How could the Tea Party elect five senators and 40 members of the United States
Congress last November, none with political experience and many with evident
eccentricities? The answer is that a single issue united a slapdash
agglomeration of amateurs, with sufficient power to override all the sources of
The Tea Party represents creditors of the government who do not want to be
cheated out of their savings; that is, people close to retirement age who fear
slow confiscation by inflation. Governments that run huge deficits normally
reduce them by
debasing the currency, in order to repay their debts in inflated money.
In fact, the Tea Party is a triumph of economic rationality over lack of
talent: its reason for being is so compelling and so clear that it has
succeeded despite the silliness of some of its candidates. One top Republican
pollster thinks that the "I am not a witch" message aired by losing Tea Party
candidate Christine O'Donnell in Delware was the single worst piece of
advertising in political history.
Elite commentators tend to dismiss the Tea Party as a mob of engaged boos. On
the contrary, pollster Scott Rasmussen, reports, the Tea Partiers tend to be
older than 45, married, wealthier and better educated than the general
population, and concerned first of all with federal spending and deficits. The
most important thing to know about such people is that there are more of them
than ever before in American history.
Young families with small children borrow money from older people who have
finished raising families. Most Americans begin adulthood heavily in debt and
become lenders as they approach retirement. The changing proportions of young
and old Americans has enormous bearing on political outcomes.
United States of America Dependency Ratios
Two facts stand out in the table above showing the proportion of child vs
elderly dependents in the United States. Elderly dependents have remained
fairly static as a percentage of total population during the past 40 years. But
the proportion will jump from 19% today to 32% in 2030. This seismic change in
American demographics explains a great deal.
In 1975, when Jimmy Carter ran for president, 39 out 100 Americans were
dependent children, but only 16 out of 100 Americans were dependent elderly.
The baby boomers were in their twenties and starting families. Once elected
president, Carter allowed the inflation rate to reach double-digits by 1981. A
family that bought a house for $60,000 in January 1975 could have sold it for
$110,000 in January 1981. In fact, home prices offered positive returns after
inflation (stocks, bonds, and cash all showed negative real returns during the
Elderly people on fixed pensions took part-time jobs or ate pet food as the
value of money shrank; young people caught a free ride on the inflation wave.
No one liked inflation, to be sure, but it was an ill wind that blew good to a
great many people. The Carter administration, though, made an elementary
blunder: as inflation drove up nominal income, it also pushed middle class
taxpayers into higher tax brackets intended to soak the rich. With a top tax
rate of 70%, the tax squeeze due to inflation became a crushing burden on the
middle class, and the high rate of taxation on nominal capital gains was often
confiscatory. If the Carter administration had indexed tax rates to inflation,
it might have lasted a second term.
Now the tables are turned. By 2030, elderly dependents will comprise 32% of the
American population, twice the level in 1975. For the first time in history,
the number of elderly dependents will equal the number of child dependents.
Americans now aged 45 will retire in 2030, and it is their concerns that give
buoyancy to the Tea Party.
The Tea Party is an exercise in economic rationality. Measured inflation in the
United States is less than 1% (according to the woefully inadequate Consumer
Price Index), but the Tea Partiers anticipate higher inflation in the future
should the federal government remain at 11% of gross domestic product.
This is not the first time that monetary issues have motivated the formation of
an important third party. During the last quarter of the nineteenth century, a
prolonged deflation under the gold standard drew Western farmers to the
inflationist Free Silver movement. Permitting silver coinage would have
increased the money supply, raised the price level and helped debtors. The
movement was powerful enough to take over the Democratic Party in 1896, when
its candidate William Jennings Bryan (an unknown 36-year-old congressman)
excoriated Eastern creditor interests and their ''cross of gold'' imposed by
Eastern creditor interests.
The proportion of prospective pensioners in the rest of the industrial world
exceeds that in the United States, as shown in Table 2 below:
More developed regions of the world Dependency Ratios
America's open political model makes it relatively easy for challengers to
force their way onto the stage (although not to remain their for long), so the
Tea Party as such is likely to remain a distinctly American phenomenon. But the
shift towards an older population also will act as a brake on inflationist
impulses elsewhere, for example, on the extent to which France and Germany will
bail out Ireland, Portugal, Greece, or Spain.
In its first electoral outing, America's Tea Party helped shift the political
balance. It would be incautious to view it as a passing expression of voter
frustration. On the contrary: spontaneity and inexperience held the Tea Party
back from harvesting the political support that should come to it. If the Tea
Party does a better job of screening and prepping candidates - or the
Republican party has the good sense to adopt its program - demographics and
rational interest will make it an even stronger force as time passes, and an
obstacle to a new inflation cycle.
Spengler is channeled by David P Goldman senior editor at First Things