Ron Paul: The Tea Party’s Brain

Ron Paul led the annual Fourth of July parade through Friendswood, Texas, from the back of a gleaming pickup truck that inched along behind a replica of the Liberty Bell and just ahead of Lady Liberty herself, who was sitting in a Corvette and seemed to have wilted under the oppressive noonday sun. Or perhaps the oppressive policies of Barack Obama—it was hard to tell which. Along the parade route, the Stars and Stripes vied for prominence with STOP OBAMA signs.

Friendswood lies just south of Houston, in a district that voted 2-to-1 for John McCain, and for George W. Bush before him. But the distinctive flavor of the local conservatism is most vividly conveyed by Paul, the 75-year-old arch-libertarian congressman and sometime presidential candidate whose disdain for federal power is so severe that he once voted to deny Mother Teresa the Congressional Gold Medal because the Constitution does not expressly authorize such an expenditure. Paul thinks the government ought to be doing a whole lot less, and his constituents seem to agree. They’ve been returning him to Congress since the 1970s by growing margins.

Lately a lot of people, not just in Texas, are coming around to this view. “I’m so confident in my philosophy that I think I could run a pretty good race in San Francisco,” he told me in his Washington office recently. “What I’d talk about there wouldn’t be so much about deficit spending as about personal liberties, military engagement overseas, and the financial crisis. That used to help more in conservative districts. But everybody’s worried about it now.”

Paul is a wisp of a man, with hardscrabble features like a Dust Bowl farmer’s. He has the kindly manner of a small-town doctor, which he was, and an old-fashioned sense of propriety to go with it—he doesn’t travel alone with women who aren’t his wife. But when he gets caught up explaining his philosophy, especially his unorthodox ideas about economics, his eyes widen and his insistent, high-pitched voice makes him seem—there’s no way of putting this gently—slightly unhinged.

At the parade, the proximate cause of anger was Obama’s decision to end the manned-spaceflight program at the nearby Johnson Space Center, a major employer, and to retire the space shuttle. But the sentiment had been building. Recently, the White House had ordered a freeze on offshore oil drilling after the BP blowout, which further disrupted the local economy. Things were looking bleak. A community that Money magazine had only recently named one of America’s “best places to live” suddenly felt robbed of its economic vitality—and by a government that had not hesitated to rescue Wall Street banks and Detroit automakers. To an aggrieved citizen of Friendswood and the many places like it, the accusation that the federal government has broken faith in some fundamental way with the Founding Fathers sounds not just right but righteous. And therefore so does Paul, since this is the message he has preached for 40 years.

In Congress, Paul usually stands alone. This is a natural consequence of voting against Mother Teresa and the countless other bills on seemingly unobjectionable matters to which only he has objected. For much of his career, his own party routinely blocked him. His notoriety peaked three years ago during a presidential-primary debate in South Carolina when, alone among the 10 candidates, Paul, an isolationist, questioned the U.S. presence in the Middle East and seemed to suggest that it had prompted the September 11 attacks. Rudy Giuliani immediately demanded he withdraw the statement (he refused), and afterward Paul tussled with Sean Hannity of Fox News, which derided him mercilessly for the rest of the campaign. When Republicans convened in Minneapolis to nominate John McCain, Paul was so far out of favor that he and his supporters held their own convention across town.

Paul is also a loner because his ambitions lie mostly beyond Washington. He wants to inspire a national movement, but from the outside. Demonstrating purity of conviction is more conducive to that goal than acceding to ordinary political compromises. Paul’s presidential campaign drew a large grassroots following, even while he was being dismissed as a kook, and it made better use of the Internet than any campaign besides Obama’s. Like Obama, Paul inspires people of widely varying beliefs to see him as the vessel of their desires. His opposition to the Iraq War, strident criticism of the Federal Reserve, and early warnings of financial collapse, which he derived from the theories of semi-obscure Austrian economists, brought all sorts of people into the fold.

But it’s what has happened since the election that has carried Paul from the fringe of American politics toward the center—or, really, carried the center toward him. Two years of economic trauma have fed a nationwide resentment. The clearest sign of this is the loose affiliation of angry conservatives, disaffected independents, Glenn Beck disciples, strict constitutionalists, and assorted malcontents who gather under the Tea Party banner. This heterodox mass distrusts the political establishment and believes the federal government has grown dangerously large. Some believe that it has usurped powers rightfully reserved for the states, rendering many of its actions illegitimate (the Constitution is the sacred Tea Party text). Above all, Tea Party followers share a profound objection to unchecked spending and expanding credit, as successive administrations and the Federal Reserve have done to the tune of trillions of dollars. This effort to stimulate the economy, they believe, has not only failed to end the recession but made it worse.

To address these grievances, Paul was ready and waiting. He is not the Tea Party’s founder (there isn’t one), or its culturally resonant figure (that’s Sarah Palin), but something more like its brain, its Marx or Madison. He has become its intellectual godfather—and its actual father, in the case of its brightest rising star, his son Rand Paul, Kentucky’s GOP Senate nominee. The Tea Party has overrun the Republican Party everywhere from Alaska to Kentucky to Maine, and a version of Paul’s bill to audit the Federal Reserve just passed the Senate unanimously en route to becoming law. Today, on matters of economic politics, Paul is at least as significant as any of the Republicans he shared the stage with in the 2007 South Carolina debate. And has anyone noticed that he’s a fixture on Fox News?

To Paul’s delight, he is in such constant demand that he installed video equipment in his district office to spare himself the drive to Houston studios. “Before, they’d totally ignore me,” he says. “But after the housing bubble burst, people like [MSNBC host] Joe Scarborough and others started reading my speeches, and when I go on the air now”—Paul is beaming—“he’ll introduce me by reading some of my predictions from 2002, 2004, about how there’s a bubble coming and we ought to remove the line of credit to the Treasury for Fannie Mae and Freddie Mac.”

In February, Paul startled the Republican establishment by handily winning the presidential straw poll at the annual meeting of the Conservative Political Action Conference, a big event for party insiders. As the Republican Party swings into line behind him, it has upended the consensus that has prevailed around fiscal and monetary policy since the Great Depression, pressuring the Fed and blocking any additional stimulus. With the Tea Party gathering force, Paul is at last where he has always wanted to be: in the vanguard of a national movement.

Paul grew up on a dairy farm outside Pittsburgh and attended Gettysburg College and Duke University’s medical school. Although his libertarian conservatism is characteristic of Texas, he did not settle there until after he had spent five years as an Air Force flight surgeon, part of it stationed in San Antonio. In 1968, he moved to sprawling, rural Brazoria County, and established a successful obstetrics practice.

Paul’s passion, however, was not medicine but economics. During medical school, he had happened upon a copy of The Road to Serfdom, the ringing defense of laissez-faire capitalism by the Austrian economist and philosopher Friedrich Hayek. Written in 1944 against the backdrop of Nazi Germany and Fascist Italy, it argues that state control of the economy leads inexorably to tyranny. (After Glenn Beck endorsed it, Hayek’s book unexpectedly hit the best-seller list last summer.)

To Paul, this was an epiphany, and it launched him on a quest to read anything he could find about the Austrian school of economics. The work of Hayek’s mentor, Ludwig von Mises, came to command his singular esteem.

Mises’s faith in free-market capitalism was nearly absolute. He thought any market interference dangerously distorted the value of money. This led him to reject central banking, by which governments adjust the supply of money to influence the economy. Mises thought that “printing money” was unsound and inevitably touched off a cycle of foolish investments that ended in disaster. What economists call the business cycle—the ebb and flow of boom and recession that most of them believe to be inevitable and outside government’s full control—Mises thought was the result of government interference, of the unfettered expansion of central-bank credit. To prevent governments from debasing the currency, he favored a gold standard.

Mises set Paul on a new course. Many years later, Paul, a prolific writer of books, columns, and newsletters, published a monograph, “Mises and Austrian Economics: A Personal View,” in which he describes his enlightenment in the language of a religious testimonial:

Although the works were magnificent, and clarified many issues for me, it was more of a revelation to find intellectuals who could confirm what I “already knew”—that the free market is superior to a centrally planned economy … It is only with full assurance gained from Austrian economics, and the example of Mises’s character, that I am able to tolerate the daily circus of Congress.

One day in 1971, Paul left his busy medical office and made a pilgrimage to Houston to hear Mises, then 90, speak on the topic of socialism, in what would turn out to be one of his final lectures. When, that same year, Richard Nixon closed “the gold window” and imposed wage and price controls in an effort to tame inflation, Paul felt he could not stand by. “I decided,” he wrote, “that someone in politics had to condemn the controls, and offer the alternative that could explain the past and give hope for the future: the Austrian economists’ defense of the free market.”

He made up his mind to run for Congress. In 1974, under the slogan “Freedom, Honesty, and Sound Money,” he challenged the Democratic incumbent, Bob Casey, and lost. But a year later, Casey joined the Ford administration, and Paul won a special election to replace him.

Mises viewed politicians with asperity, believing that they inevitably fell prey to “pressure groups.” Paul determined to prove otherwise, and earned the nickname “Dr. No” by opposing anything not explicitly authorized in the Constitution. By one measure, he is the most conservative lawmaker to have served in Congress since 1937. Paul is a prolific introducer of bills, usually ones that don’t go anywhere. But a few have been prescient. Before the positions were widely popular, he advocated setting term limits and abolishing the income tax. Less popular ideas have included eliminating most federal agencies, ending government funding of education, repealing federal laws against drugs and prostitution (he favors state laws), and cutting military spending.

Strident libertarianism tends to get in the way of easy relations with one’s constituents. Opposition to government spending can conflict with the legislator’s need to direct enough of it back home to get reelected. Paul takes flak from both sides. Challengers complain that he doesn’t deliver the goods, while purists criticize his occasional earmarks. Paul says that if he can’t end pork in Washington, then his constituents deserve their share—they do pay taxes. But the pressure to bend is greater than even he seems to realize. “His staff would always call mine, begging for funding,” Tom DeLay, the former Republican majority leader, told me.

In the mid-1970s, Paul was one of just four Republican congressmen in a Democratic state, and certainly the only Misesian. His unusual beliefs didn’t immediately stand out, though, because he represented such a conservative district and also because Mises’s passion for free-market capitalism was barely distinguishable from that of a man who had been captivating conservative audiences across the country: Ronald Reagan.

One of Paul’s earliest acts of iconoclasm also turned out to be his wisest. In 1976, he bucked the Republican Party in Texas, which had fallen in line behind Gerald Ford, to head the state’s delegation for Reagan. “This was the leading edge of the Reagan Revolution,” says Mark Elam, who was at the time a student founder of Young Conservatives for Texas, and later went to work for Paul. “Reagan almost knocked off Ford, and that became the genesis of the conservative movement.” Paul and Reagan became friends. When Reagan ran again in 1980, Paul supported him. “There is a famous photograph of the four Texas Republicans [in Congress] and Reagan on Air Force One,” Elam told me. “That was all we had in those days.”

It wasn’t just Reagan’s conservatism that appealed to Paul. He thought he detected Misesian tendencies and could persuade the new president to return to the gold standard. “Reagan was open to it—he told me, ‘A country doesn’t remain great if it gets off the gold standard,’” Paul recalled wistfully. “But his advisers wouldn’t let him.”

Although Paul’s bills to revive the gold standard failed, a rare success came in 1982, when he got Congress to create the U.S. Gold Commission. It considered, but did not endorse, the gold standard—although it did pave the way for the U.S. Mint to begin coining gold again, which Franklin Roosevelt had halted to stem Depression-era bank panics. (Paul has had to settle for a personal gold standard. Financial-disclosure filings reveal that he owns as much as $1.5 million worth of shares in gold-mining companies, so skeptical is he of the dollar.)

Paul is a shrewder politician than he’s given credit for. Early on, he branded himself “the taxpayer’s best friend.” When, in the early 1980s, his isolationism threatened to cost him his seat, Paul came up with a showstopper. In a videotaped campaign ad mailed to Republicans throughout his district, Ronald Reagan offered this endorsement: “Ron Paul is one of the outstanding leaders fighting for a stronger national defense. As a former Air Force officer, he knows well the needs of our armed forces, and he has always put them first.”

In 1984, a Senate seat came open, and Paul decided to pursue it. He suffered a stinging loss in the Republican primary to Phil Gramm (an economist!), and then abandoned electoral politics. “I think he was a bit disappointed that Reagan did not accomplish more,” Elam says.

He returned to medicine and to his true love, economics. In 1976 he had founded a nonprofit, the Foundation for Rational Economics and Education, that published newsletters under his name, and after his defeat, he turned to them in earnest. The newsletters carried urgent titles like The Ron Paul Survival Report, and were generally devoted to the glories of the market and the menace of the Federal Reserve. They claimed more than 100,000 readers. (During the 2008 presidential campaign, The New Republic highlighted vile racism and homophobia that had appeared in their pages. Paul professed ignorance, but refused to say who had written the material.)

Paul made a quixotic return to politics in 1988 as the Libertarian Party’s presidential candidate, placing a distant third. And then, after the Republican congressional landslide in 1994, he got the bug again. Through DeLay, he appealed for his old party’s support to unseat the Democratic incumbent in the district next door to his old one. Instead, Republican leaders got the Democrat, Greg Laughlin, to switch parties. Paul ran anyway. He drew on a national network of newsletter subscribers, libertarian activists, gold bugs, and other believers to vastly outspend Laughlin, despite Laughlin’s access to the GOP’s national donor base. Paul’s campaign, fueled as it was by an army of small donors, prefigured the Internet campaigns that would come later. He shocked everyone by winning.

But in Washington, Paul was out of step with the times—an isolationist as neoconservatism took over his party, a sworn foe of central banking when Alan Greenspan was being celebrated as “The Oracle,” a fiscal conservative overpowered by Karl Rove’s attempt to build a lasting Republican majority by buying off key interest groups with new government benefits.

Paul’s independent streak put him at odds with a Republican leadership that ran Congress like a Tammany Hall machine and punished anyone who strayed. Paul strayed habitually. In 2003, his seniority put him in line to chair the subcommittee that oversees the Federal Reserve. To deny him, Republican leaders merged two committees. In 2005, he was again set to assume the top spot. With another merger impossible, a senior colleague was pressured onto the subcommittee so that she, and not Paul, would take the gavel.

“They look at him as a problem,” says Representative Barney Frank, the Massachusetts Democrat who chairs the Financial Services Committee and co-sponsored bills with Paul legalizing marijuana and Internet gambling. “Ron said to me in 2005, ‘I guess I’ll have to wait for you to be chairman, because we never get anywhere around here.’”

Then everything changed. The housing bubble burst, banks stopped lending, and the Federal Reserve became an object of contempt. It was the world Ron Paul had prophesied, and he had a seductive story to tell about why it had happened—the Austrian story.

The Federal Reserve, in its hubris, had thought it could goose the economy and mitigate the effects of a post-9/11 recession by holding interest rates low, he explained. But tampering with money had sown disaster, just as Mises had warned. Easy credit had fueled massive amounts of what the Austrians called “malinvestment”—badly allocated investments, in this case in the overproduction of houses and automobiles. Only no one recognized this, because the true value of money had been distorted. Now the reckoning had arrived.

For his devotion to Austrian economics, Paul was always seen as slightly aberrant, in the same way that he might have been if he were, say, a practicing Druid. The Austrian school had peaked in the early 20th century but had fallen away after the Great Depression, which it claimed was caused by an expansion of the money supply and could be met only with chastened submission as the market corrected itself. Herbert Hoover’s Treasury secretary, Andrew Mellon, offered similar counsel, famously urging Hoover to “liquidate” and “purge the rottenness out of the system.” But this failed to stop the catastrophe. Only when Roosevelt took the dollar off the gold standard and committed to deficit spending, and the Fed adopted consistently low interest rates, did the economy finally start to recover. This validated the argument of the Austrians’ intellectual adversaries, economists like John Maynard Keynes, that rather than stand aside, governments should intervene to mitigate recessions.

Most mainstream economists today accept Keynes’s prescription. Many of them regard Austrian theory as charlatanism—in the words of Paul Krugman, “as worthy of serious study as the phlogiston theory of fire.” The reason is that the Austrian response to a recession—liquidation and austerity, falling wages and prices—allows enormous, and unnecessary, damage to the economy. Among other things, it has no answer for the problem of unemployment—and, by forsaking any attempt to prop up aggregate demand, probably worsens it.

Though Paul could claim prescience for having warned of the crisis and became a sought-after financial commentator, he did not win the policy debate, at least not inside the government. Both the Bush and Obama administrations fought the crisis with deficit-funded fiscal stimulus, bailouts, and a broad easing of credit: the classic Keynesian weapons.

But the debate didn’t end there. The public’s response to the interventions in the economy was widespread revulsion. Whole swaths of people seemed to undergo something like what Paul had experienced in reaction to Nixon’s interventions in 1971: they became radicalized. “They saw that everyone was panicked to bail out the big guys and stick it to the little guys,” Paul says. “The Tea Party message is, they’re tired of it.”

Rage at the bailouts has already cost incumbents in both parties their seats. It’s put the fear of God into party leaders like Senator Mitch McConnell of Kentucky, the Republican leader, who, upon casting his vote for the bailout two years ago, called it “one of the finer moments in the Senate,” and must desperately wish he had not. McConnell has been vigorously criticized by the conservative grass roots, and a sign of what may be in store for him came in May, when his choice for Kentucky’s open Senate seat was thrashed in the Republican primary by Rand Paul.

Most experts think the government’s intervention was, technically speaking, successful (although probably too small). A recent study by the economists Alan Blinder and Mark Zandi concluded that it likely prevented a depression and saved 8.5 million jobs. A Congressional Budget Office study reached a similar conclusion. In other words, the intervention validated Keynes.

But lingering high unemployment and economic weakness, along with the relentless Republican effort to undermine Obama, have led most people to conclude the opposite, that Keynesian intervention failed. That’s had a profound impact in Washington, where further stimulus looks impossible even though the recovery has faltered and many Democrats (and investors) would like one. Tea Party outrage appears to have ended the Keynesian consensus that had obtained since the Great Depression. Republicans may not identify as Misesians, but as they rediscover their old obsessions with deficits, tax cuts, and inflation, they sound like they’re in deep philosophical accord. “Too many are searching for answers in the discredited economic playbook of borrow-and-spend Keynesian policies,” Representative Paul Ryan of Wisconsin, an influential Republican on economic matters, said recently. “I reject the false premise that only forceful and sustained government intervention in the economy can secure this country’s renewed prosperity.”

All of this is highly encouraging to Paul, because it reopens the debate about the Great Depression, a debate most people considered settled. Once consigned to the fringe, his ideas about economics have shaped an election that will determine future economic policy. If there’s another recession, the response will be much different.

A week after the Friendswood Fourth of July parade, Paul went to Galveston to speak at a job fair held by a local community-service organization in a sprawling convention center. Outside, satellite trucks and television crews were setting up in anticipation of the oil rumored to be washing ashore. Inside, people crowded into the lobby, some of them oil workers idled by the offshore-drilling moratorium. Booths for local businesses and charitable organizations lined the walls. The local Tea Party chapter also ran a booth. Paul delivered some words of praise for the volunteers and acknowledged the hardships brought on by the recession. Afterward, I asked him to explain how he would tackle unemployment, since the Austrians’ response had cost them during the Depression. Paul first made clear that he sympathized with the jobless, who were not to blame for their plight. “Unemployment is a creature of government intervention,” he said. “They’re victims of the intellectuals, like Keynes and Krugman.” But unemployment was, he agreed, a real problem. “Once you get it, you’re really in a pickle.”

What would his plan be? “It would be the opposite of what they’re doing,” he said. “You would not increase spending, you would not increase taxes, you would not bail out anybody. You would have bankruptcy, liquidation of debt, and [you’d] wipe the books clean so everybody can go back to work.” Rather than prop up demand, which contracts in a recession as businesses and consumers cut back, Paul would let the economy shrink until it began growing again. He cited the short (but severe) recession of 1920–21, when mass bankruptcies swept the country and prices fell by a third, to argue that if Bush and Obama had stood aside, the economy would already have returned to full capacity.

Paul kept returning to the stern moral logic at the heart of his worldview: that recessions are the price paid for a boom, that any attempt to fight them is hubris, and that “liquidationism,” far from having failed during the Depression, was denied a proper chance. Twice before, Paul has felt the country was on the cusp of a conservative age: in 1980 with Ronald Reagan and in 1994 with the Republican Congress. Both times, he was disappointed. He thinks another such moment could be at hand—and that conservatism might triumph this time, because the impetus is coming from outside Washington. His ideas are spreading. “Politicians are only a reflection of the intellectual climate,” he told me. “The Tea Party people are sending the right message.”

Paul says he hasn’t decided whether he’ll run for president again. But it’s hard to believe he won’t. He has emerged as a force at the kind of insider events that once ignored him. After winning the straw poll at the Conservative Political Action Conference in February, he came within a single vote of repeating the feat two months later at the Southern Republican Leadership Conference. In June, he traveled to Iowa to raise money for local politicians, which is what you do when you’re thinking about running for president. He was greeted with President Ron Paul 2012 signs.

It does not seem at all far-fetched to think that Paul could have a much greater impact on the race than last time. The Republican primaries are sure to be about economic and size-of-government issues. The subject that hurt him last time, foreign policy, will probably take a backseat. Paul will not lack for resources, thanks to his legion of online donors. Reagan, the Republican hero, once endorsed him. And the party’s energy right now is at the grass roots, which also bodes well for him. If his economic message connects in Iowa and New Hampshire—well, who can say?

Meanwhile, the country is losing faith in its economic leaders. “I feel really good about what’s happening,” he told me. “I never dreamed of a day when so many people would be thinking about the Federal Reserve. I can draw crowds of thousands! The first time I mentioned Austrian economics when I spoke at the University of Michigan, they started to applaud. I thought, What in thunder is happening? What’s happening is, the education is occurring.”

Paul looked rapturous, and he leaned forward. “Two years ago,” he said, “if you’d had somebody come in and do what you should do on the recession, they’d probably be impeached in a week. But attitudes are changing—people are understanding economics differently.”