Saturday, 6 November 2010

The Tea Party's agenda would require a fundamental rethink of what the Federal Government does (... and associated waffling)

I'm "going out of my comfort zone","pushing my boundaries", and other such clichés in an attempt to become as impassioned about US politics as UK.  Today I'm waffling about the Tea Party and assessing what kind of changes would need to take place if the kind of things the group believes in were to be implemented.

Despite having never studied economics and being mathematically inept, I'm very interested in the economy, and tend to view history and politics as being strongly influenced by the economy. Get the economy right, and people are happy, get it wrong - and as we've seen - people look for someone to hang.

The Tea Party has certainly got a point on the deficit and debt:

The graph above shows us the deficit/surplus of the USA from 1792-2009, with the areas in the red above the axis representing times when the Government was spending more than its income, and the areas in the green representing there being a Government income greater than expenditure. The deficit is currently the highest it has been in peacetime, with the sharp rise recently being due to the bank bailout and financial stimulus measures. The previous high points have been such events as World War Two - the huge increase in the 1940s - World War One, and the Civil War.  I have argued that, whilst I'd like to see deficit be eliminated in the UK, it is not as pressing as it may first seem because the UK's proportion of debt is very small compared to its historical level of debt. I cannot make the same argument for the USA:

Holy hell that's a lot of debt. This graph goes up to 2015 because official budgetary predictions are provided up to this point. It looks like even by 2015, the debt will still be increasing, but at a slower rate, so the prediction must be that by that point the USA will still be running a deficit and getting dangerously close to its huge debt after the Second World War. This debt will have to be paid off at some point, and it is therefore a fully understandable - and sensible - view from Tea Party supporters that they want the Government to start running a surplus now, as opposed to continuing to borrow, putting off the task until a later time, perhaps leaving it for children to pay off in future.

The over-riding message of the Te Party is a smaller Government - meaning less spending and less taxation, with some going as far as to say that taxation is theft. Most seem to accept a need for some taxation: a Government must at least provide police and pay for defence.

But what would this desire for small Government mean? If the Tea Party wants quick, sweeping action to ensure the Government would run a surplus again and pays off the debt, I don't think moderate cutbacks and tax rises will be enough. Debt has simply gotten too high, and the consensus on the level of debt has rested at a much higher rate than it did in the pre-WWI years. An option is to reduce the role of the Federal Government and shift it to the states. However, this doesn't solve the issue, but makes it someone else's problem. This option would leave states shouldering the burden, leaving them with the same choice of reigning in spending or raising taxes. Given that many states already spend beyond their income - California for example has around $20bn (about £12 bn) of debt - this would not be a good idea.

Taxation as a % of GDP has risen over time, yet deficits have persisted and the Debt is now remarkably high:

The amount of money taken out of the economy by the Government to fund its endeavours saw a boom in the post-WWII years, and it's never really decreased since then. It's around about the 15% mark at the moment, expected to rise to about 19% in the coming years. What we can see from this graph is that when the Tea Party campaigners seek to Blame Obama for high taxation, they're wrong. Even after the predicted rise to about 19%, only marginally higher than under former Republican President Reagan, who raised taxes in the later years of his Presidency, taking total Government income up to over 18%. This tax burden is made up mostly of income tax, followed by social insurance, then land tax, then business tax. The World Bank estimates that the total cost of the USA's government activity in 2009 was about 25%, so we can see why taking only 15% of GDP as income is leaving a deficit.

So given that the Tea Party certainly doesn't want to see tax rises being used to combat the deficit, I think they would need to start setting out an alternative vision for the USA, gaining support for their view of a small Government and a successful private sector. Selling off Government functions and giving duties to the private sector doesn't have to be an evil, uncaring, callous thing. The group needs to espouse the positives that stopping swathes of Government expenditure would bring, namely lower taxes, leading to more money left in the pocket of ordinary people and businesses being able to hire more people and lead to strong economic growth, hopefully leaving everyone better off and with lower unemployment. Regarding privatising functions, the most obvious area would be healthcare, largely by following Ron Paul's capitalist vision for healthcare, in which he envisions a capitalist, competitive market for health insurance, not the corporatist system with a lack of competition which exists at the moment. Spending on health accounts for about 6% of GDP of the 20% that the US Government spends, and it's consistently risen in recent years due to such factors as the increasing cost of healthcare, the introduction of health benefits like Medicare and Medicaid, and ever-increasing lifespans.

Get a properly capitalist, competing health insurance sector which is properly regulated to prevent excessive unfair costs or refusal of coverage, and a great deal more people should be able to afford to pay for their own healthcare. Presuming the lower tax regime works the way it's supposed to, there should also be a rise in the wealth of most people and less unemployment due to economic growth, ensuring that, over time, more people can afford to pay for their treatment and don't require Government assistance.

Another area to fundamentally change the role of Government would be in welfare, with spending dramatically rising in the post-war years on pensions. There is an argument to be made for scrapping Government-funded pensions entirely, leaving it up to individuals to either put put money away for their retirement or invest in a private-sector pension scheme. Similarly, welfare schemes could be scaled back, providing minimal support to only the unemployed and disabled.

The Tea Party can't overlook an area of big spending, and this is an area which shows the group's hypocrisy: defence. This is one of the few spending areas which has had a long-term decline in the post-war years, but spending on defence is still much higher than it before the big spending boom in the post-war years, with now around 6% of GDP being taken by the Federal Government for the purpose of the defence budget. The ongoing military action in Iraq and the Afghanistan war are part of the reason costs are so high, but so is the overall desire of the USA to maintain their status as the policemen of the world. Tea Party supporters seem to generally be in support of high defence budgets and the military action in the Middle East, so it is unlikely that they will be willing to support cuts to this budget. Having said that, the Tea Party is not a homogenous group: it has a contingent of libertarians, though many seem to be feeling that the group is too socially conservative and Republican-dominated for them to continue to be active campaigners for the cause. Said libertarians are opposed to international interventionism, and would likely have few qualms with withdrawing troops from Iraq and Afghanistan at the nearest possible opportunity.

Speaking of which, there's an amusing, very bias take on libertarian and Tea Party disagreement (video quality fixes itself after 10 seconds):

"He is a Nazi atheist Muslim" made me chuckle most.

This brings me along to another area: are the Tea Party right to support the Republicans? Contrary to the admiration Reagan receives from Tea Partiers, he ran a deficit throughout his Presidency and the debt therefore increased. The only President in recent times to leave the USA running  surplus was Clinton, a Democrat. Bush then became President and increased federal spending in such areas as education whilst cutting taxes, resulting in a budgetary deficit and increasing debt once again, so hardly fiscally conservative. As the graph displayed earlier showing taxation, there's little to suggest that Republican presidents have sought any major tax cuts or reductions in spending. It's a question of whether the Republican party has had a proper reform to became a party which believes in a small state, small tax, and fiscal conservatism; or whether it will continue with the trend of minor tax cuts and little other change. Though it might be convenient for the Tea Party to forget, but the bank bailout (formally known as 'The Emergency Economic Stabilisation Act of 2008') was signed into law in October 2008 by none other than George W. Bush. If the Republican party shared the group's view of small spending and not interfering in the economy, surely a Republican President would not have signed the legislation? However, it is true that there were a number of Republicans who opposed the legislation and voted in the first House of Reps. vote against it 133 to 65. In the Senate it passed 74 to 25 votes, and upon the second vote in the House it passed 263 to 171, but still with a majority of Republicans voting against the legislation, albeit only slimly: 108 to 91. That means about 55% of Republicans in the House continued to vote against it in the final vote, whilst only about 27% of Democrats voted against. This suggests much greater support for laissez-faire economics and less Government spending amongst Republicans, though it's only a slim majority. The proportion of small spending supporters in the party will likely have risen as a result of the election of such Tea Partiers as Rand Paul (the knock-off younger version of Ron Paul).

Obama is grateful for the advice of this moustachio'd, ripped man

The Tea Party and libertarians really need to band together to publicly push their shared agenda of a small Government and lower taxes, putting aside their differences on social issues. If the group can gain enough support, or at least get the majority of Americans to not be fearful of a vision of a Government spends much less, the Republican presidential candidates may be willing to take a more strong small Government, small tax platform. If Ron Paul runs again - which doesn't seem likely at this stage - he is well-placed to campaign for this, though his libertarian views on issues like the legalisation of drugs stands in opposition to many Tea Party members.

That brings me along to my final area to ramble about: social issues. Having written this article, I've proven to myself the hypocrisy in the Tea Party movement. It calls for small Government, yet doesn't take small Government views on most social issues. Most Tea Partiers are against things like abortion, gay marriage, and the liberalisation of drugs laws. Most people in the group don't really want small government at all: they want a conservative Government. One which is fiscally conservative - so spends and taxes less - but also socially conservative in terms of  upholding traditional moral values. They want laissez-faire economics, but a Government which restricts freedoms and liberties so long as it fits with their notions of moral righteousness. What they really want is a traditionally conservative Government, despite any attempts to dress it up as being about personal freedom, it's really just about wanting lower taxes. Not that there's anything wrong with that.

It's going to come down to whether enough Republican party voters will choose a Tea Party-style candidate for the Presidency in the primaries, and then there's the little task of convincing the US electorate to elect him/her. I'm expecting a move towards more fiscal conservatism from the Republicans in the next Presidential election, but I doubt it will be enough to satisfy the Tea Party movement.

Emergency Economic Stabilization Act of 2008


  1. Excellent article, cuts through the mass of hysteria about the TP from both Liberals and Conservatives to effectively summarise and evaluate their position.

  2. Thanks. And you were right - I did enjoy writing it!