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  • Bernie Sanders Won the Debate

    Posted by Kevin Villani on July 4th, 2019 (All posts by )

    (WSJ: Bernie Sanders Won the Debate)
     
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    The 20 candidates in the Democratic debates on June 26 & 27 accepted Sanders’s fundamental vision of Democratic Socialism.

    Bernie Sanders’s June 12 speech at George Washington University proposing “a 21st Century Economic Bill of Rights (EBR)” to “a decent job that pays a living wage; quality health care; complete (higher) education; affordable housing; a clean environment; and a secure retirement” all “regardless of his or her income” started a competition among the current democratic candidates for the 2020 Democratic nomination with promises of free stuff. This new Democratic socialism makes two promises:

    “It is free to the masses.”

    “If you like your democratic system of government, you can keep it.”

    This isn’t new and isn’t true.

    The ideological Cold War between the socialist totalitarian countries and the capitalist social democracies ended with the economic and political bankruptcy of virtually all of the former. The latter expanded their welfare states by taxing the economic fruits of capitalism, contracting when going too far, with symptoms including declining investment and innovation and rising public deficits and debt burdens. The proposed EBR to expand the welfare state to socialist extremes while maintaining democracy will erode both living standards and liberty.

    The Unintended Consequences of the Economic Bill of Rights

    The market system is based upon individuals responding to incentives, mostly embodied in market prices. Contemporary economists have done Nobel-worthy research demonstrating that individuals don’t always respond rationally. But the EBR promising free or cheap stuff well below cost with wages and income determined well above productivity is incompatible with a market economy and individual liberty. It would severely distort work and consumption incentives: already declining labor force participation would collapse and productivity stagnation would worsen. Costs of health care, education and housing would rise. The Green New Deal environmental proposal would cost up to $100 trillion while providing negligible environmental benefit. Private household saving would shrink further with the right to a secure retirement.

    States that raise income taxes on high net worth businesses and/or firms face an exodus of both. Individuals and firms similarly shift their tax residence outside the U.S. reducing U.S. domestic innovation. Trade deficits widen. The cost of the EBR exceeds the revenue from these types of taxes by orders of magnitude. The progressive states are already voting themselves into bankruptcy, anticipating a federal bailout.

    Modern Monetary Theory: Old Fashioned Money Printing

    To avoid the political consequences of massive middle class taxation, the Modern Monetary Theory (MMT) promoted by a Sanders campaign economic advisor proposes debt financing. Wall Street prognosticators forecast the end of the debt supercycle in 2011 and the collapse of the international monetary system in 2014, going code red. But the debt supercycle has continued, so proponents of the MMT assume that interest rates will remain low indefinitely so the cost can be financed with no long term consequence, whether bought by domestic or foreign creditors or the Federal Reserve.

    They may be right about America’s creditors continuing to accept debt in the near term, but excessive debt always ends, suddenly and badly: the longer it goes on the bigger the bust. As the world’s reserve currency the debt can’t simply be inflated away. The consequences of a U.S. international default, no matter how delivered, would be catastrophic.

    Democratic Socialism and Individual Freedom

    The socialist EBR is the responsibility of the administrative state, which requires totalitarian political power to deliver. What, then, do democratic socialists mean by “democracy”?

    The ancient Greek city-states began experimenting with democracy (literally, “people power” in Greek) about 2500 years ago, limited to males selected on merit. After about a century of experimentation, Greek philosophers concluded that democracy was a form of mob tyranny that undermined individual freedom and the rule of law. United States exceptionalism is rooted in the U.S. Constitution, an experiment in a representative federal republic held in check by a limited list of enumerated powers to protect individual freedoms and prevent mob rule.

    The extension of voting rights to former slaves – and over a half century later to women– was overdue. The 14th Amendment was necessary to restrict the ability of Southern states from inhibiting their voting rights but has since been interpreted to give the federal government virtual total supremacy. The direct election of Senators in the 17th Amendment of 1912 further expanded populist democracy.

    Marx promised democracy and universal suffrage. Trotsky promised a peoples democracy, as did Mao. The current progressive platform on voting rights; opposing voter registration, supporting immigration of dependents with voting rights rather than working rights, eliminating the Electoral College, reducing the voting age to 16 years old, registering prisoners, and drive-by voter registration would complete the transition from a representative republic to a peoples democracy.

    Kevin Villani

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    Kevin Villani, chief economist at Freddie Mac from 1982 to 1985, is a principal of University Financial Associates. He has held senior government positions, has been affiliated with nine universities, and served as CFO and director of several companies. He recently published Occupy Pennsylvania Avenue on the political origins of the sub-prime lending bubble and aftermath.

     

    8 Responses to “Bernie Sanders Won the Debate”

    1. Mike K Says:

      They may be right about America’s creditors continuing to accept debt in the near term, but excessive debt always ends, suddenly and badly: the longer it goes on the bigger the bust. As the world’s reserve currency the debt can’t simply be inflated away. The consequences of a U.S. international default, no matter how delivered, would be catastrophic.

      I see no way to avoid it as we are in the throes of de Tocqueville’s warning about people learning to vote themselves the Treasury,

      “The American Republic will endure until the day Congress discovers that it can bribe the public with the public’s money.”
      ― Alexis de Tocqueville

      About 1965. I just hope I don’t see it to the end.

    2. Pouncer Says:

      A decent job at a decent wage is a goal, not a program.

      The last time we had a program of the sort, we rounded up all the homeless out-of-work derelicts from the bread-lines and forced them into labor camps: the CCC “Civilian Conservation Corps” and WPA “Works Projects Administration” and NYA “National Youth Administration” and CUW “Camps for Unemployed Women” and special little segregated serfdoms where “negro” workers were assigned to older, white, “local experienced men” to work on the farms. In general the older farm supervisors were the only ones left in their homes areas while the young and unmarried and poorly schooled were “concentrated” in “camps” distant from whatever families they might have had. The Camps and Administrative Areas all had letters and numbers and the workers were assigned federal serial numbers. This, before and in foreshadowing of the “Social Security Administration”.

      In the middle 1930’s the idea of “labor camps” and “concentration camps” and “Work will Set You Free” ( Arbeit Macht Frei ) was considered a great idea and was fully embraced by the Democratic Party. And also both the “Socialist” parties of the era, National and International, proclaimed labor camps just great.

      I’d like to have what they call a “national conversation” about that. Does the modern Democrat or Socialist think labor camps a good idea? Would it be just for citizens, or could migrants and refugees (even Japanese!) better be housed and acclimated to our ways in this sort of “administration” ? Is there a pathway to citizenship for the not-yet-citizen, or to the restoration of voting rights to the parolee or former-felon, that runs through a public works project? How does the AFL-CIO feel about putting a few million laborers into road building and maybe even erecting border walls at strategic locations?

    3. Mike K Says:

      Actually, I think the CCC was one of the rare good ideas by Roosevelt.

      They were run by the army and functioned to get youth ready for military service in WWII.

      The Labor Unions were weak and could not have stopped it. In the 1950s they were strong enough to end the Bracero Program and bring us the illegal alien problem.

    4. Pouncer Says:

      Another thought arising from Bernie’s proposals:

      Socialists always claim to be the vanguard of the future with progressive programs and ideas that will lead to a prosperous future. But the “progressive” ideas are often left over from the 19th century. Having the Post Office take over the banking industry, for example.

      But the primary example is — always — the minimum wage. The idea is that if the people who already have jobs are paid more, the population as a whole, the society, will (somehow) benefit. It’s a 19th century idea that started in New Zealand and didn’t get formalized in the U.S. until the 1930’s again by Saint Franklin D. R.

      But also in the 1930’s individual states started experimenting with “social scrip”. Sort of like miners getting paid with company vouchers to shop at the company store, “scrip” was paid to the out-of-work who put in community service picking up trash, clearing snow or brush from the roads, building playgrounds, etc. The communities (societies) that issued scrip asked ALL retailers in the area to accept it in lieu of cash, such that the local taxing authorities would then accept scrip back in payment of local taxes. (Foreshadowing “Modern Monetary Theory…_) Typically scrip was dated and expired by the end of the tax year, incentivizing rapid turn over, and theoretically providing “multiplier effects” in the local economies. Such state experiments petered out as FDR’s (19th century) federal programs kicked in. A remnant of the idea survives as federally funded state-run “food stamp” programs. But I notice Bernie and AOC aren’t talking about such, more recent, economic ideas.

      The other idea was Milton Friedman’s “Negative Income Tax”. Anybody who had a job at a less-than-living-wage would file his tax return, and get back MORE than he’d paid in during with-holdings. Weird concept. But the burden would be “socialized” among all taxPAYERS, not concentrated to employers subject to minimum wage requirements. Friedman came up with the idea in the 1960’s and Nixon got it thru Congress in the 1970’s as the “Earned Income Tax Credit”. Still current law. But this idea — a century newer than the progressives’ beloved minimum wage idea — is not subject to current discussion; not from our Socialist friends.

      It’s not just that Bernie is old. He THINKS in old ways. He is stuck on old ideas. He has lived through history without experiencing it, without learning from it, and without regard for how little social improvement his ideas — older than he himself — have made during his own lifetime. “Try it again, harder!” It just doesn’t seem very progressive to me.

    5. Grurray Says:

      The negative income tax has been recycled into the universal basic income where the government pays everyone. Obviously a bad idea, but with some tweaks I think some kind of direct payments to people wouldn’t be so bad.

      If it were up to me I would assign a bloc grant of money to certain counties and then make them compete for it like what we saw for the Amazon headquarters or Olympic games. Only instead of handouts to a big corporations or international cabals, the local communities would offer political and social reforms.

      Then after the grants are awarded to the local areas it would be distributed randomly to individuals. It could be like a sweepstakes or doled out in a game show format. It could turn into a national sensation. Huge ratings.

    6. Pouncer Says:

      “The negative income tax has been recycled into the universal basic income where the government pays everyone. Obviously a bad idea …”

      Hi, Grurry!

      As I understand the MF/NIT idea, unless a worker is officially employed (Has valid SSN, I-9, W-4, etc) to have with-holdings and “pay in” to the system, AND files a 1040 with all W-2s and 1099s and what not, then the “government” doesn’t apply the tax credit or pay the worker “back” the “refund”. If he is legitimately employed, even at an (indecently low) embarassing wage, he can get extra funds.

      So an illegal, off the books, scab, criminal, boot-legging, sex-working, black-mailing, traffiking, squat-flipping earner (even a citizen) is not part of our defined national universe. No tax refunds to aliens, so to speak.

      The Chicago Boyz can elaborate on how such a system affects alien workers and domestic employers.

      It’s far from clear that excess tax refunds are a worse idea than providing food stamps, emergency room medical services, rent-control apartments, etc to a “universal” population.

    7. Grurray Says:

      Yes, Friedman’s plan had merit and encourages people to enter the workforce. It’s a bridge to work. Universal payments to everyone are the bad idea. They are a bridge to nowhere.

      A benefit of random windfall payments is that people wouldn’t become dependent like they might tend to do with entitlements. They would value the money much more because of it’s irregularity. Random payments would mimic the profits of entrepreneurs and business owners who have their good years and bad years, and they would help build the prudence and perspicacity that comes with that.

    8. MCS Says:

      I suppose I should care enough to try to grasp what these proposals are about. I’d as soon analyze perpetual motion machines or lead to gold schemes. Rational argument wont reach the believers. They all have an equal chance of working.

      The wealth tax proponents seem to imagine that all of these fortunes are just sitting somewhere, all heaped up, waiting for the government to scoop up their share and haul it away. Instead, it’s parceled out in trusts and LLC’s and dozens of things I haven’t even heard of. Then there’s foriegn assets. Do they intend to just collect on the basis of whatever number Forbes publishes? The people with this sort of money spend a lot on keeping it and are willing to pay a lot more than the government to people who can keep a hair’s breadth inside the law.