First came a giant federal bailout plan, designed and orchestrated by the Bush administration. The price tag for this bailout was placed at $700 billion. The US Treasury used taxpayers’ money to buy bad loans and rotten assets from the very banks that created them. Treasury Secretary Henry Paulson, a former Goldman Sachs executive, promoted the plan on national television, saying it was vital to stopping another Great Depression. A Republican, in other words, was made a passionate argument for government intervention on the scale of the New Deal. Surprisingly, the strongest resistance to this plan came from Paulson’s own party. Republicans in Congress voted against the bailout in September of 2008. The stock market crashed more than 700 points when they did so. The plan was eventually passed. It was seen as a last stand for the theory of laissez-faire.
Even worse, from Charles Koch’s point of view, was the election of Barack Obama to the presidency in November. Now, Democrats controlled all three branches of government. The mood of America was decidedly running against Charles Koch’s beliefs. The mood was deeply “illiberal,” as he would call it. There was clamoring for more government intervention, more regulation, and more money for entitlement programs.
What was unspoken, but what Charles Koch understood, was that all of this would also mean more taxes. In January of 2008, even before the Democratic takeover, Charles Koch warned that too many Americans were putting too much faith in government programs to solve their problems. The result was inevitable: “To support that spending, taxes will escalate,” Charles Koch had written in the company newsletter. Who was always the primary target of higher taxes in American history? The richest Americans and the largest corporations. Charles Koch happened to be sitting atop one of the largest fortunes in the world, and one of the largest private corporations in the country. The Democratic Party had been explicit in its promise to tackle concentrated wealth.
This moment was dangerous, in Charles Koch’s view. Free enterprise had not seen such a direct threat since Franklin Delano Roosevelt’s election. Roosevelt’s New Deal had hemmed in corporate America for the following thirty years. Barack Obama’s presidency promised to do the same. The comparisons were neither subtle nor hidden. On November 24, 2008, the cover of Time magazine featured a photo illustration with Barack Obama’s face superimposed onto FDR’s body, sitting in a car, smiling, complete with a long-stemmed cigarette holder. The headline read: “The New New Deal.”
The new New Deal already seemed to be in the works. Just over a month after he became president, Barack Obama passed a government stimulus package aimed at boosting economic growth. The package was valued at $787 billion and included new spending programs on infrastructure and renewable-energy programs. There was intense political energy behind these interventions. The public narrative held that a political savior had come along to tame the worst instincts of a private market run amok.
But the story that Charles Koch told his employees that night at the dinner party was very different. As he spoke to groups of employees, Charles Koch spun a story about government malfeasance, public ignorance, and increasing harm to free enterprise and prosperity. Charles Koch did not believe that markets needed to be tamed. The very fact that so many people subscribed to this belief seemed to prove that most American voters were profoundly misinformed. Even the nation’s CEOs and business leaders were delusional on this point. They refused to accept the most important, most overriding fact: the American economy was not a free enterprise system in the first place. It was not a free enterprise system when FDR was elected, and it certainly was not one now. Government control and intervention were so deeply embedded in the American way of life that people didn’t even see it anymore. People failed to understand that it wasn’t the free market that caused the collapse of 2008, it was overweening government control and interference that caused the crash of 2008, and the crash of 1929, for that matter.
This is what Charles Koch had said back in 1974 when he addressed his think tank, the Institute for Humane Studies. Back then, he told the crowd before him that “we ourselves have abetted the destruction of the free enterprise system.”
He continued: “[W]e have allowed the free market to be blamed for fostering economic crises, when, in fact, a free market did not even exist at the time the crises occurred. A comment on the Great Depression will illustrate this point. Those who believe that the pre-1929 economy, polluted by government manipulations of the money supply, was a free market are defenseless against the charge that the Depression occurred because of unregulated market activity.”
After these crashes, in the most bitter of ironies, the American people blamed capitalism for the problem, and heaped yet more government intervention onto the problem in the hope of solving it. This is what Charles Koch believed happened under FDR, who misdirected the people from the real cause of the crisis and made the problem worse by pushing the New Deal. Charles Koch noted, in a 2009 company newsletter, that the economy was sluggish and dipped into recession during the 1930s after the New Deal was passed. What Charles Koch failed to mention in the newsletter was that the country enjoyed three decades of economic growth where prosperity was widely shared during the ensuing era of the New Deal consensus, which didn’t truly end until the mid- to late 1970s.
In 2009, Charles Koch believed that America was making the same mistakes again. The crash of 2008 was caused by “misguided government policies” rather than the shortcomings of free enterprise, he believed. These policies included the Federal Reserve Bank’s continued intervention in the money supply. The Fed kept interest rates extraordinarily low for an extraordinarily long time during the 2000s, in hopes of boosting economic growth. Charles Koch blamed that intervention for leading to the housing bubble, a point of view that was almost inarguably supported by all available data.
The true threat to prosperity, Charles Koch said, was not untrammeled capitalism. It was the risk of a centralized, command-and-control system imposed by Barack Obama and the Democrats of Congress. It was the risk that people would be fooled by the public narrative that only big government could deliver an equitable society and economic growth. At Koch Industries, they would be doing all they could do to fight this looming threat. The efforts would begin with each employee, as they did their job each day. Koch Industries itself had become a microcosm of free enterprise, a system that sought daily to obey the true laws of prosperity. The citizens of this microcosm were expected to hold true to its values and to spread those values to others to the degree that they could.
This kind of message found a receptive audience in Steve Mawer’s living room. Employees like Cris Franklin instinctively understood Charles Koch’s message. As the event broke up and everyone went home, Charles Koch’s words echoed in Franklin’s head. He saw the germ of truth in them. “You can measure the morality of a society by the number of laws they have. Well, we have a lot of laws. That’s unfortunate,” Franklin said.
* * *
Charles Koch left Houston that night and made his way back to Wichita. Once there, he resumed the routine that had occupied him since the 1970s. He woke up very early in his family estate, on the wooded property where he was raised, got ready for work, and was often in his car and on the way to the office before seven-thirty. He pulled into the employee lot as it was just starting to fill up. He sometimes preferred to take the stairwell to the third floor, rather than the elevator, walking up the extra-wide staircase that was bordered with well-marked hand railings. At the dawn of 2010, the Koch Industries Tower was a monument to Charles Koch’s success. He had set out to show the world that he had discovered the laws of creating prosperity, and his company seemed to be living proof that he’d done so.