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As the 2012 elections approach, there is now a left wing protest movement to mirror the right wing Tea Party. Occupy Wall Street (OWS) and its many offshoots claims to represent “the 99%” of Americans who are not among the richest 1%. Like the Tea Party, OWS sees economic catastrophe ahead if America’s economic system is not fundamentally changed. However, unlike the Tea Party, which places the blame for America’s economic woes on the doorstep of politicians, OWS points the finger squarely at Wall Street – and anyone else that makes enough money to qualify for a “1%” membership card.

It is actually refreshing to see Americans from both sides of the political spectrum interested enough to actually object to something. Whether marching around and carrying signs actually accomplishes anything is debatable. However, the Tea Party has already shown that political careers can be made or ended when enough people get both fed up and organized. While OWS is not as politically organized as the Tea Party was at this point in 2009, it has already made it over the toughest hurdle – getting a critical mass of people off the couch and out into the streets. As labor unions and other left wing special interests get more involved, it is likely that a bona fide political movement will emerge from the present confusion. Like the Tea Party, OWS might even change a few seats on their side of the aisle. But what then?

If the results of the Tea Party Congress are any indication, the answer to that question is “nothing.” Yes, the new Congress made some symbolic statements, like requiring the members to read the Constitution aloud during the opening session. However, when it came to actually advancing their supposed agenda in a substantive way – cutting the size of the federal government and reigning in deficits – not much happened. A proposal emerged to cut $100 billion out of the $1.6 trillion deficit, which would have been meaningless even if it passed. Beyond that, it’s been business as usual inside  the Capitol, with Congressmen from both sides of the aisle continuing to spend money that the federal government doesn’t have and kicking the can a  little further down the road.

Left wing Americans should already know that the electoral process is unlikely to produce substantive change. As the third year of Obama’s presidency draws to a close, there is almost nothing of substance that either his supporters or his critics can point to that differentiates his presidency from that of George W. Bush. Both championed and got passed an expansion of government involvement in the health care system that costs taxpayers about $100 billion per year directly and likely causes distoritions in the health care market that are far more costly than that. Both started a few new wars in the Middle East. Both expanded the federal government’s power to spy on its own citizens. Both passed “sweeping regulatory reforms” that further crippled America’s already weak economy. Both expanded executive power unconstitutionally. Both set new precedents in attacking the Bill of Rights.

However, the similarity between the two that should resonate most  with OWS supporters is this one: both filled their cabinets with Wall Street and corporate insiders and never made a move that those special interests didn’t like. Sure, Obama made some populist, anti-business statements early in his presidency, but when it came to “Change” in the healthcare system, his program turned out to be a half trillion pear year handout to the health insurance industry. That wasn’t exactly what the true believers had in mind, but it was business as usual for corporate-owned Washington.

In short, two hugely trumpeted “revolutions” in American politics – a leftwing  one in 2008 and a right-wing one in 2010 – have failed to move the needle one degree in Washinton, D.C. A lot of articles were written and a lot of television talk shows were provided with material about both, but absolutely nothing has changed. Sooner or later, one has to answer the question: Why not?

The answer is that even the genuine grassroots members from both the left and the right don’t understand what is ailing America. They know something is wrong, but decades of government propaganda bolstered by shoddy education have left most Americans unequipped to figureout what it is. In fact, both the Tea Party and OWS share the same fundamental misconceptions about The Problem.

Both the Tea Party and OWS believe that Republican presidents, especially Ronald Reagan, had somehow created a laissez faire capitalist economy during their presidencies. The Tea Partiers believe that America must get back to Reaganomics, while OWS believes it was the root cause of today’s problems. Both of them are wrong. Neither Ronald Reagan nor George W. Bush signed one bill that substantively made the American economy more laissez faire. In fact, Bush actually signed Sarbanes-Oxley, which he himself called “the most sweeping regulatory reform since the New Deal.” Even what the media called “deregulation” during the Reagan years was mostly regulatory tweaks that were passed under Carter. Tom Woods covers this in detail in Rollback, so I won’t attempt to reconstruct the whole argument here. In short, “deregulation” never happened. It was just one huge, Jedi mind trick, similar to “hope and change.”

That brings us to misconception number two: regulation itself. Both movements misunderstand the relationship between our present corporate economy and government regulation. The Tea Party believes that getting rid of regulations as Reagan supposedly did would “get the government out of the way” of America’s corporations, resulting in huge gains in productivity and employment. OWS believes that more regulations will reign in “corporate greed” and protect the little guy from those same rapacious corporations. Again, both of them are wrong.

A truly unregulated free market would not result in a few, large corporations controlling every economic sector. Nor would it result in most of society’s wealth being concentrated within a small percentage of the population. While no one alive has ever lived under such a system in terms of the entire economy, we have seen it in a particular sector within the last two decades. As Bill Bonner pointed out, the high tech industry existed for a time as an unregulated free market. Did this result in entrenched corporations getting bigger and concentrating even more wealth in the hands of a few? Absolutely not. As Bonner reminds us, “They created an entirely new industry…with new companies nobody had ever heard of. And then, they destroyed some of the biggest businesses in America.”

Government regulation creates barriers to entry for new firms and dampens innovation. In other words, it insulates entrenched corporations from competition, causing the very consolidation and concentration of wealth that OWS objects to. That’s why established corporations never object to new regulations. Why should they? They end up writing the regulations themselves with one thing in mind – protect their position from the competition that would occur in a free market. That’s what makes left wing support for increased government regulation so tragically ironic. It’s like they are rushing to the scene of a fire with a sistern full of gasoline.

The Tea Party purports to favor less government regulation, but they have no idea what the results would be. They, too, do not understand the difference between our present corporatist system and a free market. Were the economy truly deregulated, most of the corporate giants that they hold up as symbolic of the free market would be gone. Only those that could deliver better products at lower prices in the face of unrelenting competition would survive – and only for as long as they could continue to do so. Upward mobility would return. Large fortunes would again be made by “college drop-outs, computer nerds, products of teenage mothers and broken marriages” (Bonner again), just as the misnamed “robber barons” largely came from the ranks of the poor. Conservatives didn’t like that in the 19th century – and they might not like it now, either. But that’s what the free market does. It rewards innovation, productivity, and achievement, regardless of the social pedigree of the innovator.

Neither OWS nor the Tea Party recognizes how economically destructive the gargantuan U.S. military establishment is. There were some left wing protests against the Iraq War during the Bush years, but that is a non-issue for OWS. Now that there is a Democrat running the empire, the left seems to have made its peace with war. The left never objected to the continuation of the decades-long occupations of Europe, Japan, Korea, or the 130 or so other countries that the U.S. government currently has troops in. In purely economic terms, those programs dwarf the active wars.

Of course, support for this trillion-dollar-a-year abomination is a key plank of the Tea Party movement, which is against taking money from one American and using it to buy healthcare for another American, but has no problem taking money from one American and using to (supposedly) buy “freedom” for people in other countries. Not only is this direct transfer of wealth draining America of scarce resources, but it has completely skewed what’s left of American manufacturing towards producing products that don’t increase wealth. Wealth is only increased when products are produced that people voluntarily buy. No one voluntarily buys weapons or the services of military personnel. And those resources in turn don’t produce anything at all.

Both the left and the right view imperialism as somehow part and parcel of laissez faire capitalism. Nothing could be further from the truth. The foundation of capitalism is voluntary exchange. There is nothing that a military force can do under the guise of “protecting America’s vital interests” or “opening up markets for American companies” that has anything to do with capitalism or voluntary exchange. Even if an army really did influence people in other countries to trade with American companies, that would not be capitalism any more than Fannie Mae or Freddie Mac influencing people to take out loans was capitalism. When it’s not voluntary, it’s not a free market. Whatever its true purpose is (and there are a lot of theories about that), the U.S. government’s massive military establishment is just another large, bankrupt government program.

However, the most harmful misconception that OWS and the Tea Party share is not really a misconception at all. It is the failure to recognize the most destructive element in the American economy – the Federal Reserve. The failure of either movement to make the Federal Reserve a priority or even acknowledge its existence explains many of the other misconceptions. Both the artificial booms that each attribute to their presidents of choice – Clinton for liberals, Reagan for conservatives- and the inevitable busts that each blame on  presidents of the other party- Carter and Obama for conservatives, Bush 1 and Bush 2 for liberals – can all be traced back to the predicable results of Federal Reserve monetary policy. Even if all of the other economic interventions were eliminated and this one intervention were left in place, most of the economic problem would still exist.

The Tea Party claims to oppose Obama’s “socialism,” but fails to see the Federal Reserve as a fundamentally socialist institution. Its stated purpose is to transfer wealth from one individual or group to another at the direction of central economic planners. It doesn’t get much more socialist than that. A few conservatives might object to the way that a particular Fed chairman conducts the business of the Fed, but almost none object to the Fed itself. Yet compared to the transfer of wealth that occurs when the Fed inflates the currency, all of the U.S. government’s welfare programs combined pale in comparison. Since the Fed transfers wealth to Wall Street and corporate America, one might understand their reluctance to oppose that aspect of it. But what about a small group of government hacks attempting to direct the entire economy? If that’s not “socialism,” then what is?

OWS is similarly disinterested in the Federal Reserve, even though it exists to transfer wealth from the 99% to the 1%. For both groups, ignorance is probably the majority of the problem. The Fed has managed to stay out of the spotlight for most of the past century, taking the credit for supposed recoveries and avoiding all blame for the business cycle itself. Yet, even if it did what it purported to do, it should still be Public Enemy No. 1 to both OWS and the Tea Party. Until most Americans understand how destructive this institution is, no amount of “reform” is going to make our economic problems go away.

So, the next election will be influenced by two grassroots movements committed to solving America’s problems. One says that the problem is government. They are right. The other says it is corporations and the financial elite. They are also right. As a friend of mine likes to say, both groups “are in the ball park, but they haven’t found their seat.” One can only hope for a moment of clarity on both sides. If they could only see things as they really are, they’d be marching side by side.

Tom Mullen is the author of A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

© Thomas Mullen 2011