Tuesday, December 7, 2010

Longevity gives life to Tea Party
By Spengler


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 weakness.

The Tea Party represents creditors of the government who do not want to be cheated out of their savings; that is, people close toretirement age
who fear slow confiscation by inflation. Governments that run huge deficits normally reduce them byhttp://asianmedia.com/GAAN/www/delivery/lg.php?bannerid=937&campaignid=509&zoneid=36&loc=http%3A%2F%2Fatimes.com%2Fatimes%2FFront_Page%2FLL07Aa01.html&referer=http%3A%2F%2Fatimes.com%2F&cb=104bc633f3
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

YEAR

TOTAL

CHILD

OLD AGE

1975

55

39

16

1980

51

34

17

1985

50

32

18

1990

52

33

19

1995

53

34

19

2000

51

33

19

2005

50

31

19

2010

50

30

19

2015

52

30

22

2020

56

31

25

2025

60

31

29

2030

63

32

32


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 1980s).


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

YEAR

TOTAL

CHILD

OLD AGE

1975

54

37

17

1980

52

34

18

1985

49

32

17

1990

49

31

19

1995

50

29

20

2000

49

27

21

2005

48

25

23

2010

48

24

24

2015

51

25

26

2020

54

25

29

2025

57

25

33

2030

61

24

36

2035

63

24

39

2040

66

24

41

2045

68

25

43

2050

70

25

45


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 (www.firstthings.com).

2 comments:

Samuel R. Kerner said...

thanks for this podcast. it was kind of like sitting with my cpa without getting the bill at the end of the month.

Tyler L. said...

This month's podcast gets 4 Stars, Gary. I like that it was just the facts and none of the political opinion. I wonder if you can be as objective next month, though.

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