Bernie Sanders

As I write this in late September, the Democratic presidential campaign is in a state of flux. Hillary Clinton is still the favorite, but the train-wreck-in-slow-motion of her ethics problems has created a lot of doubters. Those folks are flocking to Bernie Sanders, the I’m-too-left-to-be-a-Democrat Senator from Vermont. Sanders has historically called himself a Socialist, but he really doesn’t have much choice to run for president other than as a Democrat.

What Sanders has proposed is to make the U.S. more like our urban myth of how western Europe is run: with a much bigger government, providing many more social services, all on the backs of the rich.

First a digression on the urban myth part. There are three aspects to this. First, the central governments of western European countries are a larger share of their economies than ours is … but … our regional governments (states, cities, counties, and especially school districts) are much larger. If you lump them all together, you’d find that government in America is a tad less than the middle of the pack for western Europe. Second, America gets knocked because we pay for much of our healthcare, and some of our higher education, with private funding. Except we also get more for what we pay for: that’s why foreigners come here for medical care and college educations. This spending is often used to beat up America about its priorities, but that’s probably misplaced since American’s don’t seem to think it’s a bad enough deal to go elsewhere for medical treatment or college educations. Third, there aren’t that many rich people to tax to pay for this. The dirty little secret of all these discussions is that total income of “the rich” is already smaller than what the government spends: if we took it all, we’d still end up short. Way short. In order to afford big increases in government spending, we can’t define “the rich” as the top 1%, or even the top 10%, instead it has to be more like top 50%. Some people are OK with that, but many of them are in denial that this includes themselves.

Anyway, let’s take Sanders proposals at face value, since they are gaining in popularity. What does Sanders propose: 1) expanding Medicare into a single payer healthcare system that covers everyone for everything (that’s 75% of it right there), 2) shoring up predicted shortfalls in social security, 3) infrastructure improvements and repairs, 4) making college more affordable, and 5) government funded family leave.

The Sanders program amounts to increasing total federal spending by about one-third—to a projected $68 trillion or so over 10 years.

For many years, government spending has equaled about 20% of gross domestic product annually; his proposals would increase that to about 30% in their first year. As a share of the economy, that would represent a bigger increase in government spending than the New Deal or Great Society and is surpassed in modern history only by the World War II military buildup.

So this is a huge deal. What I wonder is if you asked people, did Roosevelt expand government enough, or did Johnson further expand government enough, I wonder how many would say “yes” to one of those, but would still be in favor of Sanders’ proposal? Those people definitely have a cognitive dissonance issue that they need to resolve, particularly since any rollbacks in those programs by Republicans are mostly reductions in positive growth rates rather than reductions in size and scope. For the true believers who answered “no” to both, then Sanders is probably their guy.

How would he pay for this?

[Sanders] has so far detailed tax increases that could bring in as much as $6.5 trillion over 10 years, according to his staff.

This reality check is problematic.

Having said that, if Sanders does push through conversion of our healthcare system to Medicare, then everything we now spend on healthcare would be up for grabs to be taxed away. That would more than cover the cost, so we shouldn’t really argue that his Medicare proposal creates a funding problem. Of course, it creates a huge political problem because people are not going to want that stuff taxed away, but that’s another story.

What’s interesting to me about this has two parts.

First, he’s proposing the healthcare spending, without the healthcare financing. This is financially dishonest in the small ways that we’re used to from members of Congress. The thing we need to keep our eye on as macroeconomists is that the money will come from somewhere.

Second, if my assertion is correct that there’s enough healthcare spending already out there to cover his proposal, so that we’re just moving money between different accounts … then why does he need the other $6.5 billion in proposed taxes? That’s twice the remaining spending proposals.To the extent that we buy into the Keynesian view (and I’m sure Sanders does) that spending pushes the economy forward, and taxes pull it back … then Sanders proposal to have excess taxes is a plan to hit the brakes on the economy. Who does that make sense to?

You can read about Sanders’ proposals in this piece entitled “Price Tag of Bernie Sanders’ Proposals: $18 Billion” in the September 14 issue of The Wall Street Journal.