Tea Party cools as Keynes makes a comeback

By Nicholas Wapshott
August 30, 2011

By Nicholas Wapshott
The opinions expressed are his own.

Is the Tea Party running out of steam? I ask because there appears to be growing evidence that the Mad Hatters’ wild ride, culminating in Obama’s defeat last month over the debt ceiling at the hands of the Tea Party in Congress, has slowed to a trot. Exhibit one, the entrails of the most recent Pew poll where there is a startling finding. Just two months ago, those who believed trimming the deficit was the nation’s top priority outnumbered those who wanted more spending “to help the economy recover” by ten percent. Today, the number who advocate more government spending to fix the lackluster economy are neck and neck with those who wish to cut the budget deficit without delay.

Why the shift? Well, it seems that some Americans have changed their minds over the issue that lies at the heart of our politics. Today’s great political debate divides along the lines established eighty years ago by John Maynard Keynes and Friedrich Hayek. In 1932, when one in four Americans was out of work, Keynes suggested a mixture of policies to pump money into the economy to increase demand and get people back into jobs: keep the cost of borrowing cheap so that businesses could expand; invest in public works that directly employs the jobless; and cut taxes to put cash into people’s pockets. Hayek countered that such expansionist policies were unlikely to work and would have unintended consequences. At the very least they would in the long run fuel inflation and, when the government took its foot off the gas, cause businesses artificially boosted by the measures to go bust.

When Obama was elected in November 2008 he faced an economy that was teetering on disaster. His answer was a Keynesian stimulus package that meant plunging the nation even deeper into debt than George W. Bush had left it after bailing out the banks, enacting a huge tax cut and funding two overseas wars. No sooner had Obama adopted a Keynesian remedy than some of his opponents demanded a Hayekian antidote: paying down the debt as soon as possible. This outbreak of electors’ remorse gave rise to the Tea Party whose argument appeared to be that if a family has to pay off its overdrafts and credit card borrowings when it is going bankrupt, surely a nation should do the same. The 2010 midterms saw the election of a wave of Tea Party candidates, most of whom had pledged not to agree to anything that would either raise taxes or fail to address the national deficit. The raising of the debt ceiling, which had always been a routine matter between the two parties, became a pitched battle, with the president having to bow to the Tea Party’s principles or allow America to default on its debts.

But the tide may well have turned. If the trend Pew has spotted is genuine and continuing, what a month ago seemed like Obama’s Waterloo is looking increasingly like the Tea Party’s Chancellorsville. The devil is in the details. Not surprisingly, Democrats still favor spending over cuts by two to one. Nor has the Tea Party shifted: four out of five thought deficit reduction the most important issue in June; the same proportion thinks so today. But moderate Republicans have shifted. While two months ago they divided two to one in favor of cuts over spending, now they divide 55 percent to 40. Independents, too, are on the move. Two months ago they favored deficit reduction by 54 percent to 39; today they are evenly divided.

What has caused such an about-turn in the center ground? Perhaps Americans have been taking a second look at Keynes, though I doubt it. Keynesians are in full retreat, battered and bruised by a savage campaign that has painted them as self-serving spendthrift brigands. Few Keynesians can be found arguing their hero’s corner right now. Perhaps, on closer examination, Americans have concluded that cutting public spending when the economy is teetering on a downturn is a guaranteed way of ensuring a double dip recession. (If you want to see what that looks like, go to London, where a Hayekian experiment is in full swing.) Perhaps an idea that seemed good when discussed around the kitchen table doesn’t sound so great from the mouths of Rick Perry and Michele Bachmann. What exactly is going to be cut? Education? Social Security? The armed forces?

It is rash to invest too much meaning into one set of poll figures. Americans are in an agitated state about jobs and the economy and could easily swing back toward the Tea Party. But if the trend keeps up its momentum, like the demotion of Hurricane Irene to a tropical storm, we may have witnessed the ebbing of a populist movement that for a while caused the nation to batten down the hatches and await an unkind, uncomfortable fate.

Nicholas Wapshott’s “Keynes Hayek: The Clash That Defined Modern Economics” is published by W.W.Norton in October. Read an extract here.

22 comments

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Republican / Tea Party women at a Palo Alto wine and cheese festival said that they wanted to pay fewer taxes, have less government. Yet they live in Palo Alto which enjoys sustained high property values because we have good government, pay taxes, have a municipally owned public utility, have parklands bought by publicly issued bonds, have libraries (5) publicly funded.

These teaparty folks are NUTS. They don’t see that when the gap between the rich and the poor grows, so does anarchy and loss of public freedoms.

Stop undereducating youngsters. One educator in the Modesto area said that it was part of the school board’s function to under educate in order to retain farm laborers and not provide a path to healthier life-styles.

That is the cynicism of corporations running governments and going for “less government” so that they can reek havoc on the public: lower safety standards, air quality, education.

Now I have vented. Let’s get people back to work and provide better health-care. The Tea Party is driving us to an abyss from which we might not recover.

Posted by asmith36 | Report as abusive

I’d give about as much weight to the swings in ideological beliefs of the boomer generation as to a pin falling on a pillow.

Posted by NewsAddict | Report as abusive

I’d like to believe the tea party began with good intentions. The economy was crumbling and the government was bailing out mega banks; people had a right to be upset. While the first manifestation of the tea party leaned conservative, there were a significant number of liberals in the earliest protests. Then, however, Republican leaders and special interests seized on the message in order to capitalize on fear and misunderstanding of the situation. The tea party became more fervently anti-Obama (not just anti Washington), more anti-immigration, anti-democrat, anti-intellectual(“keep government off my Medicare!”) and religiously conservative.

The tea party people think they are protesting big government and higher taxes on the working class, but they’ve ended up as pawns for groups like Americans for Prosperity and Freedom Works which take mounds of cash from oil companies, insurance companies and coal companies.

Now we are at a crucial point when the solutions to our problems are painfully obvious, yet even when this administration tries to enact Republican/conservative ideas to fix the problems, the tea party (and hence Republicans) are conditioned into opposing everything they present.

Posted by MV53 | Report as abusive

“Obama’s defeat last month over the debt ceiling at the hands of the Tea Party in Congress…”

! this is funny.. The tea party had NO victory over the debt ceiling… Obama did. He can still spend us into socialism….and world government. The tea party became stronger since then. We won’t stop until the anti-Constitutional agenda is driven away for GOOD.

Posted by NHampshire | Report as abusive

The tea party didn’t bring us to the ‘abyss’…. we are not the ones who gave our offshore banker friends billions of dollars, or refused to seal the borders or pushed for useless stimulus packages. What you progressives call ‘public freedoms’ are simply entitlements on the dimes of others. You would not know what freedom was if it hit you on the head.

Posted by NHampshire | Report as abusive

I’m a registered independent tea partier, NOT a repub nor dem. Don’t think supporters of the tea party are going away just because we’re quiet. For all the pundits intellectualizing the movement, it all comes down to grassroots, middle-working class Americans wanting government off our backs and restoration of a civil and moral lifestyle for our families.

Posted by joda | Report as abusive

World War II ended in 1945, with Truman having become President on the death of FDR. The US needed to convert to a peacetime economy and find employment for more than ten million servicemen coming back from the war, as well as for millions of nonuniformed workers who had been working on war production. By 1946, President Trumen’s polls had dropped to 32 percent. The Republicans won the November 1946 elections by margins of 246 to 188 in the House and 51 to 45 in the Senate. President Truman’s administration stuck with Keynesian policies. All polls favored Governor Dewey over Presdient Truman in the 1948 elections. President Truman was elected President in his own right in November 1948 to the suprise of all of the national pundits. Chalk up a win for the Keynesians.

Posted by btirana | Report as abusive

It seems some newsfolks are in dire need to putting the Tea Party away. They want to so much that they dream about it in the daytime. Well we are not going away now nor are we going to listen to the dung that is written. We simply want to have LESS GOVERNMENT not more, Less regulations NOT MORE so please get it into your head WE DO NOT NEED MORE SPENDING nor MORE TAXES..

Posted by oldtaxpayer | Report as abusive

Mr. Wapshott, Keynes and Hayek didn’t have their argument over US policy in 1932 – they had a debate in England after the publication of Keynes’ General Theory in ’36.

mw101563, if Keynes’ theory didn’t work during the Great Depression, what exactly happened?

And of course, all this ignores the New synthesis in macroeconomics that fundamentally compromises Keynesian stimulus, monetarist policy, and neoclassical critiques by allowing the long-run and short-run distinction.

Posted by Jayhay | Report as abusive

Keynes was wrong. We are on the road to serfdom, well down it. The standard of living in the US has deteriorated in my lifetime, and our children are facing a jobless future due to the excessive spending and over regulation and over lawyering of our country. What evidence do I have? 1.) All our jobs have been sent to other countries because we are no longer competative here in the US. 2.)My father, doing the same thing I do now, was able to send 8 children through college without my mother working, now, my wife and I with 2 mature businesses are having to struggle to send our 3 children to the same colleges. 3.)When my faher was my age, he could have retired but chose to keep on working. I don’t have a choice, since if I quit working, I’d go bankrupt within a few months. No studies are necessary for most Americans to know that we are definitely worse off after all of the so called “progressive” policies have been enacted. All the liberal sneaky double speak in the world does nothing to change the facts.

Posted by zotdoc | Report as abusive

The Tea Party Express 5 Tour drew 600 people to the BIG kick off rally in Napa. Then 40 people at the next stop in Elko, 200 in Cheyenne, and just 1 tow truck when the bus ran out of gas before the next stop. Reason, most local Tea Party groups now know that Sol Russo (bus owner) has been ripping them off. CBS reported that his cut from the $8 million donated to the Tea Party Express was over $4 million off the top. And, it’s not hard to notice that the current website for the Express states that it is a for profit corporation. Why, well for 1 thing, it is exempt from all the financial disclosure rules……writing is on the wall and even the Tea Party membership may be finally catching on before Russo takes 100%.

Posted by WillB2 | Report as abusive

History tells us that countries in panic often turn to the lunatic fringe for refuge from what they see as a frightening economic/political present and future. We are witnessing the Republican presidential candidates with the possible exception of Huntsman stepping all over each other to be crowned king or queen of the tea party. They make outrageous claims, channel god, incite more fear and uncertainty and offer no real solutions other than tax cuts, tax cuts that have already gotten us into much of the hot water we are in. They speak to social issues such as gay marriage, abortion, immigrants etc as if these are the cause of our economic woes. Who knows if the tea tea party will meet a quick and timely death as most Americans don’t have the educational background or the intellectual curiosity to know or care about Keynes. Let us hope that calmer more reasoned voices prevail but this does not appear possible from the current roster of Republican candidates. Behaving badly and acting irrationally appears to have a certain appeal much like cheap television reality shows.

Posted by seattlesh | Report as abusive

It is always fun to read “wishful thinking” masquerading as “news”.

And for @seattlesh, we already did turn to the “lunatic fringe”. We did that in 2008 and are working to recover from that mishap.

Posted by RickCaird | Report as abusive

To zotdoc above. Maybe your father had an easier time of things because he lived in our country before Nafta, Cafta and FREE trade. I live in Northern Minnesota and can see the trainloads of goods coming south daily. But strangely enough the cars are mostly empty going north. This did not happen before NAFTA. The same thing is happening at the Mexican border. Remember Ross Peroit and the “Giant sucking sound of our jobs leaving America”. Ross was right!!!

Posted by Minnesotamike | Report as abusive

Nicky’s article is just so funny…..he says, for instance, “go to London, where a Hayekian experiment is in full swing.”
Nick…my man…c’mon….what’s happening in London is precisely BECAUSE of Keyesian economic policies. DUH! What do you think they’ve been practicing over there for the past 30-40 years? The results are not surprising…what WOULD be surprising is if the results had been different….but in the end, they never, ever, ever, never are. I only had to be shocked once to understand I shouldn’t put my finger in the socket…on the other hand, some people never learn, no matter the results. Communist, socialist polies ALWAYS fail and ALWAYS have. (Name one that hasn’t…anywhere on the planet…).
Milton had/has it right. Capitalism is the answer…or at least, the best answer man has developed to date. Can you name any other monetary system that has provided more opportunity, more success, more wealth for more people? Can you, please? Capitalism cannot work without a free market. Governments hinder free markets, but are necessary. Governements should therefore be limited to necessity and then we ALL can live better. (PLEASE SUPPORT TERM LIMITS AT ALL LEVELS.)

Posted by Wooly | Report as abusive

“mw101563, if Keynes’ theory didn’t work during the Great Depression, what exactly happened?”

It did work. What really pulled the USA out of the GD was the massive Keynesian war spending to gear up for WW2. Nothing else came close to ending the GD. Keynes was right and still is. the failure has been insufficient commitment. Without world war, the spending in the early 1930s wasn’t enough either—FDR’s programs reduced unemployment from 24% to 19% and that was it.

Posted by advocatusdiabol | Report as abusive

The boomer generation is feeling guilty for the things they did to make the economy the way it is now and as a result are leaning further to the right and against this Keynesian thinking so they can feel better about themselves. The previous generation sees no incentive to correct this, so they stick it to the government for it. Simple deferral of responsibility.

Posted by laguardia23 | Report as abusive

Keynes never left the building… we’ve had zero spending cuts and massive budget increases. Simple math states if the gov cut spending to what it collects (even w/ tax increase) we are in an instant depression.

PS – the depression did not end until after the WWII, we were the only industrial power left to product goods. I don’t see that happening again.

Posted by newulm55 | Report as abusive

What I have read here just don’t quite feel right. So I’ll put it in my own words.

What we are going through is a polarizing series of events affecting our common fiscal and economic health with roots that reach far into the past. Liberals see our current state as due to the intransigence of conservatives who have always seemed to them to have little sense of social consciousness and obligation and are entirely too serious about religious matters. Conservatives see the current state as due to the indolence of liberals who know neither right from wrong nor do they appreciate ethics of allowing rewards to those who work for them and seem thoroughly confused on the need to live according to firmly established principles and social boundaries.

Which of the points of view are right? It doesn’t matter. What matters is that the two come to learn to have grace and humility towards those with different views and that this has more to do with perspective than content.

You cant know anyone really until you’ve walked a mile in their shoes.. and just be glad you’re a mile away from them if you’ve got their shoes.

Posted by Kanapapa | Report as abusive

The UK is not a problem because of Keynes theory, its in a problem because the Government finally ran out of other people’s money (thank you Margaret Thatcher), and the Feral Children got mad, because they actually might have to grow up and work for a living.

Would that the rest of you stop trying to find a way to get the government to take care of you and just stand on your own two feet.

Some of us were raised with the idea of we work, we get paid, and if there’s not work, we find work, or make it. We dont’ accept hand-outs (we leave it for those who really need it), and we give to charity, because we don’t think the government can do better than we can.

Margaret Thatcher said that the problem with socialism is that sooner or later you run out of other people’s money.
Do any of you really think any government would even try to cut spending, if they had another way to get it from the people?

Its time to fish or cut bait. Either we can live the American dream and get off the dole or be the ‘lilies of the valley’, and end up like Greece.

Posted by WhoCares101 | Report as abusive

I’m no economist – have been become a somewhat reluctant student of economic theory in the last year or so!

My general understanding of Keynesian strategies suggests that bailing bankers, who then hold funds, is *not* in the spirit of Keynesian theory, which emphasized getting money into circulation. So I don’t count bailing bankers as “Keynesian”.

In fact, bailing bankers seems more in line (in outcome at least) with Hayek’s views (i.e. unfettered accumulation of wealth will ‘magically’ create prosperity for those who’ve been disenfranchised by withdrawal of funds from ‘commons’ investments, such as public health, education, utilities, etc.).

The fundamental questions remain: “Who are we as a species?”; “What is our unique promise relative to other life forms?”; “What is ‘an economy’, why do we have one, and is it meant to serve humanity’s promise, or is humanity meant to serve the mechanisms of ‘an economy’?”; and – “What stewardship practices do 21stC national and global conditions (including earth itself) require in order that humanity may rise to its potential?”

There are many more questions of this type that we ignore at our peril. What are the motivations of Group X, Group Y, when they promote economic solutions? How comprehensive to ‘best potential for all’ is their thinking? What are their beliefs about potential of each child born?

Economic solutions to resource access and management are constructs, designs. None are ‘sacred’. We are free to design and adjust these as we see fit.

“Social Darwinism” is a ‘belief’; it is challenged by in-born urge to ‘community and social beingness’, which are best served by empathy, which – until we learn to abandon it, is also ‘inborn’. (I’m a retired long time teacher of young children – I’ve witnessed natural empathy and have seen it eroded.)

American founders recommended attention to common weal for a reason.

In our ‘resource insecurity’, all of us (as humans, with human psychology), are susceptible to “turning on one another”, discounting one another’s humanity. This does not bode well for us. Enough research has been done on inequality (Wilkinson and Pickett’s “Spirit Level” for a start) for us to have guidance.

Our choice, always.

Posted by MaggieMP | Report as abusive

This is not an argument between Keynes V. Hayek, or Tea Party V. Obama. It’s at the end of the day really Big Business/Corporations V. the Taxpayer. Guess what? The Taxpayer is losing. Endless Bailouts/Bonus payments to the ones that screwed it all up in the first place. If both Keynes & Hajek were alive today they both would be equally horrified to see what has happened. Keynesian worked in the 1930′s because Gov Debt levels were very low. The country was a surplus country going into the great depression. It is totally different today as debt levels were obese going into the great recession. The Austrian method would have worked 30 years ago when the global financial system wasnt so interconneced. Both are excellent ideas in theory but life is not theory. There is no easy way out of this mess except time.

If an argument needs to be made, its not an argument between Keynes V. Hajek but Keynes V. Milton Friedman. The Monetarists have lost, you can’t simply control the economy and prices via the Interest Rate/Money Channel. This idea has been soundly defeated as Monetary Policy in a balance sheet recession is totally impotent. We need fiscal policy. Europe needs a sound unified fiscal policy out of their mess.

Posted by JayTrader | Report as abusive