Commentary: Sorry Bernie – Economists are not shills because they disagree with your nonsense

Courtsey of Brookings Institution, Flickr Creative Commons
Courtesy of Brookings Institution, Flickr Creative Commons

Nearly five months ago, I wrote an economic analysis of Bernie Sanders’s political platform. I examined the views posted on his official campaign website and how they compared/contrasted with economic consensus.

I did my best to be objective and even brought attention to his good policies (such as the carbon tax he would like to implement).

Now I believe it is time to revisit the man now the campaign has released more specifics policies.

To say the least, most of Sanders’s major claims in his platform are frankly outlandish and at odds with reality. This is true to such an egregious extent I am going to debunk them all citing only left-wing and progressive individuals that, unlike Sanders, actually care about annoying things like facts.

As a forewarning, as I am sure has been picked up on, this time around, I have a tad more vitriol in me due to a variety of reasons that will be made clear later.

Healthcare

Bernie has released an 8-page “plan” detailing what he has in mind for a universal healthcare system. Although, calling it a plan is charitable. As Vox’s Ezra Klein noted:

“To be less generous — but perhaps more accurate — this is a document that lets Sanders say he has a plan, but doesn’t answer the most important questions about how his plan would work or what it would mean for most Americans…The result is that he answers Clinton’s criticisms while raising much more profound questions about his own ideas.”

Supposedly, the plan will be Medicare for all, but Sanders goes beyond Medicare coverage, saying he wants “no more copays, no more deductibles,” both of which are at least partially included in the government program. He also says there will be “no more fighting with insurance companies when they fail to pay for charges.”

Sanders says he plans on funding this universally free healthcare system with merely a 2.2% tax on all income, as well as a 6.2% essentially payroll tax on employers.

It has been well-established by the work of MIT economist Jonathan Gruber (who also was the chief architect of Obamacare) that essentially the full tax incidence of an employer payroll tax falls upon labor. In other words, 100% of that tax supposedly paid by employers is actually coming entirely from employees in the form of a decreased wage.

This payroll tax Sanders insists is paid only by employers, but that is true only in the sense of an extremely misleading accounting trick.

To further pay for his healthcare, Sanders suggests he will raise taxes on the rich in a variety of ways we will delve into later.

All in all, he projects his plan to cost roughly an additional $1 trillion annually in tax revenue, which is about an increase of 1/3 from current levels, almost all of which is coming from the rich in a variety of ways.

Sanders says the plan will actually cost the average American family only $450, which is a savings greater than $5,800 from present premiums. It is hard to see how a universal plan with no deductibles, no copays, and no claim denials could possibly achieve this.

As Klein writes, “The real way single-payer systems save money isn’t through cutting administrative costs. It’s through cutting reimbursements to doctors, hospitals, drug companies, and device companies.”

By necessity, this means there must be a technocratic panel of some sort that steps in and refuses some level of treatment to individuals, which is how similar systems in the U.K. and Canada operate.

Nobel-prize winning economist Paul Krugman also rails against Sanders on precisely this point, stating:

“Now, it’s true that single-payer systems in other advanced countries are much cheaper than our health care system. And some of that could be replicated via lower administrative costs and the generally lower prices Medicare pays. But to get costs down to, say, Canadian levels, we’d need to do what they do: say no to patients, telling them that they can’t always have the treatment they want.”

Taxes

Beyond healthcare, Sanders wants expensive items such as free college tuition, expanded Social Security, massive infrastructure undertakings and a variety of others.

As I previously mentioned, the Wall Street Journal projected an increase of $11.5 trillion in the budget shortfall that would occur from all of these ambitions after adjusting for revenue from newfound taxes.

Speaking of which, Dylan Matthews has an excellent breakdown at Vox of Sanders’s tax rates he would implement.

Both charts capture the massive increase in taxes that would be paid across the board, but predominately by the rich.

Sanders’s top 77% rate is not unprecedented this decade. France enacted a top marginal rate of 75% upon the rich under French democratic socialist President Francois Hollande, but almost immediately lowered the rate when it became clear the government would be generating lesser revenues from all the ensuing wealth fleeing the country.

Furthermore, Sanders seems to think his soaking the rich strategy is how other countries fund their relatively large governments. At least partially this is true, but he fails to realize the U.S. already has one of the most progressive tax codes in the world compared to Europe and the Scandinavian countries Sanders says he wishes to emulate.

The rich already do pay overwhelmingly more than the median citizen in the U.S., especially relative to Denmark and Sweden, although our government welfare system is not as redistributive as these countries.

The fact of the matter is, those nations rely upon a far broader tax code than the U.S., which means everyone including the middle class and relatively poor pay more. This is achieved through massive Value-added taxes (VAT), which can be thought of as a sales tax.

Courtsey of the Phil Roeder, Flickr Creative Commons.
Courtsey of the Phil Roeder, Flickr Creative Commons.

Norway, Sweden, and Denmark each have a VAT rate of 25%, while the average sales tax rate in America is only 7%.

The top rates of Scandinavian countries also kick in much sooner than stateside. For example, an earner of approximately $60,000 USD would be subject to the maximum marginal tax rate of 60.4% in Denmark (including payroll taxes).

It is also worth observing these countries have capital gains and corporate taxes at rates roughly equal to or lower than U.S. rates.

His proposed top capital gains taxes are almost laughably high and show Sanders has no understanding or desire to understand the tax, which are generally agreed upon to hurt growth.

Regardless, not only would those rates easily make the U.S. the nation with the highest capital gains tax in the world, but it is widely agreed by economists that rates as low as half of what Sanders has proposed maximize revenue. In other words, his rates will lose money compared to if they were lower. As David Kamin, former economic adviser to Barack Obama, noted last year, “The Joint Committee on Taxation and Treasury both assume that the revenue-maximizing rate for capital gains revenue ranges from 28 to 32 percent.”

Additionally, the U.S. currently already has the 6th highest capital gains tax rate in the world, whereas many countries including the Netherlands, Belgium, Korea and Switzerland completely lack the tax.

Economic Growth

Early last February, it was brought to my attention an economist projected median income to skyrocket by more than $22,000, 26 million jobs would be created, and the unemployment rate would fall to 3.8% all under the magical glory of a Sanders presidency. It did not take long for the Sanders campaign to fully embrace and then tout these projections either.

My initial reaction literally was asking if said economist was from the University of Massachusetts-Amherst. I did this because the University of Massachusetts-Amherst (which, for the record, has plenty of great economists), is known for being an extreme outlier regarding American economic departments because it hosts a large number of heterodox Marxist economists, whereas most universities have zero.

Previously upon my own investigation, I found a plurality of signatories of economists Sanders’s absurd $15/hr minimum wage plan were unsurprisingly from UMass-Amherst (technically, it was the second largest demographic of signatories next to individuals who were claiming to be economists yet lacked any relevant credentials).

Therefore, I was not surprised when I learned the man behind this lofty prediction was UMass-Amherst’s own Gerald Friedman.

Regardless, Friedman must torture the data vigorously to make his model vomit such astonishing results, which have been widely derided.

Sin #1As economist Justin Wolfers wrote in the New York Times, Friedman assumes a 10-year multiplier of 8.9. This means for every $100 the government spends, a sum of $890 worth of additional stuff is added over the 10-year period.

If that sounds crazy, it’s because it is. The most generous papers find the top multiplier rate to be somewhere between 2-4, while more conservative estimates have found a rate around .6.

Wolfers said that when he informed Friedman of this error, Friedman responded: “I may have made a mistake.” However, he then “rejected this critique, arguing that his figures are based on an alternative view of the world.”

Sin #2 – The aforementioned Krugman highlighted how Friedman assumes the Labor Force Participation Rate (LFPR) will return to its 2000 level. This may sound plausible at first glance, until you remember baby boomers exist…

According to the Social Security Administration, in 2000 20.9% of adults aged 20 or more were seniors. In 2015, the total was 24.7% and by 2026, it is projected to be 33.7%.

Friedman can answer only with cricket chirps with how can the LFPR possibly return to its 2000 rate when the ratio of seniors to working aged individuals will have increased by nearly 2/3.

Sin #3 –  Friedman assumes the U.S. with Sanders under its helm will achieve an annual GDP growth rate greater than 5%, or 4.5% in real terms.

Krugman’s graphic destroys the projection by comparing it to historical norms.

The Federal Reserve and Banking

Sanders wrote an op-ed in the New York Times at the tail end of last year deriding the Federal Reserve system for essentially being a shady cabal of bankers with a sinister control over the U.S.’s money supply.

I have already addressed most of his concerns previously when discussing Rand Paul and, as with Paul, most are completely unfounded.

Still, there are a few peculiar errors that Paul did not make I refuse to let slide.

The first is Sanders’s assumption that underlines his entire proposal of the Federal Reserve somehow being in the pockets of bankers.

As this Wall Street Journal interactive shows, to me it looks like in anything the Fed is increasingly in the pockets of academic and research oriented economists.

fed-voter-background

Secondly, in the piece Sanders establishes that he cannot accurately read a Government Accountability Office report, when he made the false claim that “(JP Morgan) received more than $390 billion in financial assistance from the Fed.”

He pulls that number from Table 8 of this GAO report, but he then forgets to adjust for the length of the loans. Table 9 actually adjusts for the terms of the loan, and JP Morgan, as a result, received only $31 billion, less than one-tenth of the alleged amount.

Lastly, Sanders wants the Federal Reserve Board to “include representatives from all walks of life — including labor, consumers, homeowners, urban residents, farmers and small businesses.” This roughly makes the same amount of sense as stuffing the Supreme Court with economists, biologists, professional athletes, and my scumbag neighbor Steve (God I hate that guy).

Sure, it may be more democratic, but those people are in no way in a position where they have remotely enough credentials to be making complex decisions on behalf of the U.S.’s economy.


 

Sanders has repeatedly stated he will reinstate the Glass-Steagall Act and credits its 1999 repeal as a major source of the Great Financial Crisis.

This is a meme I have repeatedly heard, and it is not remotely based on evidence. The Glass-Steagall Act merely prohibited mixing commercial banking (essentially what most people think of as a bank) with investment banking and other traditionally nonbank activities. “Fewer commercial banks than expected moved into mixed banking when Glass-Steagall was repealed.”

It is also worth mentioning that by the time Glass-Steagall was repealed, it had already de facto fallen out of enforcement for more than a decade.

To summarize former Federal Reserve Chairman Ben Bernanke, none of the questionable pre-2008 activities (namely subprime mortgage lending) by Bear Sterns, Lehman Brothers, AIG, and Goldman Sachs would have been stopped had they been completely prevented from mixed banking. Mortgage lending was and remains a traditional banking service.

The fact Bernie brings this up with regards to the Great Financial Crisis further shows he has absolutely no idea what he’s talking about.

Courtsey of Marc Nozell, Flickr Creative Commons.
Courtsey of Marc Nozell, Flickr Creative Commons.

Final Conclusions

Pretty much all the specifics of Bernie Sanders’s economic platform he has uttered since my previous analysis have been non-factually based at best.

He has always been a populist – I have never liked a populist whether they were Sanders, Trump or Ron Paul – but he has lowered himself in my eyes to slightly above a place where I keep only an orange mullet.

The worst part of all is that when confronted by economists with how some of what he says or advocates is problematic, Sanders has decided on doubling down and name calling.

His worst offence was his response to a letter signed by four prestigious progressive economists who criticized Sanders as well as Friedman for their excessive claims regarding growth during a Sanders presidency.

These economists were Princeton’s Alan Krueger, the University of Chicago’s Austan Goolsbee, the University of California at Berkley’s Christina Romer, and the University of California at Berkley’s Laura D’Andrea Tyson. All of these economists were Chairs of the Council of Economic Advisers for Democrat presidents, and I am willing to bet at least one of the bunch will win a Nobel Prize.

Meanwhile, Krugman is an economist who already has a Nobel Prize, and Sanders as recently as July said he would want Krugman in his cabinet.

However, what Sanders failed to realize is that simply because an economist shares philosophical sympathies with you and may think the rich should pay more, that does not suddenly mean they will approve of promising free lunches, rainbows, and unicorns.

It is extremely telling that when met with these criticisms, Sanders has merely waved his hand and literally accused them of being paid shills. Such anti-scientific actions are reminiscent of hardcore climate change deniers and  indicate he is either delusional or outright telling lies.

How is that a man anyone in their good conscience could now continue to support for president?


2 thoughts on “Commentary: Sorry Bernie – Economists are not shills because they disagree with your nonsense

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s