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First of all, I think, it is very important to keep in mind that the current generation of neocons did not have a conversion experience -- their parents did. These younguns have always been conservative, so it's probably not really accurate to call them neocons, except that they carry on the intellectual tradition of their parents, the real neocons.
It is shocking how many of them owe their current positions to what is basically nepotism. For example, William Kristol is the son of Irving Kristol. Elliot Abrahms is the son in law of Midge Decter and Norman Podhoretz. It goes on and on.
Now about the parents' generation, who actually experienced conversion (which is what your question is about). Many of them were what was called "cold war liberals." This was actually very common and has its roots in the 1930s. At the time, it was still respectable to be a socialist, Marxist or even a communist in the USA in the New Deal era, especially the young. The people who would become neo cons were generally first generation college educated "white ethnics" -- Jewish, Irish, eastern Europeans, Catholics. Many were associated with City College of New York, an elite, but free university in the city. As young idealists and the children of unionized Marxist workers, many were socialists, communists, Marxists, Trotskyites, etc.
But many "fellow travelers" of the communists discovered that the hard core Communist Party was hostile to individual freedom. The party enforced rigid and sometimes illogical discipline, taking its orders from the ruthless Stalinist communist party of the Soviet Union. The worst example was that the communists at first despised the Nazis; then when Stalin signed the Hitler Stalin pact, Party members were told to embrace the Nazis; then when Hitler double crossed Stalin and attacked Russia they were told to hate the Nazis again. Many, many people dropped out of the party because of this, not just neo cons, but intellectuals worldwide, as diverse as Richard Wright and George Orwell.
Many Marxists, socialists and Trotskyites abandoned the party right then and there. After the war, German-Jewish refugee intellectuals, like Franz Nauman, wrote ground breaking political science books that basically identified the way that Nazism and Stalinism, despite their differences on the left-right spectrum, were basically the same; they tried to control thought and completely dominate society through secrecy, conspiracy, lying and discipline. They identified the political concept of "totalitarianism" and pressed the idea that the Soviet Union's communism was as bad or worse than Hitler's Nazism. These intellectuals identified the fact that for communists, the ends justtify the means; they would be a relentless and amoral foe of democracy and individual liberty, and other values which liberals cherished.
These intellectuals emerged from the war as virulent anti-communist leftists. They helped create a consensus in the dominant Democratic Party of the era of "cold war liberalism," that is evident in Truman and especially Kennedy. One of the big battle grounds was Latin America where it was perceived that communists were trying to take over labor unions. (Hence the obsession years later in the 1980s with Nicaragua and El Salvador.) But the cold war liberals were still liberals -- fighting communism in Latin America with American style unions, but also violence and thuggery to combat communist violence and thuggery.
The soon to be neocons tended to continue using Marxist and Trotskyite tactics, even as they abandoned those beliefs -- organizing, secrecy, message discipline, conspiracy, and networking. They became enamored of violence overseas to combat communist violence.
What changed the cold war liberals' values to conservative was the 60s -- especially four factors that caused them to cease being liberals altogether.
First was that the 60s (white) progressive movement was not at all impressed with their elders and vice versa. This was the so called new left. It embraced cultural issues like the hippies, racial issues like civil rights and were generally kind of wild looking compared to the button down cold war liberals. The cold war liberals, true to their Marxist roots, were primarily concerned with class and economics, not racial justice and cultural change. They hated free love, rock and roll, "be ins", drugs, long hair and all the other styles we associate with the 60s political movement.
Second the soon to be neocons turned against the civil rights movement. While they generally embraced Martin Luther King, they thought that the "black power" movement after his death was anti-white, communistic, totalitarian and anti-American. They also were horrified by the riots of the 60s as the civil rights movement fell apart. They associated black people with crime and disorder. Hence the old cliche that a neo con was a liberal who had been mugged. The neocons could not understand why black people could not pull themselves up by their bootstraps like their immigrant Irish, Jewish and European parents. The neocons began writing frankly racist stuff about black Americans being simply unable to do what white enthics had done. An example was (Democrat) Daniel Patrick Moynihan's famous report to his (Republican) boss Nixon that the black family was hopelessly dysfunctional and unable to produce competent children and that the best policy the federal government could pursue toward urban problems would be "benign neglect."
As civil rights moved from the south to the north to integrate urban white ethnic communities, the neo cons generally waged a backlash against desegregation, or mourned how blacks and hispanics had "ruined" their old neighborhoods, like East New York Brooklyn, Brownsville, and the Bronx, and vowed to draw the line. Also they hated the demands that were being made on white-run educational bureaucracies in black neighborhoods, where many neocons had their day jobs.
Third, the issue of Israel turned them against the general anti-colonial left. They became defense hawks around the issue of the middle east, especially the 1967 war. Many of them, like Richard Perle continued to be Democrats, but congregated around the almost fanatically pro-Israel Democrat, Henry "Scoop" Jackson. This also further alienated them from the African American and Latino communities, and the New Left, which was sympathetic to decolonization in Asia, Africa and Latin America and which began to equate Israel with continued colonial authority (the West Bank) and with South Africa. Israel went from being an example of a socialist third world developing country aligned with the likes of India, Nigeria or Brazil to a militarized garrison state whose only allies were the US and South Africa.
Fourth, the neo cons redoubled their concern with the Soviets. Many were either Jewish or eastern European (eg Polish like Zbigniew Brezinski) and wanted to press the Soviets ever harder on Jewish immigration to Israel and loosening the grip on the Warsaw Pact countries of Poland, Hungary, Czechoslovakia and Yugoslavia.
Their intellectual realignment from liberal to conservative was complete by the election of 1980. Just as Reagan captured blue collar and white ethnic Democrats, as a backlash against the 60s, black power, "anti-American" sympathy for decolonizing countries like Vietnam, etc., the neocons were the intellectual component of that switch.
These neocon parents however, raised a generation of children who were exposed mainly to the conservative era of their thinking and who heard that their parents' Marxist and liberal pasts were a mistake or folly of youth. The younger generation, that first got high jobs in government during the Reagan administration, inherited their parents tactics of Marxist organization, secrecy, conspiracy, networking and power grabs, but little of the nuanced thinking. The younger generation, in other words are more or less RW thugs and conspirators.
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