Bernie Sanders is a provocateur.
His proposals are politically infeasible, and some of them are economically suspect. But Sanders is offering big ideas. He is inviting the electorate to imagine an entirely different way of life in these United States. Even people who won’t vote for him, some of them, would like to see a world with less income inequality and fewer fat cats trying to buy elections.
Sanders would eliminate private health insurance and replace it with a government-payer system along the lines of Medicare. He would offer free education in all public universities to any qualified student. He would break up the nation’s biggest banks and restrict some uses of capital. He would launch a huge government-financed construction program to rebuild our infrastructure. He would raise significant new taxes to pay for it all and count on a surge in employment and economic growth to generate the new taxes.
An analysis by University of Massachusetts economist Gerald Friedman estimated Sanders’ plan would raise economic growth to 5.3 percent per year. For context, consider that growth has been in the 2 to 2.5 percent range for a while now, 3 percent is considered pretty good, and 4 percent is considered to be really good, so good, in fact, that it’s a signal to the Federal Reserve Board that it’s probably time to think about raising interest rates to put on the brakes.
Many reputable economists believe Sanders vastly overestimates the benefits of his program and underestimates the costs. In the past week, four former Democratic members of the President’s Council of Economic Advisers have published an open letter saying that Sanders’ claims for employment and economic growth if his agenda is enacted are impossibly optimistic.
“As much as we wish it were so, no credible economic research supports economic impacts of these magnitudes,” they wrote. “Making such promises runs against our party’s best traditions of evidence-based policy making and undermines our reputation as the party of responsible arithmetic.”
Friedman says he ran the kind of input-output model that every forecaster uses. The growth is simply the result of a significant surge in government spending.
Unfortunately, standard input-output models have trouble capturing the reactions of individuals who are affected by economic change. They do react, and Sanders’ program would give them much against which to react.
Some analysts have estimated that although Sanders’ tax proposals would put the wealthiest taxpayers into a 47 percent income tax bracket (compared with 39.6 percent today), other new taxes would result in a effective marginal tax rate of 77 percent. People respond to these kinds of things. Wealthy Swedes, including the founder of Ikea and tennis great Björn Borg, emigrated in the 1970s when marginal rates in Sweden started approaching 90 percent.
A key part of Sanders’ philosophy is that wealth must be distributed more fairly. It’s an interesting point, but it is complicated by the very real disincentives to work that a west European-style welfare state creates. On top of that, very high marginal income tax rates do force some business owners to avoid adding extra workers and investing in new equipment because the higher tax bill that results from growth in the business may not be worth it.
The health insurance industry employs more than 500,000 people, and there are about 728,000 insurance brokers in the country, although not all of them handle health insurance. If Sanders hasn’t factored into his economic calculations what happens when Medicare for all eliminates thousands of those jobs, he’d better do it quickly.
A pharmaceutical industry that sees profits decline under President Sanders may become more risk-averse. Drug invention may slow. Taxes on financial activities may constrain the availability of capital. Higher business taxes to finance Medicare for all could push some businesses over the edge into failure.
America has adopted a lot of crazy ideas proposed by assorted cranks and visionaries, among them Social Security, a 40-hour workweek, voting rights for women and former slaves, federal regulation of food and drug safety and insurance on bank deposits. Even if Bernie doesn’t win in 2016, some of his ideas could win down the road. After all, there would have been no Reagan without Goldwater, no Franklin Roosevelt without Eugene Debs.
This is the value of Bernie’s candidacy. He is forcing us to ask ourselves what we really believe.
UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 823-3896 or firstname.lastname@example.org. Go to www.abqjournal.com/letters/new to submit a letter to the editor.