June 18, 2019

OWS and the Tea Party: In the Ball Park But Haven’t Found Their Seats

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. 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 who 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. But 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 the federal government doesn’t have and kicking the can a  little further down the road.

Left wing Americans should already know 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 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.

But the similarity between the two that should resonate most  with OWS supporters is this: both filled their cabinets with Wall Street and corporate insiders and never made a move 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 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 Republican presidents, especially Ronald Reagan, had somehow created a laissez faire capitalist economy during their presidencies. The Tea Partiers believe 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 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 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 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 they hold up as symbolic of the free market would be gone. Only those which 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 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 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), the U.S. government’s massive military establishment is just another large, bankrupt government program.

However, the most harmful misconception 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 each attribute to their presidents of choice – Clinton for liberals, Reagan for conservatives- and the inevitable busts 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 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 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 Where Do Conservatives and Liberals Come From? And What Ever Happened to Life, Liberty and the Pursuit of Happiness? Part One and A Return to Common Sense: Reawakening Liberty in the Inhabitants of America.

Progressives Should Target the Real Robber Barons

The political winds have shifted wildly over the past four years. After decisive defeats in both the 2006 and 2008 elections, the Republican Party’s prospects seemed dreary.  There was widespread talk of how the party needed to “remake itself.”  There was even speculation from some quarters that it would fade from influence permanently, as had its predecessors, the Whigs and Federalists. Certainly, the conservative movement needed a rallying point in order to regain a foothold upon public sentiment.

That rallying point was public aversion to the radically socialist agenda of Barack Obama and the Pelosi Congress. Regardless of whether the Republicans had any new ideas to offer, they were able to remake their image quickly by jumping aboard and partially co-opting the Tea Party phenomenon. Somehow, they have again established themselves in the minds of most Americans as the party of small government, free markets, and individual liberty, their consistent behavior while in power notwithstanding.

Now, it is the Democrats who find themselves on the wrong end of a one-sided mid-term election defeat, with more of the same looming over the 2012 presidential elections. As much as the 2008 elections were a repudiation of George W. Bush and all associated with his philosophy, 2012 will be a repudiation of Obama and all associated with his. If the modern “conservative” philosophy had been thoroughly discredited two years ago, the modern “liberal” philosophy has been annihilated this year. Nothing that Democrats won on in 2006 and 2008 is going to fly with voters right now. The left needs a rallying point that will resonate with voters and make them forget why they voted them out of office just two years earlier, just as those same voters forgot why they had voted the Republicans out merely two years before the 2010 mid-terms.

If they are not to completely abandon their image as champions of the poor, disadvantaged, and working class against the power of the wealthy elite, they must find a way to restore that perception in the minds of voters without associating themselves at all with socialism, which average Americans have quite obviously choked on and spit out over the past two years. They need their own avenue to tap into the Tea Party phenomenon, or a grass roots movement like it, and appear as the party fighting for the people against a federal government run amok. Their traditional anti-corporate, pro-welfare platform won’t work. For better or worse, Americans right now associate corporatism with the free market and aversion to welfare programs has never been more ascendant. However, there is a rallying point available to the left that is completely consistent with the modern progressive philosophy and which conservatives are completely ignoring.

The left’s political dominance during the 20th century all began with the early progressive movement, which was given its first life under Republican presidents Teddy Roosevelt and William Howard Taft. However, it was the “new freedom” promised by Woodrow Wilson which established and defined the progressive platform, subsequently advanced in great strides by FDR and Lyndon B. Johnson. A core tenet of this philosophy was the need to protect “the little guy” against the robber barons of capitalism – which the progressives successfully defined in the minds of voters as anyone of great wealth, whether they have achieved that wealth legitimately or not.

Indeed, the tragic aspect of the early progressive movement was that they lumped together all successful business people as plunderers and exploiters of the working class, thus discrediting free market capitalism along with the crony capitalism that was as rampant at the time as it is now. Along with corrupt railroad companies that soaked the people for corporate welfare, only to deliver shoddily constructed railroads that all went bankrupt, the early progressives also targeted companies whose success was due to superior products and lower prices, with their profits earned from consumers voluntarily choosing to buy their products.

John D. Rockerfeller’s Standard Oil was one such example. His company was dismantled by the government after more than two decades of offering the public higher quality oil at lower and lower prices. Instead of holding him up as an example of what a truly free market could achieve for the common man, the left attacked Rockerfeller as the definitive robber baron, regardless of facts to the contrary. With his company dismantled by the government, Rockerfeller abandoned the free market and became the robber baron he was wrongly accused of being. He decided to get into banking.

This is not to repeat the mistake of early progressives. All bankers in the 19th and early 20th century were not robber barons, nor is banking a de facto dishonest profession. Like any other business, it offers a service of great value to the public when that service is voluntarily purchased by consumers. When consumers choose to store their savings in a bank or allow the bank to invest their savings by loaning it out at interest, the banks that most conscientiously and wisely protect their depositors’ interests will prosper the most. Those that make good loan decisions will be able to pay higher interest rates to depositors and provide more stability. In a truly free market, they will win, because they benefit average Americans – the political base of the progressives – the most.

However, this is not the banking model that John D. Rockerfeller helped found in 1913. Rockerfeller was no longer interested in competing on a level playing field and relying on talent and hard work to make his fortune. He had already done that successfully and had been plundered by the government for his trouble.  He was not interested in being victimized again. This time, he would be the plunderer. Along with J.P. Morgan, Rockerfeller sent a delegation of men to Jekyll Island in 1913 to devise the mother of all robber baron schemes – the Federal Reserve System.

The Federal Reserve System is the most ingenious fraud in human history. It appeals to the right because it is seen as an institution of capitalism. It appeals to the left because it is seen as a regulator of the financial system that protects the little guy from the supposedly violent machinations of unregulated capitalism. In the meantime, it funnels trillions of dollars of plundered wealth to politically-connected corporations at the expense of average Americans and those corporations which still actually prosper because they offer superior benefits to the public.

Without getting into what really goes on behind the scenes at the Fed, let us consider what the Fed purports to try to do. Ninety-seven years of results notwithstanding, the Fed supposedly regulates the market by maintaining both full employment and price stability. The left supports this agenda because its constituency depends upon jobs and affordable consumer goods in order to survive. They never stop to think about how the Fed attempts to accomplish these goals.

The Fed attempts to maintain full employment through inflation. Inflation is properly defined as an increase in the supply of money and credit, not an increase in consumer prices (more on that in a moment). During periods when unemployment is higher and overall economic growth is lower, the Fed attempts to stimulate investment in new business ventures or expansion of existing ventures by “lowering interest rates.”

However, Mr. Bernanke cannot lower interest rates with a fiat command. Instead, the Fed manipulates the interest rate by buying large quantities of U.S. Treasury bonds from its member banks. This artificially increases the demand and lowers the supply of U.S. Treasuries. It also artificially increases the supply of money available to be lent in the market. With more money available to be lent, banks offer loans at lower rates than they would if money were in shorter supply. With lower rates, more businesses take out loans with which to expand or start new ventures. At the end of this chain of events, more average Americans supposedly get hired in order to support the new business activity that has been “stimulated” by the Fed’s monetary expansion.

Taking the Fed at its word, there is still a rub to this story. The magic described above and in the Fed’s press releases does not come without a cost. The money and credit infused into the economy during this process does not come from any “reserve” that is held by the public or by the privately-owned Federal Reserve. It is created out of thin air by the Fed, which enjoys this privilege as a result of legal tender laws and the Federal Reserve Act. By increasing the overall supply of dollars in the economy, this monetary inflation drives up the price of consumer goods.

It also causes capital to be misallocated, meaning that working people are hired for projects that are not ultimately going to succeed. This inevitably happens much more frequently when banks are able to loan “free money.” When they must convince depositors to invest their own money in loans the bank wishes to make, they are forced to make much wiser choices with that capital than when the money is simply created out of thin air and handed to them, with more fiat money forthcoming if they should make a mistake. In fact, a true understanding of the economics behind monetary inflation reveals that misallocation – economic booms and busts – are inevitable when monetary inflation is allowed to take place.

Progressives should automatically be suspicious of this whole charade simply because Wall Street loves it. Whenever the Fed makes an announcement that it will attempt to lower interest rates, the stock market immediately goes up. Of course it does. Cheap money hitting the market allows investors to get in on ground floor companies and pump up their stock value with newly-created money, subsequently bailing out long before the bust occurs. When the reality hits the market that half of these new companies had no viable business plan, the stock prices collapse and the ventures go out of business and lay off their employees. This is a recession. Average Americans are unemployed while the sharks who gobbled up the cheap money to pump and dump the stocks are sitting on a beach, enjoying the fruits of their heist.

Furthermore, while monetary inflation causes prices of consumer goods to rise for everyone, it is really average Americans and the poor who are most affected by it. When the price of gasoline rises to seven dollars per gallon, the Wall Street elite have lost purchasing power in terms of the dollars they hold, but they more than make up for it during the economic booms. Millionaires become billionaires, negating the effects of a further devalued money supply, while average Americans living paycheck-to-paycheck start looking for second jobs just to pay their rent and fill up their gas tanks to get to work.

However, the most compelling reason for progressives to oppose the Federal Reserve System is because of what it openly admits it represents. Taking the Fed and its supporters at their word, the Fed is nothing more than a subtler, more devious version of “trickle-down economics,” whereby large corporations receive huge sums of money in the hopes that they will then create jobs for the little guys. There is absolutely no difference between this argument and the “Reaganomics” of the 1980’s. Any self-respecting progressive who opposed Reaganomics must oppose the Federal Reserve System. If they are not strictly opposed to government redistribution of wealth, they certainly are opposed to redistributing from the middle class and poor to Wall Street. That was the whole principle upon which the movement was founded.

There is no reason that the left should concede the Tea Party movement to conservatives. It is not fundamentally a Republican phenomenon. It is just that the Republicans are the only party that has been able to adapt their rhetoric to what the Tea Party demands to hear. The Tea Party is rediscovering America’s founding principles. However, their perceptions are being skewed toward the conservative founding philosophy that advocated corporate welfare, a large military establishment, and a central bank to provide the necessary capital – plundered from average Americans. They quote Jefferson but are deceived into supporting policies consistent with his political arch-enemy, Hamilton. They need to hear from the left on what they are missing, instead of being vilified by the left as kooks.

The true American philosophy of free enterprise as expressed by the liberal Jefferson was completely opposed to the central bank of the time, recognizing it as incompatible with the free market and wholly a vehicle for big business to plunder the people. These ideas have been dead and buried for an entire century while the Fed has been allowed to wreak its havoc with impunity. They are ripe for rebirth within the Tea Party, which would embrace Jefferson’s ideas about the dangers of central banking as readily as they do his warnings about big government. There is a strong populist undercurrent in the Tea Party. Progressives are ignoring it at their peril.

Never in its existence has the Fed been under such scrutiny in the media as it is now, nor the subject of so much public opposition. It is a grassroots fire smoldering beneath the surface, waiting for someone to strike a match. To liberals and progressives everywhere, don’t let the conservatives snatch this opportunity out from under your noses. Take up your fight against the real robber barons – the Federal Reserve System and all of its beneficiaries.

Check out Tom Mullen’s new book, A Return to Common Sense: Reawakening Liberty in the Inhabitants of America. Right Here!

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© Thomas Mullen 2010