The Kochs' quest to save America
10/13/2012 6:00 PM
10/15/2012 3:39 PM
In January 2009, just days after the inauguration of President Barack Obama, Charles and David Koch met in their company headquarters in Wichita with their longtime political strategist, Rich Fink.
The country was headed toward bankruptcy, they agreed. Fink told them bluntly that Obama’s administration represented the worst of what Charles and David fear most: a bloated, regulation-heavy, free-spending government that could plunge the country into another deep recession. That day, Fink advised two of the richest men in the nation that it would be the fight of their lives to stop the government spending spree and to change the course of the country, starting with the 2012 election.
“If we are going to do this, we should do it right or not at all,” Fink, 61, recalled telling the brothers. “But if we don’t do it right or if we don’t do it at all, we will be insignificant and we will just waste a lot of time and I would rather play golf. “And if we do it right, then it is going to get very, very ugly.”
Three and a half years later, Obama accused the Koch brothers of engineering “a corporate takeover of our democracy.”
The brothers’ political spending and the network of conservative political organizations and think tanks they fund have sparked protests.
Two years of condemnations and criticism prompted Charles Koch to break his silence about politics. In his most extensive interview in 15 years, Charles Koch, along with his family and friends, talked about why he wants to defeat Obama and elect members of Congress who will stop what he calls catastrophic overspending.
Government recklessness threatens the country and his business, he said.
The Kochs say the price for their political involvement has been high: Death threats, cyberattacks on their business, hundreds of news stories criticizing them, calls for boycotts of the company’s consumer goods, and what the brothers see as ongoing and unjustified public attacks from the Obama administration.
The Kochs aren’t finished. Win or lose in November, they plan to start a new fight. They are organizing dozens of business and grassroots groups to build support for eliminating all corporate and agricultural subsidies.
The country must deal with corporate welfare, which they say exceeds $350 billion a year, before it can rein in spending on Social Security and Medicare, Fink said.
“How is any American going to feel good about reforming Medicare, Medicaid and Social Security when there is so much cronyism going on with these companies, and businessmen are making off with so many tax dollars?” Fink asked.
The Kochs won’t say how much they are spending or specifically what they are doing to defeat Obama, but it’s enough to prompt critics to question how much political influence one family should have.
“The Koch political machine is the most elaborate, comprehensive financial dip into American politics since Standard Oil and the robber barons a century ago,” said Larry Jacobs, a political scientist at the University of Minnesota.
“This is the 21st century version of how you buy yourself a government in America.” Their motive, Jacobs suspects, is wealth. “The rest of this may well be the means to an end.”
Charles Koch says his enemies accuse him of maneuvering “so that we can be free to plunder or exploit people, exploit our employees, exploit our customers.
“And if that’s true, why are we the only large company that’s doing this?” he asked. “If this were the easy way to make money, why wouldn’t they be doing it?”
Charles Koch said he would prefer not to get involved in politics.
“I look at those activities as defensive,” he said. “That is, we need to preserve enough liberty and enough of a market economy so people can speak out and have independent resources to provide diverse opinions, and try to put some limits on the growth and intrusiveness of government.”
The brothers say they are taking risks by speaking out. Mark Holden, Koch Industries’ senior vice president and general counsel, said there has been a progression of attacks and lies about the company since Obama’s election, including:
Summer 2010: Austan Goolsbee, then Obama’s chief economic adviser, commented on Koch Industries’ tax status during a briefing with reporters in Washington, accusing the company of not paying taxes.
Under federal law, it’s a crime to improperly access or disclose confidential tax information, according to Holden, who suspects the administration was trying to intimidate them because of their political views.
“It was false and malicious, too,” Holden said. “We pay a lot of taxes.”
May 2012: Stephanie Cutter, Obama’s deputy campaign manager, said in a video that the campaign is “going to call their BS,” referencing the Kochs.
“Really?” Holden said. “If my kids said that to me, they’d be going to their room. This is the deputy campaign manager? This is the discourse in this country?”
May 2012: David Axelrod, Obama’s senior political consultant, told the media in a telephone conference that Mitt Romney is being aided by “the (political strategist) Karl (Rove) and Koch brothers’ contract killers in super PAC land,” according to news accounts.
“And when you have Axelrod, one of (Obama’s) top campaign officials, saying we are contract killers — I mean, I don’t know how somebody in the administration can say that about a private citizen,” said Charles Koch. “The attacks are unbelievable.”
“It’s frightening because you don’t know what they’re going to do,” he said. “They have tremendous power. They can destroy just about anybody, whether you are totally innocent or not.”
July 2012: U.S. Sen. Frank Lautenberg, D-N.J., read a statement on the floor of the U.S. Senate accusing the Koch brothers of being “two of the biggest sources of secret money in politics.”
With photos of the Koch brothers as a backdrop, captioned “The Koch Brothers: Subverting the Democratic Process,” Lautenberg spoke for three minutes, accusing the brothers of picking their preferred politicians.
“If these wealthy individuals want to pick our next president, they should have the muscle and the courage to stand up and say so, tell everybody what they want to do to our democracy. They don’t have the courage,” Lautenberg said.
Lautenberg also read a list of Koch Industries’ consumer products into the record, detailing the various companies the Koch brothers own. Koch officials called that action tantamount to inviting a boycott by consumers.
The attacks have forced the brothers to increase security around themselves and their families, both said. David Koch said Obama’s criticisms might tempt disturbed people to hurt them.
Obama’s “criticism can stimulate a lot of anger and dislike toward us,” David Koch said, “so there’s a huge security concern.”
The threat the Kochs fear most from the government is the potential for harassment by regulation.
“The government can shut our refineries down just by not letting us take an old heater and replace it with a more efficient heater,” Fink said. “You need a permit for that. They have the power to shut us down.”
The White House did not return calls seeking comment.
Fink said he warned the brothers that January day in 2009 about the perils of taking on the president and upsetting the special interests that fund the political system.
“I said that you guys will possibly risk the businesses that you have built and your family legacy, and there’s going to be a lot of fallback from this,” he said.
“They both of them said, ‘Absolutely not. We are committed. We believe it is the right thing to do. If we don’t save the country we are not going to have a company anyhow. So what’s the big difference?’ ”
The Kochs believe the country is racing inevitably to economic disaster. They blame Republicans and Democrats alike.
They say that overspending, coupled with future shortfalls in Social Security, Medicaid and Medicare, along with interest on the national debt, will push the country into bankruptcy, just as surely as a family that consistently spends more than it makes will end up broke.
“We’re running well over a trillion-dollar-a-year deficits with our national debt climbing inexorably to greater and greater level,” David Koch said. “The Federal Reserve, of course, is buying the bonds the federal government issues to finance the debt. And my God, if this continues to increase, we’re going to have ever-increasing inflation, it could become runaway inflation that would raise interest rates on our national debt enormously, and our country could spiral into bankruptcy.”
The interest alone that the United States will owe to China in 2025 is projected to be enough to fund that country’s entire military, Fink said.
The Kochs say neither Obama nor Romney will address overspending or expanding government.
“You go through history, the rate of increase in federal government has been almost the same under Republicans as under Democrats,” Charles Koch said. But he said that under Romney the country’s economic decline will proceed more slowly.
They also say that the country is threatened by cronyism, companies that would lobby for regulations to cripple their competitors or for subsidies rather than compete in the marketplace.
“Businesses, rather than focusing on finding what products and services will add value for people, will improve their quality of life, go to the government and get subsidies, mandates and other things, so the economy is no longer directed by individual consumers, but it’s directed politically,” Charles Koch said. “And we’ve seen what happens to societies that go there. And so that’s happening to this society.”
Although the Kochs have long complained about corporate subsidies, saying they increase taxes and the price of goods, the company accepts subsidies for production of ethanol. Not accepting them would put the company at a competitive disadvantage, they say.
Their political views date back to the 1930s, when their father, Fred, an engineer, told stories at the dinner table about building cracking units in refineries for Josef Stalin in the Soviet Union, a nation that controlled economics from central planning. Their father despised the socialism of the Soviet Union.
He “was extraordinarily fearful of our government becoming much more socialistic and domineering,” David Koch said. “ So from the time we were teenagers to the present, we’ve been very concerned and worried about our government evolving into a very controlling, socialist type of government.”
The Kochs believe that no government program can create real prosperity, and that when government interferes with the markets, whether through subsidies, taxation or excessive regulation, it diminishes prosperity.
A case in point, Charles Koch said, is low interest rates.
“I worry about the policy of the Fed, with zero interest rates. Okay, that may make some of the banks a lot of money, but what does it do to the person who saved? Who’s counting on income? How are they going to invest? They’re going to make now very risky investments to get any return. It’s zero return on depositing your money now. That wasn’t what they banked on when they saved this money and thought they’d have enough to live on when they retired.”
Another is the housing crisis. The problems, he said, started with regulations.
“Fanny and Freddie were subsidizing the majority of houses, and they were directing the banks where to put it, and underwriting losses. So once again, this is, the banks profited from this, and the losses were socialized. Taxpayers, the ordinary person, the poor people are bearing that — to enrich a few bankers.”
The Kochs think government is an obstacle to making money that should be removed, said Jim Steele, who with Don Barlett just released “The Betrayal of the American Dream.” The book accuses the “ruling elite” — including the Kochs — of impoverishing the American middle class by pushing initiatives such as deregulation, outsourcing and balanced budgets to enrich themselves.
The Kochs have spent more than three decades building a vast, sophisticated network of think tanks, university researchers and citizen groups to advocate for limited government, lower taxes and limited regulation.
“We feel that the views of the foundations that they support have been really instrumental in undermining the economic well-being of the middle class,” Steele said. Free markets to the Kochs mean freedom to make money, Steele said.
“I think they view government as an intrusion in their liberty to make money,” he said. “Any government regulation is seen as an intrusion that would interfere with that process.”
Steele said the Kochs are using money they gleaned from lower taxes on dividends and on the wealthy to finance a disinformation campaign against Obama.
Steele said claims by Republicans that Obama is responsible for the current budget deficit are preposterous.
“His predecessor ran up the deficit, and because of the issues with Bush II, the economy slows down, tax collections are down and that contributes to the deficit.
“So now they’re going to run ads basically with free money, the money they’ve saved not paying taxes on their dividends, to accuse him of the deficit problems.
“It’s truly preposterous.”
The wealthy trying to influence an election isn’t new. George Soros, a billionaire hedge fund investor, contributed around $40 million to defeat President George W. Bush in 2004, according to Bill Allison, a campaign finance expert with the Sunlight Foundation in Washington, D.C.
But checkbook politics got a huge boost in 2010. The U.S. Supreme Court, in the Citizens United decision, held that government has no right under the First Amendment to restrict political contributions by corporations and unions. The spending, while controversial, is legal.
“What we’re seeing this time around is an escalation of scale,” Allison said. “The Citizens United decision has legitimized this kind of spending in a way it was never legitimized before. Soros was interviewed by lawyers for the FTC asking why he had given the money and about possible campaign finance violations. With Citizens United, you’ll never see that kind of scrutiny again.”
Only a crisis can produce real change, economist Milton Friedman wrote in 1982. “When that crisis occurs,” he wrote, “the actions that are taken depend on the ideas that are lying around.”
The Kochs spent three decades making sure they had plenty of ideas lying around.
One of the biggest idea generators is the Mercatus Center, started by Fink with seed money from Charles Koch. The group has studied the privatization of Social Security and analyzed environmental regulations asking if they do more harm than good. The answer is often yes.
In 2004, The Wall Street Journal called the Mercatus Center the most important think tank you’ve never heard of. When President George W. Bush’s Office of Management and Budget late in 2001 sought suggestions for regulations in need of reform, 14 of the 23 “high priority” changes it considered came from Mercatus. Eight of those dealt with environmental regulations.
The center is housed at George Mason University in Fairfax, Va., where Fink once taught economics. George Mason also is home to the Institute for Humane Studies, chaired by Charles Koch, and the Charles G. Koch summer internship, a 10-week program for college students who believe in limited government and low taxes and who want a career in public policy.
The institute places students with 80 like-minded nonprofits. When nonprofits need someone to testify before state legislatures, speak to groups or write letters to the editor, they can tap the institute’s talent pool.
Charles Koch says the bulk of his charitable spending goes to these type of educational activities. The family gives money to about 200 universities each semester to further research and teaching of free-market economics and support students who believe in those ideas.
The family won’t say how much it has spent to build its network. But the Charles Koch Foundation alone has given about $60.5 million to think tanks and universities since 2000, according to IRS filings. About $40 million of that has gone to George Mason and its affiliated groups. The foundation is just one of many sources of money for the network, Fink said.
It’s been money effectively spent, according to Joe Aistrup, a political science professor at Kansas State University. The Koch brothers’ political genius, he said, began in recognizing the absence of libertarian think tanks in the 1970s promoting that individual well-being and prosperity are fostered by individual freedom and limited government. Prior to that, there was “nothing at all devoted to government not doing anything, essentially,” he said.
The Kochs probably wouldn’t be nearly as successful if it hadn’t been for Fink, who said he began pestering Charles Koch around 1977. Fink, then a Ph.D. candidate at New York University, was searching for $150,000 over three years for an educational and research program on a new approach to market-based economics.
Charles Koch, his last hope for money, agreed to meet with him if he came to Wichita. Fink, who says he looked and dressed outlandishly even by late 1970s standards, bought a $1,200 plane ticket and flew to Wichita.
He had hair and a beard down to his shoulders. He bought his first suit — made of black polyester with white piping. Under it he wore a black-and-white checkered shirt and a blue tie anchored by a Phi Beta Kappa tie clip that he put on backward. As he got off the plane in Wichita, people kept staring at him.
“I thought, ‘Man, am I looking hot. I am looking sharp.’ And I said, ‘Man, it’s the suit, I am going to get me another one of these babies.’ Never did I realize what a jackass I looked like.”
After his presentation, Charles had nothing to say and Fink got on the plane thinking he had blown his last chance.
Then someone from the company called. They would give him the money on one condition: If he didn’t meet his measurable goals he would never bother them again. That was the start of what became the Mercatus Center.
Years later, Fink told Charles, “If a guy came up to me with a black polyester suit, white piping, dressed like that with a beard and hair down to his shoulders, I don’t think I would probably meet with him let alone give him the equivalent of about $500,000 in inflation-adjusted dollars. I said, ‘Why did you do that?’ And he said, ‘I like polyester. It’s petroleum based.’ ”
In 1983, Charles asked Fink to evaluate four groups he was funding, including the Council for a Competitive Economy, made up of 2,000 business leaders who had pledged to lobby Congress for an end to corporate subsidies. But when it came time to testify against their own subsidies, most dropped out of the group. “It was like a failing institution,” Fink said.
Fink and his economic students spent six weeks studying ways to bring about social change and came up with a blueprint to invest Charles’ money to advance free-market economics. They gave money to hundreds of universities to generate ideas. They funded dozens of think tanks to turn those ideas into public policy proposals. They created grassroots groups to push for the proposals. And they helped elect politicians who would turn the proposals into law.
In 1984, Fink, the Kochs and another businessman created their first grassroots group, Citizens for a Sound Economy, with about $1.5 million in seed money from David Koch. They statistically tested economic issues — international trade, a balanced budget amendment, a supermajority vote on tax increases — on membership lists of about 130 organizations and discovered that a flat tax had the greatest appeal.
The group initially called for privatizing government and adopting a flat tax. It opposed President Ronald Reagan’s highway bill because it was loaded with pork projects. It opposed Hillary Clinton’s health care reform. It also helped defeat President Bill Clinton’s BTU tax — a tax on energy — in 1993. In selected states, including Kansas, it fought tax increases and sought tort reform.
After major victories, the brothers and Fink made a mistake, according to Charles Koch. They had built a network of universities, think tanks, grassroots organizations, politicians and industry officials. “Then we kind of let it wither away. So we got new threats, we had to start over, in large part. Not completely, but in large part,” Charles Koch said.
In 2003, with Republicans in charge of the White House and Congress, but failing to control spending, the Kochs redoubled their efforts.
They launched their twice-a-year, invitation-only economic seminars to encourage business leaders to promote free-market ideas by educating their employees, running ads, raising money and contributing to think tanks and universities. The first was in Chicago with 17 people attending nonstop economic lectures.
“We didn’t even let people take a bathroom break,” Fink said. “We just wore everybody out. We presented economic analysis, basically from morning to night.”
The next year only eight business leaders came back. The seminar brought in celebrities and politicians, while still slipping in economic lessons. The sessions are now typically attended by hundreds of business leaders. The one in Palm Springs in 2011 also attracted hundreds of protesters and resulted in 25 arrests.
In 2004, internal disagreements caused Citizens for a Sound Economy to splinter into two groups. Dick Armey, the former House majority leader from Texas, launched FreedomWorks. The Kochs launched Americans for Prosperity, which called for an end to corporate subsidies and for a constitutional amendment requiring a balanced budget.
Fink won’t discuss what the brothers and Americans for Prosperity have accomplished recently.
“We’re just besieged day and night with attacks and the more visible we are, and the more we’ve done, the more attacks we get,” he said. “But we’re very aggressive on almost all the major economic issues we’re generally involved in. I think that’s actually one of the things that happened at the Obama administration, is that every rock they overturned, they saw people who were against it, and it turned out to be us.”
Some have accused the Kochs of starting and funding the tea party.
Fink says they didn’t start it; CNBC reporter Rick Santelli did when, on the floor of the Chicago Stock Exchange, he called for a tea party to protest government spending. But Fink believes they laid the groundwork for it to take hold.
“We met for 20 or 30 years advancing free-market ideas in universities, think tanks and citizen groups,” Fink said. “I am hopeful that those ideas filtered down and were part of the cause of the tea party taking off.”
They haven’t funded the tea party directly, largely because they haven’t received any proposals that meet their criteria, Fink said. But Fink said they do fund groups, including Americans for Prosperity, which give money to, and work with, the tea party.
Frayda Levy, a former book distributor who founded the New Jersey AFP chapter and is on the board of directors of the national organization, works with the tea party.
“We try to meet with these groups and try to talk to them about being a little more sophisticated about how they think about economic liberty,” Levy said.
“We hold town meetings with these other groups, and invariably, somebody there wants to talk about immigration or Agenda 21. And we try to tell them, ‘Look, Agenda 21 is not our problem. The problem is government spending and the deficit.’
“We are trying to enable the tea party movement to think through an economic framework and get some of these people out of what sometimes tends to be a more xenophobic framework.”
Charles and David Koch, each worth an estimated $31 billion, directly support causes and candidates at the national or state level.
They won’t say how much they are spending to influence the election.
Charles Koch refuted early media reports that put their tab to defeat Obama at $200 million.
“Well, the Obama campaign said they were going to spend a billion. No, we’re not going to spend that much,” he said, referring to the $200 million.
“We’re going to participate effectively in the election, let’s just put it that way,” David Koch said.
Fink said simply, “We are doing a lot.”
Providing more information, he said, would increase criticism. “Anybody who sticks their head up is going to get shot. We understand that. We’re sticking our head up and getting shot. Any information you put out there just increases the number of bullets and arrows, so why do that?”
The Koch Industries Political Action Committee has spent $2.3 million in the 2012 election cycle, according to the Center for Responsive Politics.
They’ve spent more than $60 million lobbying Washington in the past decade and $12.7 million backing political candidates, usually Republicans, since 1990.
The total amount being spent isn’t public, thanks to campaign finance laws that allow nonprofit groups to keep the identity of their donors secret.
Americans for Prosperity plans to spend $110 million to defeat Obama, its director, Tim Phillips, told the national media in early August.
When the Obama administration called on the nonprofit earlier this year to release its donor list, it refused. The Kochs say that only a small part of the money is coming from them. In 2009, the Kochs donated less than 8 percent of the AFP’s $27 million budget, according to the company. This year, David Koch told Weekly Standard, they are donating less than 10 percent of the organization’s budget.
In addition to the presidential race, the Kochs are influencing Congressional and state races. Republicans need to win control of four seats to control the U.S. Senate. In Ohio, a spokeswoman for Sen. Sherrod Brown, a Democrat, said the Koch family has invested more money to defeat him than any other senator.
“The Koch brothers have joined numerous other third-party, secretly-funded groups to pump more outside money into this race against Sherrod than has been spent against any other Senate candidate in the country, and it is the only reason Josh Mandel is remotely competitive,” said campaign spokeswoman Sadie Weiner.
In Kansas, Koch Industries was the largest donor to the Kansas Chamber of Commerce’s political action committee in the August primary, contributing $125,000 to help defeat 10 moderate senators, a quarter of the state senate.
The Citizens United ruling has made it possible for families like the Kochs to successfully dominate political debate, Steele said.
Middle-class America is losing its influence in the political process, he said.
“The idea that a handful of folks who just happen to have a lot of money have everyone’s best interests at heart, that’s not what America’s about,” he said.
But Fink says the Kochs aren’t doing anything for their cause that labor unions and Hollywood aren’t doing for Obama and Democrats.
“If you look at the money that comes in from the labor unions, plaintiffs’ attorneys, whatever, it far exceeds the resources coming in from this side,” he said. “So I would say that if it is one family or a group of people, the point of view we are trying to represent is underfunded, not overfunded. This is going to sound wrong, but what do you say to the Founding Fathers? There was a very small group of people that were a minority that changed the whole country. You say George Washington had too much influence? We shouldn’t allow them to do that? And we should have spread the influence around?”
Jacobs, the Minnesota political scientist, calls the Kochs the powerbrokers of the Republican Party, but warns that if Romney loses they may be ostracized.
The American business community, Jacobs said, is almost certain to take a dim view of the Kochs’ move against corporate subsidies.
“Once you get into the other things businesses rely upon — subsidies and tax exemptions — there’s a tension between the Koch brothers and mainstream business that hasn’t played itself out yet.”
The Kochs realize as they prepare for their campaign to end corporate subsidies that they are about to become even more unpopular with political parties and special-interest groups that depend on government.
But throughout the history of the world there have been small groups of people who have changed society, Fink said.
They aren’t backing down.
“We believe America is at a tipping point,” Fink said. “That with our debt, with our government spending, if you look at the economics of it, it is totally unsustainable. We are in the process of destroying America, of destroying the American dream. We believe just like the American revolutionaries did, there is going to be a small group of people who stand up and fight to save the country. Otherwise we have lost it.”
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