Sanders’ Misleading Arguments, and What Happens the Day After a President Sanders Enacts his “Revolution”
This diary does not address whether a president Sanders has a chance to enact his key business reforms, but assumes he does. I will also not address the giveaways designed to put money directly into the pockets of selected groups of reliably Democratic primary voters. Instead, I will address the more misleading language and propaganda in the Sanders pitch as well as the likely consequences if Sanders put his revolution into effect.
Santa Claus is Coming to Town
According to the Sanders’ web site, at berniesanders.com/..., the list of direct bestowals on individual voters Sanders is promising voters in the Democratic primaries include: increasing the minimum wage; investing $5.5 billion to create youth jobs; enacting the Paycheck Fairness Act to raise wages for women; making tuition free at public colleges and universities; requiring employers to provide at least 12 weeks of paid family and medical leave; two weeks of paid vacation and 7 days of paid sick days; and enacting a universal childcare and prekindergarten program. This type of “chicken in every pot” pandering to voters by appealing to their self-interest is expected from politicians, and Clinton would also agree that people should get these gifts and benefits -Why not?
Who Will Pay For the Gifts?
To pay for the distributions to the middle class and poor, Sanders harps in his speeches, debates and website on his main goals described as:
►“Breaking up huge financial institutions so that they are no longer too big to fail… Sen. Sanders has introduced legislation to break these banks up. As president, he will fight to sign this legislation into law.” and
►“Demanding that the wealthy and large corporations pay their fair share in taxes. As president, Sen. Sanders will stop corporations from shifting their profits and jobs overseas to avoid paying U.S. income taxes. He will create a progressive estate tax on the top 0.3 percent of Americans who inherit more than $3.5 million. He will also enact a tax on Wall Street speculators who caused millions of Americans to lose their jobs, homes, and life savings.
►”The U.S. spends more on health care per person, and as a percentage of gross domestic product, than any other advanced nation in the world, including Australia, Canada, Denmark, France, Germany, Japan, New Zealand and the United Kingdom. But all that money has not made Americans healthier than the rest of the world. Quite simply, in our high-priced health care system that leaves millions overlooked, we spend more yet end up with less.”
The Speculators Get a bum Rap
At the outset, we must focus on a bit of a shell game going on here. The Sanders’ website says,
One of the major reasons why the middle class is collapsing and the gap between the rich and everyone else is growing wider and wider is because of the greed, recklessness, and illegal behavior on Wall Street.
Millions of Americans lost their homes, life savings, and ability to pay for college because Wall Street gamblers crashed the economy in 2008.
During the financial crisis, the taxpayers of this country provided Wall Street with the largest bailout in the history of this world — $700 billion from the Treasury Department and $16 trillion in total financial assistance from the Federal Reserve.
When Sanders growls the words “Wall Street” and “speculators,” his tone of voice is intended to conjure up the image of swindlers. However, he knows that “speculators” did not cause millions of Americans to lose their jobs, homes, and life savings. By definition, the “speculators” risked their own funds in search for a high yielding reward, knowing the long odds. They were much like gamblers at the race track who eschewed the favorite and used their own money to bet on the horse that went off at 20-1, knowing that the long odds reflected both a potential bonanza if the horse won, but a likelihood it would not. An example of an everyday speculator is someone who invests in a restaurant. According to www.restaurantowner.com/...,
Several years ago, researchers at Cornell University and Michigan State University conducted a study of restaurants in three local markets over a 10-year period. They concluded the following: After the first year 27% of restaurant startups failed; after three years, 50% of those restaurants were no longer in business; and after five years 60% had gone south. At the end of 10 years, 70% of the restaurants that had opened for business a decade before had failed.
An investor in long-shot securities, real estate projects, gold mines, dairy farms and oil wells are no more morally corrupt nor any different kind of investor than your corner pizza joint that closes after a few years causing a big loss to its owners.
The Borrowers Did take, and then Spend the Money Lent to Them
If you have ten bucks and lend it to me, and I buy myself lunch, I doubt that anyone would say you cheated me. I took your money knowing I would have to pay it back, spent it, and enjoyed a lunch I would not have had if you did not loan the money to me. How could you have cheated me/ And if I did not pay you back because of my defense that you knew I was a deadbeat and never would have the means to repay your loan, that defense might win in court if I drew a sympathetic judge who had a yen for helping people whose appetites exceed their means, but that defense says something about me, not you.
Therefore, let us not overlook that banks who loaned money to high risk borrowers by giving unqualified people mortgages, actually did hand over the funds, and those funds were spent to buy houses people moved into and enjoyed until the crash caused their house’s value to go underwater. Cash changed hands. Both the shareholders of the banks and the borrowers lost money, and many people lost their homes; but in many instances they never should have been able to buy their homes on credit in the first place. Yes, it is true, as explained in the movie, The Big Short that bankers were corrupt, stupid and greedy in reselling the same pieces of the sub-prime mortgages multiple times, but they themselves were so ignorant that they bought those investments for their firm’s own accounts. The banks therefore suffered great losses, and yes, they needed a bailout to save the American economy. However, the taxpayers ultimately did not pick up the tab because the full bailout was repaid, with interest to the Treasury and the Federal Reserve. Thus as stated at projects.propublica.org/...
Altogether, accounting for both the TARP and the Fannie and Freddie bailout, $618B has gone out the door—invested, loaned, or paid out—while $390B has been returned. The Treasury has been earning a return on most of the money invested or loaned. So far, it has earned $294B. When those revenues are taken into account, the government has realized a $65.3B profit as of Mar. 2, 2016.
I am not contending that the crash in 2008 did not sweep into misery millions of Americans since that is obvious. But I do contend that the broad generalization that Sanders offers is not completely accurate, and he is creating comic book villains, and then promises that if he is elected, he will destroy those forces of evil.
Of course some of the middle class primary voters Sanders is targeting with his pitch were themselves investors. Thus Sanders’ claim that those in the middle class who invested in 401 K plans that lost money when the stock market crashed, is actually an argument that they lost their money when they tried to be speculators themselves by seeking profits in the bull stock market that seemed to be invincible. Thousands of those investors along with others in the middle class who were direct investors in the stock market sued their brokerage firms in FINRA arbitration cases, but few were able to attribute sufficient legal fault to by their brokers to win a meaningful economic recovery. Moreover, nobody stopped those middle class investors from putting their money closed-end bond funds, or Treasuries which were not devastated by the 2008 crash; and those people who did not make margin loans and maintained their long positions saw their stocks recover in less than 2 years, and soar after President Obama fixed the economy.
Undoubtedly, many people did lose jobs when their employers businesses failed or started to limp in what was a world-wide crisis that still is depressing the ecconomies of Europe, Russia and even China. But rather than be the result of behavior that might have been avoided if banks had been broken up before 2008, it seemed more like a gravitational pull that corrected a too-good-to-be-true universe where credit was freely given, and consumer spending was irrational given the earnings of the spenders. Yes wages of the middle class have been depressed artificially, but part of the blame goes to those wise-guy workers who spat upon the unions that protected their wages, the workers who fled to right-to-work states, and voted in anti-union politicians. They probably got what they deserved, and the shame is how they sucked in the other workers who were ignorant of the need for unions, or would have organized if there was support among their fellow workers.
The Complainers Would Do It All Over Again
In the 1990s, the middle class lost a bundle when the dot-com bubble burst. Ten years later, they were part of the real estate and stock market bubble that burst again. Do not be surprised if the middle class is not the victim of the next bubble since without their own hope of a lottery type of recovery from their investments, there would be no bubbles.
The Day After President Sanders Has His Revolution
During interview on the Charlie Rose show, Sanders said, “he supports raising the top marginal tax rate to "over 50 percent"—and increasing the corporate tax rate” See, www.bloomberg.com/... The official Sanders’ web site says at berniesanders.com/...
Senator Sanders would end these loopholes by requiring U.S. companies to pay taxes on all of their income by ending the deferral of foreign source income.
Under Sanders’ plan, corporations would pay U.S. taxes on their offshore profits as they are earned. This plan takes away the tax incentives for corporations to move jobs offshore or to shift profits offshore because the U.S. would tax their profits no matter where they are generated.
The fact that individuals and companies can move to other Western-oriented, hospitable countries and still make a profit off of doing business in Americans, is a proven fact. For example, Pfizer announced a merger with a small Irish company that will remove Pfizer from the ranks of America’s top companies and make it an Irish based company. Pfizer will save $2 billion per year in taxes and will pay at Ireland’s corporate tax rate of 18% See, arstechnica.com/...
What if most of the companies Sanders is targeting simply said sayonara, and decided, like Pfizer to stop being a U.S. company? In today’s wired world, any company could easily relocate their management and control operations outside of America to avoid the Sanders’ tax. They would not have to worry about our tax code or loopholes since they would not be subject to the tax. If laws were enacted to punish them for trading on our stock exchanges, they could move to the Hong Kong or London exchanges and become ADR trading companies that still would be treated as NASDAQ or NY Stock Exchange securities with trading volume and stock quotes easily found on Yahoo and any other financial web site. Will men boycott Viagra out of patriotism? Would sick people who depend on drugs Pfizer still has on patent protest by going off their meds? Similarly, does the American consumer care that most of the clothing they wear is made overseas? Will they stop driving Japanese cars? What if every major American company moved to Canada, Mexico or to the tax havens to avoid the Sanders’ new tax? Then what? Do we enact trade barriers on goods made by erstwhile American companies like Trump is threatening? Will the public accept higher prices for branded goods they desire?
Instead of creating jobs, the Sander’s tax could cause the opposite. According to the US bureau of Labor Statistics, www.bls.gov/... most Americans work for big companies that would be likely to relocate to avoid the tax.
Table 2.1 Employment by Major Industry Sector
|
|
Industry Sector
|
Thousands of Jobs
|
Change
|
Percent Distribution
|
Compound Annual Rate of Change
|
|
2004
|
2014
|
2024
|
2004–14
|
2014–24
|
2004
|
2014
|
2024
|
2004–14
|
2014–24
|
|
Total(1)
|
144,047.0
|
150,539.9
|
160,328.8
|
6,492.9
|
9,788.9
|
100.0
|
100.0
|
100.0
|
0.4
|
0.6
|
|
|
|
Nonagriculture wage and salary(2)
|
132,462.2
|
139,811.5
|
149,131.6
|
7,349.3
|
9,320.1
|
92.0
|
92.9
|
93.0
|
0.5
|
0.6
|
|
|
|
Goods-producing, excluding agriculture
|
21,815.3
|
19,170.5
|
19,227.0
|
-2,644.8
|
56.5
|
15.1
|
12.7
|
12.0
|
-1.3
|
0.0
|
|
Mining
|
523.2
|
843.8
|
924.0
|
320.6
|
80.2
|
0.4
|
0.6
|
0.6
|
4.9
|
0.9
|
|
Construction
|
6,976.2
|
6,138.4
|
6,928.8
|
-837.8
|
790.4
|
4.8
|
4.1
|
4.3
|
-1.3
|
1.2
|
|
Manufacturing
|
14,315.9
|
12,188.3
|
11,374.2
|
-2,127.6
|
-814.1
|
9.9
|
8.1
|
7.1
|
-1.6
|
-0.7
|
|
|
|
Services-providing
|
110,646.9
|
120,641.0
|
129,904.6
|
9,994.1
|
9,263.6
|
76.8
|
80.1
|
81.0
|
0.9
|
0.7
|
|
Utilities
|
563.8
|
553.0
|
505.1
|
-10.8
|
-47.9
|
0.4
|
0.4
|
0.3
|
-0.2
|
-0.9
|
|
Wholesale trade
|
5,663.0
|
5,826.0
|
6,151.4
|
163.0
|
325.4
|
3.9
|
3.9
|
3.8
|
0.3
|
0.5
|
|
Retail trade
|
15,058.2
|
15,364.5
|
16,129.1
|
306.3
|
764.6
|
10.5
|
10.2
|
10.1
|
0.2
|
0.5
|
|
Transportation and warehousing
|
4,248.6
|
4,640.3
|
4,776.9
|
391.7
|
136.6
|
2.9
|
3.1
|
3.0
|
0.9
|
0.3
|
|
Information
|
3,118.3
|
2,739.7
|
2,712.6
|
-378.6
|
-27.1
|
2.2
|
1.8
|
1.7
|
-1.3
|
-0.1
|
|
Financial activities
|
8,105.1
|
7,979.5
|
8,486.7
|
-125.6
|
507.2
|
5.6
|
5.3
|
5.3
|
-0.2
|
0.6
|
|
Professional and business services
|
16,394.9
|
19,096.2
|
20,985.5
|
2,701.3
|
1,889.3
|
11.4
|
12.7
|
13.1
|
1.5
|
0.9
|
|
Educational services; private
|
2,762.5
|
3,417.4
|
3,756.1
|
654.9
|
338.7
|
1.9
|
2.3
|
2.3
|
2.2
|
0.9
|
|
Health care and social assistance
|
14,429.8
|
18,057.4
|
21,852.2
|
3,627.6
|
3,794.8
|
10.0
|
12.0
|
13.6
|
2.3
|
1.9
|
|
Leisure and hospitality
|
12,493.1
|
14,710.0
|
15,651.2
|
2,216.9
|
941.2
|
8.7
|
9.8
|
9.8
|
1.6
|
0.6
|
|
Other services
|
6,188.3
|
6,394.0
|
6,662.0
|
205.7
|
268.0
|
4.3
|
4.2
|
4.2
|
0.3
|
0.4
|
|
Federal government
|
2,730.0
|
2,729.0
|
2,345.6
|
-1.0
|
-383.4
|
1.9
|
1.8
|
1.5
|
0.0
|
-1.5
|
|
State and local government
|
18,891.3
|
19,134.0
|
19,890.1
|
242.7
|
756.1
|
13.1
|
12.7
|
12.4
|
0.1
|
0.4
|
|
|
|
Agriculture, forestry, fishing, and hunting(3)
|
2,111.3
|
2,138.3
|
2,027.7
|
26.9
|
-110.5
|
1.5
|
1.4
|
1.3
|
0.1
|
-0.5
|
|
Agricultural wage and salary
|
1,149.0
|
1,384.0
|
1,307.3
|
235.0
|
-76.7
|
0.8
|
0.9
|
0.8
|
1.9
|
-0.6
|
|
Agricultural self-employed workers
|
962.3
|
754.3
|
720.4
|
-208.1
|
-33.8
|
0.7
|
0.5
|
0.4
|
-2.4
|
-0.5
|
|
|
|
Nonagricultural self-employed workers
|
9,473.6
|
8,590.2
|
9,169.5
|
-883.4
|
579.3
|
6.6
|
5.7
|
5.7
|
-1.0
|
0.7
|
|
Footnotes:
1 Employment data for wage and salary workers are from the BLS Current Employment Statistics survey, which counts jobs, whereas self-employed workers, and agriculture, forestry, fishing, and hunting workers are from the Current Population Survey (household survey), which counts workers.
2 Includes wage and salary data from the Current Employment Statistics survey, except private households, which is from the Current Population Survey. Logging workers are excluded.
3 Includes agriculture, forestry, fishing, and hunting data from the Current Population Survey, except logging, which is from Current Employment Statistics survey. Government wage and salary workers are excluded.
Source: Employment Projections program, U.S. Bureau of Labor Statistics
|
|
Breaking Up the Big Banks Does Not Put Money in our personal Pockets nor Raise Revenue
Breaking a stick weighing ten ounces into 3, irregular parts still leaves you with ten ounces of wood. Breaking up banks into separate businesses will not lower prices, nor add to the tax rolls. Sure it might avoid another meltdown (assuming Dodd Frank will not already accomplish that), but we need to hear the other side of the story before we rush to support the proposal. Let us nonetheless assume Sanders did break up Bank of America, J P Morgan, Morgan Stanley, Etc. So what? Besides the inconvenience of changing accounts, how will the consumer benefit? Moreover, suppose some international banks which did not wish to be split up moved off shore? What then? Do we have to look elsewhere for the lost tax revenue? And would depositors or investors really care if their Internet banking was handled by people employed in Switzerland or India instead of by clerical people located in Arizona? If the rates and services were better, I think most people would forgo giving up the benefits for the sake of supporting Sanders; especially since the banks would probably not care much about a consumer boycott since they would have all of that business from the companies that fled our shores to avoid the Sanders’ tax.
Health Care at Lower Prices Sounds Good-But Who Will Pay Off Doctor-Student Loans?
Up above, I quoted from the Sanders’ website where he compared the cost of health care in the United States to the cost in Australia, Canada, Denmark, France, Germany, Japan, New Zealand and the United Kingdom. A handy chart in Mother jones at www.motherjones.com/... is very telling. It shows that doctors here earn more than in the other Western countries. What is very revealing is the following insight that the Mother Jones art icicle offers:
The bottom line is that compared to other rich countries—all of which pay Medicare rates or less for medical services—American doctors are pretty well paid. The report also shows compensation as a ratio of the average wage in each country, and the story is similar (though GPs look a little closer to the OECD average when you compare their pay to average wages). So is this more or less than US doctors "deserve"? On that score, it's worth pointing out that most American doctors have to pay their own medical school bills, a cost that's picked up by the government in most other countries.
If the cost of doctors is a big component of our high health care costs, to get to the amounts of the countries Sanders references, we will probably have to give our doctors a cut in pay. But if we do that, are we also going to start paying for the medical education of our physicians? The health care situation in America is like a Rubik’s Cube. There is no way to tinker with one side without messing up the order on a different side. The medical professionals already feel they are underpaid, and the hard work and sacrifice to become a doctor, without the promise of a commensurate financial reward could yield unintended, and unacceptable consequences. This is not addressed by Sanders.
Politicians always talk about how great America is. If they thought that, you might think that they would be offering tweaks instead of radical changes. The Republicans point with pride to institutions and industries that are extant only because of the liberal policies of the New Deal, and then promise to repeal the New Deal. The country the Republicans love to praise as exceptional, had 150 years of an interpretation of the 2nd Amendment that they sought to reverse-and did. I fear that Sanders is leading his supporters into a similar kind of paradox. When he talks about health care, people think of what they get now, but at a lower cost and available to all under Sanders’ rhetoric. But if the Sanders’ revolution leads to a revolution by doctors, his supporters may feel mislead.
Another point worth mentioning briefly is that without a profit motive, companies would have neither the economic means nor the incentive to seek discoveries of new medicines, and devices. Investors account for most of the innovations in medicine we enjoy since their investments funded the R&D for inventions and clinical trials. If we trim or eliminate the chance for making a profit, investors will put their money to work outside of medicine. Sanders does not address that issue either.
Disclaimer and Summary
If Sanders gets the nomination, i will be a 100% supporter, financially and any other way I could help. However, i am rooting for Clinton because I think Sanders is promising too much to people who either have not much of a stake in improving, but not destroying our way of life. I am sure that if I were a college student facing debt, I would back the man who promises to eliminate my debt and give me free tuition. If I were not enrolled in a good health insurance plan, I am sure I would back the man who promises me free or nearly free health insurance. If I had not earned savings and made investments over my life, I am sure I would back the man who promises to break up Wall Street. if I did not own a an interest in a firm that employs people and pays taxes, I am sure I would back the man who promises to soak the owners of businesses. But I also think that even if I were in these categories, I would still want to know what the other side of the coin is? The rich certainly do get their way with Congress and presidents. But there are elected officials who are sincere and not corrupt. they have had the interest of the poor and middle class on their radar screens, but have not advocated the “revolution” Sanders is pitching. I would want to know why? Maybe the consequences of the revolution would be catastrophic. We do not have a data base, and the fact that Sanders has used language to blur what he is contending gives me reason to pause.
By contrast, Clinton is not an ideologue and is not seeking to upset the American apple cart based on untested rhetorical flourishes like Sanders offers. She is pragmatic, and flexible. Her goal is to achieve incremental gains, and if the Court or Congress changes hands, she would have the opportunity to achieve many of the goals Sanders espouses in a more traditional and methodical way. She already has the support of the majority of Democratic elected officials, which she would need. Sanders has very little support from his peers. Maybe they see the same questions I do.