Why California's Party Ran Out of Tea

JAN. 19, 2011

By WAYNE LUSVARDI

How could California voters elect Democrats to every executive office and every incumbent state andcCongressional legislative seat in a clean sweep in November 2010 when nearly all the states in Middle America turned to Tea Party candidates? Why is California the cultural and political exception?

The answer may lie in demographics and the political economy of money as well as its counter-culture against capitalism.

According to pollsters, Tea Partiers tend to be middle age or older, married, better educated and wealthier than average, and mostly concerned with federal spending and deficits. Tea Partiers are people close to retirement or already retired who fear that inflation or another economic bubble will dilute their pensions and savings. Tea Partiers fear there will be no health care or only Canadian-style bureaucratic health care available to them. That is why the national health care debate in the summer of 2009 galvanized the Tea Party movement. The Tea Party is the front of a future demographic wave. The dependent elderly are growing from 16 percent of the population in 1975 to 32 precent by 2030.

The Tea Party has a geographic dimension as well. As the Red and Blue political maps indicate they are Middle Americans who realize that they may end up paying for the pensions and health care of the big welfare coastal states. This is one reason why California is the exception to the Tea Party trend.

Contrary to the negative stereotype fabricated by the political Left, members of the Tea Party movement are not “wingnuts,” but are economically rational actors.

The Tea Partiers feared that subprime loans were a way for debtors to rob creditors of their investments, which proved to be true by the financial panic of 2008 and the collapse of mortgage banks. Subprime loans were a wealth transfer from the creditor and investor class to the consumer class but were not reported as such by the media.

This wealth transfer had to be stopped and in late 2008 it was Wall Street, not government or the Federal Reserve, that put an end to it as reported in former FDIC Chairman William Isaac’s book “Senseless Panic: How Washington Failed America” (2010). The kleptocratic banks (Fannie, Freddie, Indy-Mac, Lehman Bros) with easy money had to be put out of business. Politicians weren’t going to do it so Wall Street eventually had to exert its behind the scenes power to do so.

Gold Standard Movement Precursor to Tea Party

The historical precursor to the Tea Party was the “Gold Standard Movement,” which opposed the “Free Silver” movement from the late 1890s through the early 1900s. Both of these economic movements occurred around the time of The Panic of 1893.

During the late 1800s to early 1900s the dollar was backed by gold. The Free Silver Movement advocated for the permission for miners to deposit with the U.S. Mints not only gold but silver bullion and receive silver coins in return. At that time, banknotes and other instruments were not considered money, but promises to pay or representations of money. The infusion of silver into the money supply would have diluted the dollar resulting in monetary inflation.

The Free Silver movement cut across political boundaries and included the short-lived “Silver Republican Party” and the “Populist Party” which combined with the Democratic Party. The leader of the “Free Silver” movement was liberal Democrat William Jennings Bryan who wanted a flexible banking system and an expending economy with money provided by government and with government control. Eventually, Bryan’s efforts were incorporated in legislation creating the Federal Reserve System. Bryan was the Barney Frank of his day.

Hellman: Forerunner of Cal Tea Party

William McKinley, the “Goldbugs,” and the Republican Party wanted “sound money” and opposed the Free Silver movement. In California, banker Isaias Hellman who became head of Wells Fargo Bank was a supporter of the gold standard. As described in the book Towers of Gold: How One Jewish Immigrant Named Isaias Hellman Created California, Hellman displayed stacks of gold bullion in his bank to assure depositors of “sound money.” Contrary to all the present-day popular disparaging stereotypes of the Tea Party, the forerunner of the Tea Party in California apparently was a religious Jew, not an evangelical Christian.

In the late 1800’s populist organizations favored money inflation that enabled debtors, farmers, laborers, and industrial workers to pay their debts off with cheaper dollars. Creditors, banks, landlords, and investors would stand to lose by silver inflation.

Sub-Prime Loans as Free Silver (Money)

Similarly, the financial panic of 2008 and the delayed takeover of the House by Tea Partiers reflect a revolt by credit institutions and investors to stop wealth transfers to consumers and looming inflation by government over-stimulation of the economy or re-inflation of economic bubbles (Federal Stimulus, TARP, green power).

Instead of “free silver” (i.e., free money), during the real estate bubble of 2003 to 2008, sub-prime loans and securitized mortgage backed securities served as the conduits for easy money policy. At one point during the real estate bubble, mortgage rates were actually negative, meaning that home loans were being repaid with free money.

California’s Demographic Sinkhole

The other reason why California may be the outlier is again demographic.

California has lost 705,902 net elderly retirees from 2000 to 2009 according to the U.S. Census. Where they have gone is a subject for debate, but whatever the explanation California has lost a key demographic segment that forms the backbone of the Tea Party. It is not just that California is losing its middle class but it apparently has lost many of its private retirees. The housing bubble fueled this out-migration by homeowners selling their high priced California homes for lower priced homes elsewhere in a game of arbitrage (“sell high, buy low”). This cancerous process of bad money driving out good money has slowed down after The Panic of 2008.

Tea Partiers are Economically Rational

The Tea Partiers are not the unwitting stooges of greedy and sinister corporate interests. The Tea Party is a rational economic movement. Some of them are political amateurs and outsiders who are sometimes so unsophisticated and eccentric that they become objects of ridicule by the political Left and the media (the consumer class).

The Tea Party is not the taking over of government by the lunatic fringe or some fundamentalist evangelical religious sect. They are those in the middle class (the “Bourgeouise”) who are part of the civil society that are not captured by the government or corporations. They are the Baby Boomers and they are the wave of the future. And this scares the pants off the consumer class who must continually run them down.

Whither California’s Exceptionalism?

Like the 1890s, there is a class war being waged today by way of “rent seeking” by the consumer class to extract a monetary advantage from the creditor and investor class. California and the Democratic Party are pumping inflation into the economy by federal stimulus projects, Obamacare and new green power and cap and trade mandates in California. The newly elected Republican Congress will be trying to unwind all this. California’s exceptionalism to the Tea Party trend is a rear guard movement to reinflate the bubble economy to dig itself out of budget hole it has created. It is a modern day “Free Silver” movement.

The “People’s Party” or “Populist Party” from 1891 to 1908 was a reactionary movement based in the South and Plains States of “rent seekers” against the Gold Standard. It eventually faded away. Some of its members followed Eugene Debs into the Socialist Party.

In 1900 with the passage of the Gold Standard Act, the “Free Silver” movement failed for the following reasons:

1. It failed to persuade a sufficient number of voters at the national level. (California today: the failure of global warming theory to convince the public, the California public’s suspicion about the “fishy” Sacramento Delta drought, and the rise of the Tea Party outside California?).

2. Worldwide gold discoveries increased the money supply (California today: the expansion of imported cheap energy from shale oil and natural gas fracking?).

3. The depression of the 1890s ended and prosperity returned (California today: California Congressman Tom McClintock’s Auburn Dam proposal and the return of water abundance and a “prosperity economy” to California?).

Historian Walter Russell Mead foresees the end of The Blue Social Model and consumerism (i.e., Neo-Marxism) and the rise of “Smart Populism.” Mead writes that the U.S. is ready for the “next upgrade” but is not certain what it will look like.

Time will tell what will happen with California’s political resistance movement and its anti-capitalist counter culture of exceptionalism.