Sympathy for the Losers

Warning: this post is going to be long, complicated and aggravatingly varied in subject but the point will be made vividly clear.
Disclaimer 1: I do not consider myself a part of the Tea Party movement. I am not considering getting involved with any aspects of Tea Party movement. I consider the Tea Party movement very misguided and dangerous.
Disclaimer 2: This blog and others associated with it will be written for pretty much anyone interested to understand—therefore it will be long and detailed.

 

ron-paul-iowa From the get-go, I have distrusted the Tea Party movement as a bunch of quacks who don’t know what they’re talking about. I still believe they’re a bunch of quacks who don’t know what they’re talking about. At this point in time, however, considering the knowledge of where the movement was borne out of, the Ron Paul (R-TX) Revolution of the 2008 election, I have a sliver of understanding of the Tea Party movement. It has, however, morphed into an unhinged monstrosity that will be swallowed whole by the Republican party, one of the Tea Party movement’s true enemies.

I should elaborate—much. Ron Paul is as Libertarian and truly conservative as you can get. A few notes on Ron Paul based on the history of his activity as a congressman and from his book The Revolution: A Manifesto:

  • Strict Constructionist view of the Constitution
    • “Strict construction requires a judge to apply the text only as it is written. Once the court has a clear meaning of the text, no further investigation is required. Judges should avoid drawing inferences from a statute or constitution and focus only on the text itself.
    • Paul is against Roe v. Wade on a purely constitutional basis and not a moralist basis like the Religious Right argue. He believes the issue should be left up to the states & has no problem with states adopting Roe v. Wade-like laws and rights.
  • Noninterventionist
    • While Paul is not anti-war, he is against war that is not in defense of the nation—the original intent of the Founding Fathers. Paul is against the war in Iraq and escalation against Iran; he is also wary of foreign aid and collaboration with Israel for geopolitical reasons.
  • Conservative economically (not Republican)
    • Paul is against the income tax, fine with Social Security to a degree, prefers a more traditional and conservative health care system (not Republican), etc.
  • Distrustful of big government
    • Paul believes in strong civil liberty and supports the Libertarian’s American Freedom Agenda act which aims at limiting government power.
    • Paul is against the war on drugs and a surveillance state (he voted and spoke out against the Patriot Act).
  • Free-market economist, especially wary of the Federal Reserve
    • Paul is very concerned about hyperinflation and warned about the subprime mortgage crisis before it was popular to do so.

The last point, about the Federal Reserve, is especially important. Ron Paul has always railed against the Federal Reserve, going as far as demanding an official investigation into the Fed and hoping to get some reformation and rebalancing its significance in the economy and its intent.

As I learn more about the recent financial crisis (apologies, I am an economics layman), I realize just how significant the Federal Reserve is and was in the scheme of things. Of course, I always knew the Fed is a big aspect of our economy and its actions and policy carry a lot of weight but the more I learn about the crisis, the more I understand the bigger picture of, not just the crisis, but Ron Paul’s message and the Tea Party’s origins.

02ecoact-3 Again, more explanation is necessary. As a Democrat, I supported the Obama administration’s efforts to do what it could as far as fiscal policy is concerned: I supported the fiscal stimulus plan of early 2009 and hoped it would have a big effect on the recovery from the financial collapse. As it turns out, the economy has turned around significantly from a steep downturn to a steep recovery. The graph to the right shows real economic growth in Gross Domestic Product as the crisis began and the economy began to recover; the graph includes projected growth. To put it simply, Gross Domestic Product (GDP) “is the basic measure of a country’s overall economic output.” The higher GDP is in a country, the more it is producing in all aspects of its economy: manufacturing, services, etc.

docpage-recoverystats1 Essentially, real GDP rose from –6 to +2.2 since the passing of the stimulus bill in early 2009. The Democratic Party is celebrating its first anniversary and celebrating the effects of the stimulus bill however they are wrong in their fanfare. It’s true that the stimulus did in fact manage to create enough jobs to slow down the growing rate of unemployment and also did manage to keep wages in government jobs from going down however the stimulus has failed to create many jobs in the private sector, where real job growth comes from. In order for the stimulus to have worked and continue working, the federal government would have to pass another $800 billion stimulus each year until the private market begins creating jobs on its own. That, of course, is both politically and fiscally unsustainable. Economists hoping for a counter-cyclical response to the financial crisis were hoping for a larger stimulus (from $1.2 trillion upwards of $2-3 trillion) and that would have
made a much bigger difference however, as a good friend of mine, Niklas Blanchard, explained, if the Federal Reserve wants to hit a certain inflation rate target, it will do so (and no central bank has failed to hit its nominal target).

The Federal Reserve, the central bank of the United States, is the real driver in our economic recovery. The Fed has kept its inflation target at 2% and has kept money tight. As a matter of fact, if the Fed had not kept money tight in 2009, the recession would not have been as dire as it has been and unemployment would have remained at a manageable slope instead of the steep canyon it become. From a Wall Street Journal blog by Mark Whitehouse:

In a paper to be presented Thursday afternoon at the Brookings Institution in Washington, John Williams, a top staff economist at the Federal Reserve Bank of San Francisco, extracts some lessons from the way the global crisis has forced central bankers to bring interest rates down near zero — effectively exhausting their main tool to support the economy. He estimates that if it could, the Federal Reserve would want to cut rates an added two to four percentage points to bring the unemployment rate down more quickly. And he asks whether they might in normal times want to allow a bit more inflation, and hence higher interest rates, to give themselves more room to lower rates if they get into this predicament again.

Mr. Williams concludes that an inflation target of 2% is fine as long as one of two conditions holds: (1) The economy of the future is no more volatile than that of the last 40 years, and the inflation-adjusted interest rate needed to keep the economy running at full capacity is no lower than 2%, or (2) a combination of fiscal stimulus and unconventional monetary policy, such as the billions of dollars the Federal Reserve is pumping into bond markets, is implemented when needed — and has some impact.

Joseph Lazzaro wrote that Paul Krugman has also argued that the Fed needs to “buy another $2 trillion in assets to make more credit available”. In essence, the Fed needed to ease up monetary policy to push banks into lending money instead of hoarding it which would make business investments more common, speeding up recovery and, as a result, diminishing the growth in unemployment and—possibly even shoot unemployment back down to a reasonable level.

Ben-Bernanke-Money--35914 The Fed, however, did none of that. The Chairman of the United States Federal Reserve, Ben Bernanke, grew up during the 70s and is wary of creating a situation that would lead to the high inflation and spiraling prices and wages that resulted from the oil-shocks during that decade. Because of that apparent trauma, Bernanke has been dedicated to the 2% inflation target despite the fact increasing the target to 4% would have made a huge difference.

Back to the stimulus: the fact that the Fed has kept the target at 2% and has kept a tight money policy has basically made the $800 billion investment from the stimulus package mostly ineffective. It can be seen as a goodwill gesture that created some jobs, or at least kept some jobs from disappearing, but most of the recovery was the result of time and the Fed policy as it was. As the economist was noted as John Williams saying in the above quoted Wall Street Journal article, if the Fed had went off its traditional policy, many, many more jobs could have been created and recovery would have skyrocketed.

Back to the Tea Party and Ron Paul: the tea party was very right in being offended and angry by the bankers in this country. The problem is that Bernanke’s conservative and cautionary policy is the direction the Tea Party people should voice their rage. The Tea Party began as a Ron Paul revolution, angry at Washingtonian politics that has evaded the silent fervor of the people (who trusts politicians?). It also began as an angry cry against the bankers and the Fed but that is where the Tea Party has begun to collapse and fail.

Understanding the role the Fed played in the crisis and the lack of proper recovery gives you a good picture as to why people should be angry. I do sympathize with the spirit of the Tea Party movement. As I said in my disclaimer, however, I do not agree with them: their platform and arguments have been skewed and distorted every which way. The movement, in essence, has become a caricature of itself.

Tea Party leaders met with Republican party leadership on February 16 this year; Republican National Committee Chairman Michael Steele spent four hours answering questions and working with Tea Party leadership towards a common goal. This is a big problem, not just for the Democratic Party, but for the Tea Party movement itself. The Republican Party has not been the conservative party of Ron Paul for many decades (Michael Steele says it hasn’t been since 1994 but it goes much farther than that). The Tea Party borne out of the Ron Paul revolution is not the Tea Party of today and because of that fact, it has become nothing more than an extra limb of the Republican Party.

Tea Party leadership has been guiding the movement towards a banker friendly, anti-Obama and anti-Liberal movement instead of the post-partisan movement that it once was—or, at least, part of the movement was. The Federal Reserve has kept its ideological commitment to keep its inflation target and tight money policy, ignoring the needs of the economy and the people who have been losing their jobs and will still not have a job when their unemployment benefits run out in early 2010. The people of the United States have not only been stabbed in the back, repeatedly, by the politicians who pretend to represent them—both the Democratic Party and the Republican Party share the blame for the many wounds that have led to distrust in government—but they have been stabbed in the back by the market itself and the Federal Reserve bank that is supposed to keep the economy running smoothly.

GOP-seal Worse yet, the Tea Party movement has aligned itself with one of its enemies, the Republican Party; the Tea Party leadership has stabbed the true, original and genuine movement members in the back. Not only is the Tea Party movement comprised of the dejected people of America who feel obligated to rally against the injustice of government, but it is also comprised of people who have lost their way. They defend bankers against the Obama administration’s attempts to rein
them in as banks abuse the system and dole our outrageous bonuses despite the fact they received tax payer money to keep their businesses afloat. They defend the health care insurance industry that has been subsidized through government subsidies and government policies (the Medicare system takes in the elderly, the most expensive people to insure; this keeps the insurance companies free from having to insure these people, lowering the costs to insurance companies and maximizing profit) even as these insurance companies deny care to those who need it the most and is a part of the problem in the overwhelming cost of health care that can literally break the bank and bankrupt our country. They defend the many wars the Obama administration inherited from its predecessor, the Bush administration, despite the fact their founding father, Ron Paul, is a noninterventionist.

In truth, the Tea Party movement has morphed from what Ron Paul had wrought into nothing more than another limb of the Republican Party. The grassroots movement was stolen and derailed, albeit very early on, by conservative, Republican Party tied organizations such as Freedom Works who took the energy and turned it into a shadow of its former self.

The Tea Party movement began as a bunch of losers, people betrayed by their politicians and the banking system. Now it has solidified itself as a bunch of losers for being misguided into the trap of the Republican Party machine.

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