Hats off to the Tea Party…for Now
Published: Tuesday, 2 Aug 2011 | 12:04 PM ET
By: Ivory Johnson
Scarborough Capital Management, Inc
It should have been clear that something had gone astray when so many angry citizens rode on interstate highways to protest big government at public parks. Tea Party activists, 44 percent of whom are on Medicare or have an immediate family member receiving benefits, could not be consoled by the fact that their health-care costs are largely responsible for the distended federal budget.
But they have a point. Our government is subject to the miscalculations of pedantic self-serving attorneys and third generation millionaires who masquerade as the common man. America’s beloved democracy, marketed to the world as the penicillin for tyranny, is obviously broken.
The Tea Party has filled a void by demanding change and imposing the will of the people on Congress. Even as we approached the debt ceiling deadline, their representatives refused to abandon the principles of the voters who had sent them to Washington, and in the process, confused a well-rehearsed establishment accustomed to back room deals and empty campaign rhetoric.
Some may dismiss such grass roots politics as the chaotic byproduct of uninformed citizens, but this debate needed to happen — either Congress will impose austerity measures or the markets will do it for us. One can only hope that the 80 percent of Tea Party enthusiasts who make less than $100,000, the 72 percent that lack a college education and the 49 percent whose household receives Social Security income understand the consequences of their actions.
Can we even be certain that the Tea Party freshman recognize the impact of a default? Are they familiar with the $4 trillion Treasury repo market, the potential damage to municipal bond ratings or how risk arbitrage calculations incorporate Alpha, itself a consumer of the risk-free rate of return?
The markets have become increasingly sophisticated to the naked eye, requiring us all to tread carefully before turning the wrench of salvation.
Salacious threats of revolution make for good headlines, yet the system will not fall to its knees without first shaking the world. The wealthiest Americans understand how the financial markets operate; they know which way the money flows. What will happen to the Tea Party once they figure it out for themselves, when the government finally takes its hands off their Medicare?
There may be no moral obligation to give big government the rights of first refusal on an individual’s hard work. The federal government, however, transfers 20 percent of its revenue to state and local interests, and any streamlining from Washington will likely translate into additional state and local taxes that cannot be avoided by the middle class. The wealthy may not deserve to pay more taxes, but whatever the top two percent doesn’t provide will be collected from the remaining populace.
Ayn Rand once surmised that a plant needs only sunlight and water to survive. If either of those two sources disappears, the plant would die. Animals rely on their instincts to exist. Should the wildebeest and other prey become extinct, the lions would surely starve. The only thing that keeps human beings alive is our ability to reason.
The choices we make determine our fate, and to relinquish that ability to think is to choose the alternative of life. We can’t help but trust, and perhaps pray, that those intransigent heroes of the latest Pyrrhic victory have thought this thing through. Otherwise, they may ultimately suffer the indignities of progress, as will the rest of us who disagree with their methods.
Ivory Johnson is the director of financial planning at Scarborough Capital Management, Inc. He is a Certified Financial Planner, a Chartered Financial Consultant and a frequent guest on CNBC. Mr. Johnson attended Penn State University, where he received a Bachelor of Science degree in finance.