulatory state.

The business community responded to Powell's call to arms. In 1972, brewer Joseph Coors founded the Heritage Foundation, and in 1974, energy magnate Charles Koch endowed the Cato Institute. Many others followed. The great majority of foundations were and are politically innocuous (although the designated charitable status of some may give one pause); but the overtly political among them have set the tone in Washington, a city where politics never sleeps. The policy think tanks have provided a vast reserve army of partisan policy experts, reams of tendentious studies, and mountains of prefabricated legislative ideas for members of Congress who are too busy raising money to think about governing. The policy think tanks even came to provide jobs for political operatives when their party was voted out of power—in fact, the habit of these ostensibly
charitable organizations of providing an income, a megaphone, and the veneer of a respectable job for out-of-work political operatives may be their most important function in assuring a continuity of personnel for the Deep State.

The Wall Street–Pentagon Nexus

A robust military-industrial complex implied heavy government spending and a significant portion of the American industrial base being dependent on government contracts—the very antithesis of the low-spending, low-tax, noninterfering state that Powell and his academic forebears demanded for the sake of free enterprise. Another contradiction was that all earlier periods of war in our history were accompanied by tax hikes, increases in government intervention, and even, during World War I, temporary nationalization of the railroads. But corporate-funded think tanks such as the American Enterprise Institute and the Heritage Foundation have thrown intellectual consistency to the winds by habitually proposing higher military budgets and knee-jerk overseas intervention within a smaller federal budget embodying fewer business regulations.

The embrace of militarism even by those corporate interests that have no vested material interest in militarism has been a remarkable development in the world history of economics. The continental European founders of neoliberal economic theory had always claimed that their championing of individual enterprise was the sovereign remedy for the wars abroad and the state oppression at home that plagued contemporary Europe. But even Hayek, who said his economic writings were influenced by his personal experience in World War I and the oppressiveness of the European dictatorships that followed, appears to have changed course in this matter.

In the 1970s and 1980s, Hayek was feted by Chile's dictatorial regime headed by General Augusto Pinochet, and in the course of several visits there he claimed he had “not been able to find a single person even in much maligned Chile who did not agree that personal freedom was much
greater under Pinochet than it had been under [his overthrown predecessor] Allende.”
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It is possible that he never met such a person because the Centro de Estudios Públicos, a Chilean free-market economic think tank whose honorary chairman he was, did not receive many visits from the relatives of the three thousand people known to have been killed or “disappeared” by the Pinochet regime.

The Reagan administration's 1980 campaign platform skillfully espoused this paradoxical philosophy of free-market capitalism and heavy state spending on the military. It carried out the largest peacetime military buildup in the nation's history while cutting taxes; curtailed health, safety, and environmental regulations; and began the long unwinding of the legal structures designed to prevent institutions from engaging in reckless speculation, creating financial bubbles, and endangering the financial security of depositors and pensioners. The first of these measures was the Garn–St. Germain Depository Institutions Act of 1982, which loosened restrictions on savings and loan associations and allowed banks to issue adjustable-rate mortgages. This contributed to the savings and loan crisis of the late 1980s, the first major U.S. financial disaster since the creation of the New Deal regulatory regime more than fifty years before. The unleashing of Wall Street also began the process by which financial services displaced manufacturing as the primary source of American wealth. In 1979, U.S. employment in manufacturing peaked.
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Beginning with the Reagan administration, manufacturing began its long, thirty-year slide, as did real incomes of the middle class. Wall Street was firmly in the saddle for the first time since 1929, and it has never relinquished the reins.

It might have been expected that Democrats, the nominal opponents of Reagan and all his works, would have labored to stop the deregulation of Wall Street. But during Bill Clinton's two terms in office, he signed the repeal of the Glass-Steagall Act—the linchpin of New Deal banking regulation—and in 2000, he approved the near-total deregulation of derivatives with his signing of the Commodities Futures Modernization Act. It only remained for his Republican successor, George W. Bush, to push
through further tax cuts and anesthetize the Securities and Exchange Commission by appointing as chairman a useful idiot, former Republican congressman Chris Cox, for the completion of the deregulation process. In the words of former International Monetary Fund economist Simon Johnson, Wall Street had captured Washington.
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The military-industrial complex saw a similar elevation to unchallengeable status over the same period. By the late 1980s, the cold war had gone on for so long that it became practically impossible to radically pare down the national security state. When the Soviet Union, America's only serious military competitor, collapsed, the military drawdown that did take place was far less severe than those undertaken after America's previous major wars, and a pretext was soon found for yet another expansion.

The Cold War as a Restraint on Laissez-Faire Doctrine

For many years I have had the nagging feeling that the end of the cold war and the triumph of vulture capitalism were deeply entangled issues. This belief came not just from the obvious connection made by Francis Fukuyama and others that the demise of the Soviet Union would open additional markets and usher in global consumerism. There was another, darker symbiosis between the cold war's conclusion, the rise of supercharged laissez-faire economics, and the dismantling of the New Deal consensus. In the early post–World War II years, U.S. policy makers were quite clear that the nation-states of shattered Western Europe should never again be subject to the same kind of social polarization, rampant inequality, and economic misery that gave rise to Hitler and the other dictators. If postwar Europe were to repeat the follies of the 1920s and 1930s, the Soviet Union could benefit by supporting extremist parties and, when the time was right, coming in and picking up the pieces.

Accordingly, U.S. administrators implemented aid and development policies, such as the Marshall Plan, which coordinated well with the building of social market economies in Europe that granted broad economic opportunity to their citizens. It was no coincidence that John
Maynard Keynes, the most articulate opponent of laissez-faire economics of the era, warned the Western Allies not to repeat the mistakes they had made after World War I in dealing with Germany. Capitalism was universally understood to be in competition with communism, and it was necessary, as a matter of national security, to soften its sharper edges so as to create a positive example. America was thenceforth on (relatively) good behavior. This applied to social policies at home as well: America preferred to set a good example and practice what it preached, although this was frequently honored more in the breach than in the observance.

I recall my grandparents' return from a visit to Sweden, the country of their birth, in 1962. It was the depth of the cold war: the Berlin Wall had been erected the year before, the Cuban missile crisis was brewing, and Soviet premier Nikita Khrushchev blustered nonstop. But what did my grandfather say was the lead story in the European papers at that time? It was the activities of the Freedom Riders in the American South and the other civil rights struggles in our country. Washington was very conscious of the fact that the European public was paying attention.

Lyndon Johnson no doubt pushed his civil rights legislation for all kinds of noble reasons, but America's international image in competition with communism was a significant consideration. The more socially conservative Dwight Eisenhower had sent the 101st Airborne Division into Little Rock, Arkansas, several years before, with the same motivation. When trying to inveigle the North Vietnamese into peace negotiations during the mid-1960s, LBJ offered as bait a U.S.-funded “TVA plan” to harness the rivers of Southeast Asia and generate hydroelectric power. (After the collapse of communism, offering a Tennessee Valley Authority to your adversary would be unthinkable: these days, we would be more likely to offer an International Monetary Fund austerity plan to cut wages and benefits while privatizing public utilities. To sweeten the deal, we might push a flat tax.)
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By the time of the Plaza Accord between the United States, Japan, and the major European governments in 1985, the neoliberal Washington consensus had been cemented into the DNA of the leading noncommunist powers (the Plaza Accord was an international central bankers' adjustment of currency exchange rates intended to fine-tune the global terms of trade and correct the growing U.S. trade deficit, although it did nothing to fix the creeping structural rot of U.S. manufacturing). From this point on, a Washington-led economic consensus ruled, and political parties in the mature industrial powers adjusted accordingly; social democratic parties (and, in the United States, the Democrats), became “me too, but less” followers of the prevailing orthodoxy. After the USSR's collapse, there was no longer any global ideological competition, so the commanding heights of corporate America were free to say “no more Mr. Nice Guy.”

Clinton and Post–Cold War Hubris

It was at the apogee of cold war triumphalism that Bill Clinton came into the presidency. Hoping to cast aside the antimilitary reputation of the Democratic Party, Clinton refashioned the military into a force in readiness for rapid intervention in places like Haiti, the Balkans, the Horn of Africa, and the Middle East. Even that was not enough for his secretary of state, Madeleine Albright, who groused to the chairman of the Joint Chiefs of Staff, General Colin Powell, “What's the point of having this superb military that you're always talking about if we can't use it?”
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During the prelude to the U.S.-NATO bombing campaign against Serbia in 1999, a U.S. Army colonel who was a friend of mine had been posted to NATO Headquarters in Brussels. From his new vantage point, he passed along unclassified information about Clinton administration and interallied decision making not normally available on Capitol Hill (all administration presentations on the Hill are predicated on the notion that whichever administration is running the show is infallible). According to my friend, Albright was continually pressuring the CIA to find whatever
evidence of Serbian perfidy was necessary to justify NATO military intervention. His reports had the ring of truth as they dovetailed not only with Albright's previously expressed itch to deploy U.S. troops in combat, but also with her near megalomaniacal representation of U.S. virtue and clairvoyance (“If we have to use force, it is because we are America; we are the indispensable nation. We stand tall and we see further than other countries into the future, and we see the danger here to all of us”).
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The colonel's reports also confirmed a disturbing pattern of saber-rattling officials pressuring the intelligence agencies to find pretexts for military action. The trumped-up evidence of Saddam Hussein's purported weapons of mass destruction was not the first instance of cooked intelligence, nor is it likely to be the last.

9/11

The September 11, 2001, attacks sent the political system into overdrive: the United States began waging endless war and vastly expanding the national security apparatus (even creating a large new agency, the Department of Homeland Security). The USA PATRIOT Act legitimated heavy domestic surveillance, but even that was not enough for the Deep State, which proceeded to violate the law and the Fourth Amendment of the Constitution. Congress obligingly gave the perpetrators absolution in 2008 by retroactively legalizing the activity. Even torture crawled out of the unlit recesses of the national id.

All of these dark doings unrolled even as fortunes piled up on Wall Street, the Dow Jones average ascended to new heights, and no-document mortgages were extended to anyone with a pulse. The contradictory, even schizoid, nature of the Deep State is implied by the two most vivid cultural markers of the first decade of the twenty-first century. Less than a week after the September 11 attacks, Vice President Cheney, appearing on
Meet the Press,
hinted at what he called the “dark side” of the war on terrorism—meaning kidnapping, rendition, torture, and assassination. In so doing, he supplied a shorthand description of the dark and fearful
mental atmosphere of the ensuing decade. But this was equally the decade of $5 million birthday parties and three-hundred-foot yachts, paid for by synthetic collateralized debt obligations (CDOs) made up of bundled sucker loans.