In past years, debates over economic policy have focused on the best application of sound economic principles — free markets based on voluntary exchange, prices determined by supply and demand, consumer sovereignty, free trade, limited government intervention and fiscal responsibility. These principles are taught in departments of economics in colleges and universities.
While there have always been those on the fringe who claimed that an economic system based on free market principles exploits the working class, concentrates wealth in the hands of the few, puts profits over people and other evils — except for Bernie Sanders, who got some traction during the 2016 presidential primaries — not many people who were in a position to influence economic policy (or aspired to such a position) took them seriously.
Liberals, mainly Democrats, tended to support creation and expansion of entitlement programs while conservatives, mainly Republications, favored increasing defense expenditures. Both sides generally subscribed to sound economic principles — except for fiscal responsibility, which often slipped through the cracks. Now things are different. A significant number of Democrats in both the House and Senate, along with most of the presidential candidates, style themselves as “progressives,” or even socialists, and may not even be aware of the existence of sound economic principles, let alone taken a course in economics, and they have set forth a mind-boggling array of bad ideas.
President Donald Trump, whom the Democrats would like to replace, is, of course, responsible for economic policies that have been implemented during the past two years. Because he graduated from the prestigious Wharton School, which teaches sound economic principles, we can surmise that he took the courses. In that he has signed on to several of these bad ideas, the question is whether or not he attended classes.
1. Welfare programs reduce the poverty level.
“But we need so much more,” says Sen. Elizabeth Warren (D-MA). Really? Programs such as Food Stamps (now Supplemental Nutrition Assistance), Community Action, Medicaid, Public Housing, etc. were initiated during the administration of President Lyndon B. Johnson as part of the War on Poverty. According to U.S. Census Bureau statistics, in 1965, the year the first of these programs was implemented, the poverty rate was 17.3 percent and falling rapidly. Since the late 1960s, however, the rate has been basically level, fluctuating between 11 and 15 percent. In other words, for the past 50 years, there has been no cause and effect relationship between the $22 trillion spent on these programs and the poverty level. Moreover, critics contend that they have created a culture of dependency that undermines the work ethic of welfare recipients.
2. Private health insurance should be replaced with Medicare for All.
Bills recently introduced in the House and Senate would replace all existing private and public coverage with a more generous version of Medicare that would cover medical and dental services without annoying premiums, copays or deductibles. In a 2016 report, the Urban Institute estimate the cost of the plan proposed earlier by Bernie Sanders (D-VT) to be about $32 trillion over the next 10 years. But hold on a minute. Do we really need to replace the Affordable Care Act, a.k.a. “Obama Care,” which resulted in first-time health coverage for 20 million Americans? True, there were some negative aspects, such as expansion of a poorly functioning Medicaid program, but on balance it was, as Vice President Joe Biden put it, “a big f---ing deal.”
Moreover, the version ultimately enacted by Congress was fundamentally similar to the highly acclaimed 2006 health care reform law in Massachusetts which was passed during the administration of Republican Governor Mitt Romney. The law required every resident to obtain a minimum level of coverage. Maybe it would make more sense to keep the ACA, fix what’s wrong with it and restore the individual mandate. Finally, "Medicare for some" has its own problems, not the least of which is that it is going broke (see bad idea No. 4).
3. Raising minimum wage would benefit low skill workers.
According to Bernie Sanders, “The current $7.25 an hour federal minimum wage is a starvation wage. It must be increased to a living wage of $15 an hour.” The fact that Sanders, who is a millionaire, got called out for not paying his campaign workers that much is troublesome, but give him credit for recognizing the problem and taking decisive action — he reduced their hours. But consider this, Bernie: Increasing the wages of workers does not make them more productive, and almost all credible studies have shown that each increase in the minimum wage destroyed low-skill jobs and disproportionately harmed workers who depend on these jobs.
For example, consider the case of American Samoa, a U.S. territory, which had recruited Star Kist and Chicken of the Sea to locate canneries on the island. Although wages were lower than in the continental U.S., they were much higher than in other islands in that part of the Pacific. When the House, led by Speaker Nancy Pelosi (D-California) passed a bill in 2007 increasing the minimum wage from $5.15 to 7.25 per hour, the bill exempted American Samoa. Since Del Monte Foods, the parent company of Star Kist, had its headquarters in San Francisco, which is in the Speaker’s district, was there something fishy going on? Not necessarily. Maybe someone else slipped in the exemption. Anyway, when this was pointed out to her, she promptly had the exemption removed (well, that’s all I know) and shortly thereafter the bill was enacted into law. The consequences were predictable. Chicken of the Sea shut down its cannery, Star Kist laid off part of its workforce, and the economy of American Samoa was devastated.
4. Deficits don’t matter.
That’s what Vice President Dick Cheney said in justifying the policies of then-President George W. Bush, who inherited a balanced budget and $36 billion surplus from his predecessor Bill Clinton and ran up $6 trillion in deficits. The Obama administration was not averse to deficit spending either, and piled on $8.4 trillion. President Trump, according to OMB, will run a deficit of $1 trillion in 2019. All this adds to the national debt, already at an all-time high of $22.5 trillion and exceeds the gross domestic product (GDP) of the United States.
And it gets worse. According to the Pew Research Center, since 2010, Social Security cash expenses have exceeded its income and by next year will begin dipping into reserves to pay benefits, which will be depleted by 2035. For Medicare the situation is even worse, with the hospital insurance trust fund expected to run out of money in 2026. Finally, add the cost of the entitlement programs from Medicare for All to rent subsidies, free college, reparations, etc. proposed by the Democratic presidential candidates and throw in the Green New Deal and the prospect of the country drowning in a sea of red ink looms large on the near horizon.
But in true bipartisan fashion, the President and Congress have addressed the problem and agreed on a measure that increases expenditures and suspends the debt ceiling for the next two years. Dick Cheney should feel vindicated.
5. Tariffs on imported goods are necessary to save jobs in domestic industries.
The main promoters of that idea have typically been Democrats in rust belt states who wanted to protect unionized industries — steel, automotive, tire¬, household appliance manufacturers, etc. — from foreign competition. For example, labor costs in the Chinese tire industry are much lower than in the U.S., and tariffs on Chinese-made tires eliminate or reduce their price advantage over tires made in the U.S., thereby “protecting” workers from plant closing and layoffs. Republicans, on the other hand, have typically favored free trade. Enter Donald Trump who picked up that torch in 2016 and started trade wars with China and Mexico (among other U.S. trading partners). The fact is, however, tariffs are what I described in an earlier column as a “slippery slope” and still a bad idea. They are a tax on consumers; they reduce the benfits of comparative advantage; and they are harmful to the country that imposes them.
6. In countries with market (capitalistic) economies, the rich get richer; the poor get poorer.
So says Sen. Bernie Sanders, who calls himself a democratic socialist (whatever that means). He has the first part generally right: Over the past 10 years, the rich have gotten richer. However, his claim that the poor have become poorer is wrong. The poor got richer as well.
According to the Economic Policy Institute, using data from The Social Security Administration, mean annual income for the top 10 percent of earners increased 8.4 percent from $140,739 in 2007 to $152,476 in 2017. For those in the bottom 10 percent, mean annual income increased 4.9 percent from $34,542 in 2007 to $36,182 during that same period. To be sure, the poorer got richer at a lesser rate, but they didn’t get poorer.
And, while we’re on that subject, numerous studies have found that the poorest Americans earn more than two-thirds of the world population. According to the Department of Health and Human Services, the poverty level for an individual in 2017 was an annual income of $12,490. For example in Cuba, the poster country for socialism, the figure in 2015 was $6,445, based on research conducted by the Federal Reserve Bank of St. Louis. Some later studies suggest a current level of $7,000, give or take, but the point is made. And finally, note that socialism has failed everywhere it has been tried. A partial list of examples includes the USSR, East Germany, North Korea and most recently Venezuela, which was one of the more prosperous countries in South America before socialist Hugo Chavez gained power and wrecked the economy.
7. The 2017 reduction in the corporate tax rate benefited the wealthy and well-connected at the expense of ordinary Americans.
This is how Corey Booker (D-NJ) put it, and his views are shared by most of the Democratic presidential candidates. Well, that’s not correct. According to a report published in 2016 by the Tax Policy Institute, various types of retirement plans, such as 401(k), 403(b), along with IRAs and defined-benefit plans, such as those offered by most state and local governments, owned approximately 37 percent of the $22.8 trillion in stock outstanding, a greater share than any other group. Participants in these plans are working and retired Americans, who may not know that they are accomplices in capitalist exploitation of the working class.
8. The rich don’t pay their fair share of taxes.
Whether or not this statement is correct depends on what is meant by “the rich” and what should be considered “fair share.” A Report by the Tax Foundation based on most recent data from the Internal Revenue Service (IRS) has recently released new data on individual income taxes, showing the number of taxpayers, adjusted gross income and income tax shares by income percentiles. In 2016, 140.9 million taxpayers reported earning $10.2 trillion in adjusted gross income and paid $1.4 trillion in individual income taxes. The top 50 percent of all taxpayers paid 97 percent of all individual income taxes, while the bottom 50 percent paid the remaining 3 percent. If we could assume “the rich” as being the top one percent, they paid 37.3 percent, and if the top 10 percent are included they paid 70.9 percent. But who says this is fair? Maybe we should hit them up for more. As Bill De Blasio (D, New York) recently noted, “There’s plenty of money ... it’s just in the wrong hands.”
So, there you have it. Will my presentation convince those who accept the bad ideas I have identified as being in accordance with reality (true believers) that they should reconsider their positions? I’m not holding my breath. One might think that at least those whose assessments are supposed to serve as the foundation for national policy — in this case economic policy — would have a good background in advanced mathematics and statistics, studied economics at the graduate level and possibly published a few peer-reviewed papers. Or at least passed economics 101 and college algebra.
But in their world, empirical data and mathematical analysis don’t matter. Alexandria Ocasio-Cortez, a rising star of the far left, who just got elected to Congress in New York’s 14th Congressional District, says “profit at any cost” is the reason everyone has to hold two jobs to make ends meet (which may have come as a surprise to the U. S. Bureau of Labor Statistics), but still offers hope, promising that “capitalism … will not always exist in the world.” She also says the U.S. should adhere to the "right of human mobility," and has called for the abolition of ICE. This raises another question. If capitalism is bad and socialism is good, why didn’t the migrant caravans set out for Venezuela instead of the United States?
Jim Buford is a management consultant and holds a PhD in labor economics and management from the University of Georgia. He has served in various faculty and administrative positions at Auburn University and is author of several books, articles and papers