Misread and Misreported: Tea Party Activism Bullish for Economy

One of the most common threads in the media recently has been how bad the Tea Party movement has been for this <?xml:namespace prefix = st1 />United States. It has been derided for lacking racial diversity [1], promoting policies outside the so-called mainstream [2] and blamed for creating a civil war [3] within the Republican Party.

The media often stress those “negatives” at the expense of the positive basic tenets of the Tea Party movement: smaller government, fiscal responsibility and free markets – tenets that, when highlighted, are in fact bullish signals for an ailing economy. This is a phenomenon Larry Kudlow, host of CNBC’s “The Kudlow Report,” explained.

“Tonight, free-market capitalism on the comeback trail,” Kudlow said on his Sept. 15 program [4]. “That is one of the messages of the Tea Party power. We saw a lot of that power last night in the primaries. I tell you what folks, that Tea Party power, that free-market capitalist power is so totally bullish for the stock market.”

And it has been bullish as of late, both as a forward-looking indicator and in gauging investor sentiment in general with each Tea Party candidate victory. Tea is good for the markets. However, this trend is being missed largely by the media.

Charting the course of the Tea Party movement chronologically, from the 2008 presidential election cycle prior to its birth up to today, Kudlow’s hypothesis looks solid.

‘08’s Conventional Wisdom Comes Up Lame

 

Going back to the pre-Tea Party days, in late 2008 before the presidential election, one of common media themes was that an ailing economy boded well for then-presidential candidate Sen. Barack Obama. That was because of the notion Democrats, the theory held, would do better fixing the situation.

Part of that stemmed from the idea Obama would take on the excesses of Wall Street, which would make things better as former “NBC Nightly News” anchor Tom Brokaw explained Oct. 13, 2008 [5].

“I mean you’re seeing that right now in the polls. Look, one of the reasons it helps him win is that this is Main Street versus Wall Street,” said NBC’s Tom Brokaw at the time. “Main Street’s furious because they think they’ve been hosed by Wall Street and that they’re paying for the excesses of Wall Street.”

It’s automatically a mark in the “win” column for Democrats, according to Brokaw, when there’s an anti-Wall Street sentiment.

“And when that happens, that of course, I think, generally accrues to the asset side for a Democratic candidate,” Brokaw continued. “Now whether it can be sustained or not, I don’t know.”

Others speculated that the public just trusted Democrats more on all things economy, which CNBC’s John Harwood claimed on Sept. 15, 2008 [6] to “Squawk Box” co-host Becky Quick.

“We don’t know who’s going to come out ahead in the end, but I’ll speculate this guess Becky – it probably helps the Democratic ticket for this reason: Polls show that voters right now trust Democrats more than Republicans on the economy and John McCain has prospered in the last couple of weeks as the ground has shifted onto culture issues away from economic issues,” Harwood said. “[T]his puts the debate right back on the economy that Barack Obama is uh, has wanted it – not lipstick on a pig or the whole range of culture issues that has lifted John McCain.”

However, if you chart some of the economic metrics of the time and compare them to now, that reasoning has proved faulty. Unemployment numbers [7] and U.S. gross domestic product (GDP) have both steadily deteriorated, despite Democratic majorities in both chambers of Congress and control of the White House.

In November 2008, unemployment was at 6.9 percent, after having spent nearly half the Bush administration under 5 percent. Nearly two years later, unemployment is at 9.6 percent and it has been above 9 percent for the last 15 months. Charting GDP over roughly that same time period since September 2008 [8], it has actually decreased overall as a percentage, even though it has been on an inconsistent roller coaster-like trajectory, with significant gains and significant losses in that same time period.

And although these metrics show Obama’s liberal policies to be ineffective, they haven’t come cheap for the taxpayers. According to CNSNews.com [9], in the first 19 months of the Obama administration, the federal debt held by the public increased by $2.526 trillion, which is more than the cumulative total of the national debt held by the public that was amassed by all U.S. presidents from George Washington through Ronald Reagan.

Bottom line: Appears the media got it wrong. Democrats haven’t fared well turning a weakened economy around over the course of two years.

Birth of the Tea Party and a Renewed Optimism

Although you can’t credit any one variable for the increase of the stock market, a forward-looking indicator – the rise of the Tea Party movement – appears to be running parallel to the Dow Jones Industrial Average (DJIA [10]).

CNBC’s CME Group floor reporter Rick Santelli’s “rant heard around the world” on Feb. 19, 2009 [11], was the spark that ignited the Tea Party movement. That day, Santelli railed against what was thought to be a forthcoming proposal and the inevitable move to bailout struggling homeowner unable to pay their mortgages.

The Dow was trading around 7,300 points and would eventually fall to 6,626 on March 6, 2009. But since then, as the Tea Party has grown and shown it has electoral muscle, the market has rebounded. After victories a Massachusetts, New Jersey and Virginia in late 2009 and early 2010, the Dow has rallied back, even trading above 11,000 for a brief few weeks starting last April. As the Tea Party movement has shown power throughout the 2010 primaries, the markets have been on a steady climb going back to July.

Thus, the momentum behind the prospects of limited government, fiscal discipline and free-market appears to be working – if using the stock market as a barometer.

There are also indications this momentum will continue. As this Tea Party movement has made strides with candidates in Delaware, Alaska, New York, etc. in just the past few weeks, investor optimism has increased as Alan Abelson noted this in the Sept. 18 issue of Barron’s [12].

“In like vein, but even more emphatically, as Doug Kass of Seabreeze Partners points out, has been the turnaround by members of the American Association of Individual Investors ( the so-called little guys, although their ranks include many folks over six feet tall when unshod),” Abelson wrote. “Three weeks ago, these worthies were as a group 20.7% bullish and 49.5% bearish. Last week, in striking contrast, the bulls among them were 50.9% of the total, the bears a meager 24.3%.”

Media Emphasize Politics, Ignore Tea Party Principles

This bullish trend in the financial markets has been largely ignored by the media. Instead the focus has been on the Tea Parties’ negatives, as a recent Culture & Media Institute story pointed out.

All three broadcast networks have described the Tea Parties as "overwhelmingly white," CMI found. So have CNN, MSNBC, NPR, the Agence France Presse, The Washington Post, The New York Times, the Los Angeles Times, USA Today, National Journal and US News & World Report. Many of those organizations are the very ones the news industry discusses as having failed to make diversity goals for staff.

Other recent reporting in the media has focused on the rise of the Tea Party as 1964 Goldwater phenomenon, which suggests this isn’t democracy at work, but instead something that is strategically debilitating for the Republican as a whole – a theory Peter Beinart, senior political writer for The Daily Beast, subscribes to.

But whatever it means for the GOP, this ideological change suggests that a shift in control of Congress, whether it is one or both chambers, would likely mean gridlock in Washington. That, as far as business and the markets are concerned, is good news.

Stephen Slivinski, author of “Buck Wild: How Republicans Broke the Bank and Became the Party of Big Government [13],” was bullish in an article for the Washington Examiner on Sept. 15 [14].

“So, can gridlock put a cap on spending in the future? I’m optimistic,” Slivinski wrote. “Stimulus programs and corporate welfare spending are proving increasingly unpopular (and ineffective). And the one thing that Republicans seem to have proven over the years is that they are more likely to be opposed to big government when they can turn a Democratic president into the poster child for excessive spending. The GOP pulled their punches during the Bush presidency because to take a swing at the federal behemoth at that point meant taking a shot at their own teammate.”

And as Kudlow maintains, the gridlock created by the Tea Party movement would put the brakes on the growth of government, which is a win for the American economy [4].

“They are talking free markets – lower spending, lower taxing, lower regulations, even constitutional limits to government, and you heard me talk about this last week in my free market 12-step plan for prosperity [15],” Kudlow said. “The rise of the Tea Party people – they are going to win the vast majority of those Senate races and we are going to see a sea change in American policies, back to freedom and entrepreneurship, and that is bullish.”

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