Bogeyman Government

Social Security is a pyramid scheme, new rules for bankers nonsense and one might as well tar and feather the head of the Federal Reserve. The economic policy ideas of the tea party have little to do with sober-mindedness and restraint — although much with Viennese coffee houses.

The “baby-killers” have become “job-killers.” That’s what Michele Bachmann calls Barack Obama’s health care reform. She is a candidate in the Republican primary and represents the radical tea party wing. Past election campaigns have always been cultural struggles as well; conservatives attacked Democrats because of their position on abortion or gay marriage. But in the debate between the Republican candidates on Tuesday evening, it is primarily a matter of one thing: the economy.

In the past, Republican candidates had to have the blessing of the Christian right. Today the tea party has taken over this role. Anyone who wants the nomination should dance to their tune. “Libertarianism — the belief in a weak government — is the new litmus test for candidates,” writes Reuters journalist Nicholas Wapshott. “Nevertheless, the two groups overlap,” qualifies Matthias Fifka, political scientist at the University of Erlangen-Nürnberg and the Cologne Business School: “55 percent of the Tea Party view the U.S. as a purely Christian nation.”

With more than 9 percent unemployment, the crucial question that every candidate must answer is: How will you deal with economic policy? And for the tea party the answer most often is: The government is the enemy of economic success. It must be scaled back. From Rick Perry and Michele Bachmann to Hermann Cain: hostility toward the government is central to the ideology of the tea party candidates.

The economy stands in the center of the debates within the Republican Party — but the candidates seldom go into detail. None of them has a coherent labor market policy to offer — if government were scaled back, the companies could create jobs on their own goes the logic. Some rough lines with which this goal is supposed to be reached can be worked out:

Taxes

The government should restructure the completely over-indebted budget — but preferably through spending cuts instead of tax increases, as the tea party candidates see it. The mantra of Bachmann, Perry and Cain: With us, there will be no tax increases. Right away, they want to completely ax the capital gains tax, presently up to 35 percent. Critics say: That would favor America’s rich, who derive a large part of their income from stocks and other monetary investments. Not true, say Bachmann & Co. Even the average American would then have a greater incentive to save for old age.

The candidates hit a nerve: Even experts can still hardly understand the U.S. tax system with all its national and state taxes along with its many loopholes. The grand master of simplification is Hermann Cain, businessman and the only African American in the race. Since Rick Perry made a mockery of himself in the last debate with muddled attacks on Romney and Cain, Cain won big-time in the Florida straw polls. The former pizza millionaire stands in the focus of the public. He advertises his “9-9-9-Plan”: Nine percent income tax, nine percent corporate tax for businesses, nine percent sales tax.

Government Spending

Together with Medicare and Medicaid, the health care programs for retirees and the poor, Social Security makes up more than 40 percent of the expenditures in the U.S. budget. Because the second largest chunk, military spending, is taboo among the Republicans, the candidates want to make cuts here. Cuts in services for the unemployed or poor appeal to Tea Party supporters, who are on average earning good money. Rick Perry’s criticism of the government programs comes to a head: The Governor of Texas calls social security “a Ponzi scheme” — a deceptive pyramid system. Ultimately not enough working Americans will be paying in to cover the expenditures in the long term.

It is improbable, however, that a president out of the society of the tea party will really have the courage to touch Medicare. Because in spite of all of the anti-government slogans, like so many Americans, a large portion of their supporters profits from the government payments that the movement wants to fight. Retirees collect Social Security; others would have lost their jobs long ago if it hadn’t been for government subsidies to companies. Journalist Matt Taibbi found himself irritated after attending several demonstrations: “The average Tea Partier is sincerely against government spending — with the exception of the money spent on them.” Candidate Michele Bachmann personifies the contradiction: The Tea party agitator herself fights against a strong central government and the taxes that it collects. What she doesn’t like to speak about with supporters: She herself worked for four years as a tax official.

Health Reform

One of the most important topics for the Republican challengers is the health reform package from spring 2010. Even if he had to make many cuts in the tough negotiations, in the end, Obama entered new territory with both laws. First, he required uninsured Americans to arrange for health insurance — otherwise a penalty threatens. The reform brings the Republicans to the barricades; compulsory insurance contradicts their understanding of government restraint. All candidates want to abolish the hated “Obamacare,” but this could become a problem for one: As governor of Massachusetts in 2006, Mitt Romney signed a similar reform for the state that Obama even named explicitly as a model for his national law — which now becomes a credibility problem for the favorite. “Romneycare” and “Obamacare” are so similar that American journalists had fun crafting a “Find the Difference” quiz about the two laws. Romney himself is not a tea party candidate. In spite of that, he must meet the approval of the radicals: He promises to suspend Obama’s reform immediately on the first day of his presidency.

The Federal Reserve? Eliminate!

The Fed, the American central bank, is considered independent; politicians do not interfere with their work in most cases. In the primaries the Republicans are breaking with this tradition. Their leaders in Congress wrote a letter to Fed Chairman Bernanke: The interventions in the economy would have to end. It was an attempt to stop “Operation Twist,” in whose framework the Fed is buying up long-term bonds worth billions to stimulate the economy. The low interest policy of the Fed was weakening the dollar and with it the confidence of investors in the U.S. In addition, the cheap money the Federal Reserve was providing the economy was driving inflation up — currently it amounts to 3.8 percent. The campaigners are ignoring the advantages of a weaker currency, so well suited is the Fed as a bogeyman: In the times of recession a weaker dollar could stimulate exports and create jobs that have primarily disappeared in industry. Aside from that, government debt also loses value with higher inflation.

The Republican candidates do not shrink from the worst reprovals when it comes to the Federal Reserve. Governor Perry shifted Bernanke’s active growth policy close to treason. “We would treat him pretty ugly down in Texas.” Many viewed this as a reference to “tarring and feathering,” a form of vigilante justice from the Wild West times. Romney and Bachmann promise not to nominate Bernanke again should they win the election. All want to have the books of the Fed more closely audited. Ron Paul, who most clearly represents the libertarian position, but is considered without prospects, wants to eliminate it altogether.

Bank Regulation

The tea Pparty is generally seen as a movement against Obama. Yet for the political scientist Fifka, it wasn’t always that way: The first protests occurred in 2008, as a reaction to the multi-billion-dollar sums, with which the government of George W. Bush bailed out the banks in the crisis. That had little to do with “small government” in the eyes of many, for which Republican politics should actually stand. Yet times have changed: None of the favorite candidates are interested in stricter bank regulation. The Dodd-Frank-Act, the 848-page law that is supposed to tame the financial markets after the crisis, is considered by them to be the political work of the devil. The restrictions on trading derivatives and risky wagers of banks cost jobs, like any “over-regulation” by the government. Dodd-Frank unnerves banks; therefore they lend less money, which stalls the economy. Above all, Romney’s interest is apparent: He earned his millions himself with a hedge fund. In contrast to the down-to-earth provincial candidates Bachmann and Perry, he is the favorite candidate of Wall Street. Investment banks and hedge funds are high on his list of donors.

In terms of the history of ideas, the economic policy ideas of the tea party can ironically be traced back to the heart of old Europe, more precisely said, to the coffee houses of Vienna at the beginning of the 20th century. The economists Ludwig von Mises and Friedrich August von Hayek emigrated and brought the Austrian school of economic theory to England and the United States. Many of their recommendations are found again in libertarianism: the notion that almost all government activities are an attack on the freedom of the individual. Economist Hayek even spoke in favor of wresting the production of money from the central bank and making it possible for other banks also. Fifka says: “The leading representatives of the Tea Party quote the Austrians again and again.” Next to conservative thinking, libertarianism is the second root of the tea party.

First and foremost, Hayek conceived the counter model to John Maynard Keynes’ demand-oriented economic policy, according to which the government should pump money into the economy in a crisis. President Obama is following these ideas. For weeks, he has been rallying for support for his American Jobs Act. Almost $450 billion should flow, bridges be built and schools renovated. Such Keynesian government interventions are not a solution according to Hayek’s theory, but rather the cause of an economic crisis because the money is being invested wrongly and ineffectively; new jobs would not be created.

The Democrats are enraged. They consider the economic policy theses of the tea party so confused, that it is difficult to defend themselves against them. Former President Bill Clinton raged on the sidelines at a conference of bloggers about the “non-fact-based political debate” on the economy, which the tea party is fueling: “You can stand up and say anything and nobody rings a bell if the facts are wrong. There’s no bell ringing. It’s crazy.”

But the tea party learned the strategy of repeatedly attacking the economic policy of the incumbent from a democratic politician. He chased George W. Bush out of office in 1992, shortly after a U.S. recession. The manta of his campaign: “It’s the economy, stupid.” His name: Bill Clinton.

[Note: In an older version of this article it was said that Friedrich August von Hayek spoke out for the privatization of the Federal Reserve. In fact, however, he wanted to abolish the privilege of the central banking system to print money. The system of U.S. issue banks then consists of private and governmental elements. Private banks hold shares in the Federal Reserve. At the same time, the president appoints the head of the Federal Reserve, who is accountable to the Congress. In addition, the government rakes in the yearly profits of the Fed.]