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Sanders' Economic Plan Alluring, But Flawed

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Image: AP/YP
A version of this article also appeared in the South China Morning Post's Young Post on Thursday, April 14. http://yp.scmp.com/news/features/article/103221/sorry-break-it-you-bernie-sanders-man-flawed-plan

Bernie Sanders, the septuagenarian presidential candidate, has captivated millions of mainly young, middle and working class Americans with his vision for economic equality. It is indisputable that economic inequality in America has risen dramatically over the past few decades. Today, the top 1% of American households control over 40% of the country’s wealth, a doubling of their share since the mid-1970s. Such a gaping disparity between the wealthy and the middle and working classes is not conducive to social stability. It also harms economic growth: the wealthy save much more, as a proportion of their income, than do the poor. Less money is put back into the economy by a millionaire than by a working class individual.  

That being said, Sanders’ economic proposals are too radical. An economic analysis of his plans show that they are quite unfeasible, and likely to blow a massive whole in the federal budget. Ultimately, such an outcome would harm the very people he seeks to protect.  

Sanders’ plan has three main components: greater infrastructure spending, free public college, and expanded social security—in particular, government-funded health insurance for all Americans. Of these three, boosting infrastructure spending is probably the most reasonable. There is a wide agreement that America’s crumbling infrastructure is in need of an overhaul. Even still, a group of prominent left-leaning economists—those who generally support government spending to support the economy—recently noted that Sanders’ plan to spend USD 1 trillion between 2017 and 2021 would have a negligible long term positive impact on the economy. 

Free public college is a laudable ideal, but it is here that the plan begins to face harsh realities. By Sanders’ own estimate, the initiative would cost the federal government a staggering USD 75 billion annually. This figure ignores, however, that offering college for free would create a strong incentive for people to enroll. Greater enrollment numbers would further raise the cost of providing free tuition. Furthermore, college administrators would face skewed incentives. Administrators would have no qualms about spending exorbitant sums of money to attract more enrollees, feeling safe in the knowledge that the government would cover tuition. Under the current system, irresponsible spending is discouraged because the corresponding tuition hikes discourage enrollment. If Sanders’ plan were to be implemented, this disincentive would cease to exist, and the federal government’s education bill would continue to rise.

The most ambitious initiative on Sanders’ platform is his plan to offer free government healthcare to all Americans. This would require the government to raise an additional USD 14 trillion in revenue over the next ten years. Sanders proposes a sharp increase in income taxes and capital gains (profits from investments) taxes to cover the shortfall. It is doubtful that the sufficient revenue would be raised, considering that higher taxes would stifle investment and drag on the economy—reducing incomes, too. Sanders’ proposal also neglects to analyze the incentives at play from the costs side. By removing all out-of-pocket medical costs, consumers would no longer have a financial disincentive to avail of potentially unnecessary medical services. As a consequence, even if Sanders’ tax plan could raise the required USD 14 trillion, healthcare spending would rise to significantly higher levels. 

Policymaking is undoubtedly difficult, and it is not entirely clear how best to narrow America’s frightening wealth and income gaps whilst maintaining a responsible budget and satisfactory levels of growth. What is apparent, however, is that measures more moderate than those espoused by Sanders are required.  

In the unlikely event that Sanders becomes the American president, the economic gains envisioned by him and his followers may turn out to be illusory. It is worth pointing out that even if he were elected, political analysts are convinced his proposals would stand no chance of being passed by a heavily divided Congress that is likely to remain controlled by the Republican party. Socialistic economic policy has its appeal, but there is a reason it has long since gone out of fashion; it does not work.  

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