Tag: bernie sanders

A Jobs Guaranteed Economic Disaster

Democrats are plugging new energy into an old idea: a federal “Jobs Guarantee” program. Senator Cory Booker previously introduced legislation for a pilot in high unemployment communities. Now Senator Bernie Sanders will announce a plan guaranteeing a job or training paying $15 an hour and health-care benefits to every American worker “who wants or needs one,” in a host of public infrastructure, care giving and environmental upkeep projects.

The scheme, seemingly based on a recommendation from the Levy Economic Institute, comes with grandiose purported benefits. It would, we are told, eliminate involuntary unemployment, deliver a living wage, boost GDP, reduce the cost of recessions, raise labor market standards, reduce environmental degradation, reduce racial inequality, and much else besides. If it sounds too good to be true, that’s because it is. There are severe problems with this idea, which can be loosely grouped under three “c’s”: costs, crowd out and corruption.

Costs

The Levy Economic Institute calculates up to 16 million could take part in such a program today (including the unemployed, those working part time seeking full time work and individuals currently inactive who might move into the labor market). Given the federal government would have to pay $15 an hour for full time jobs, plus benefits equal to 20 percent of wages, total labor costs per worker would be $37,440 per year. That’s before the cost of the materials for the programs and administration of the program itself. Even assuming some opt for part-time positions, and ignoring the non-labor program costs, we are talking about a gross cost of up to around 2.4 percent of GDP, significantly higher than the existing Medicaid program (2 percent of GDP).

The net cost on these assumptions will be lower, of course. People who take jobs will require less in welfare payments and pay some back in taxes. Some might wisely consider it a risk for their employment fortunes to be tied to the whims of politicians and their willingness to fund this program, and so remain in the private sector. But even taking this into account, and assuming the policy generates the macroeconomic bounty that the Levy researchers expect, they still think the annual net cost will be between 0.8 and 2 percent of GDP, with the program employing up to 10 percent of the workforce. That would in itself be a huge new commitment to finance at a time when the long-term fiscal outlook is already dire, and the short-term deficit already expected to balloon to over 5 percent of GDP in the coming years.

Crowd-out

In reality, the fiscal costs are likely to be much, much higher, and the economic welfare losses even more significant, because in the labor market and broader economy, a public jobs guarantee program would significantly crowd out productive private sector activity. This type of policy will radically alter behavior of both workers and businesses, and so the supply and demand for labor.

The Census shows that, among those who worked in 2016, 70+ million Americans earned under $32,500 (the full-time job guarantee salary would be $31,200). Yes, not all of these would seek out positions on the jobs guarantee program. But a large proportion would, especially those employed in uncertain roles with low levels of job security.

In fact, some even paid more than $31,200 might consider leaving their jobs to pursue guaranteed roles if they perceive better working conditions or an easier worklife (asked under what conditions someone would be fired from such a role, the Levy Institute paper suggests that you would be sacked for failing to go to work, but that your performance would not be judged by “private sector ‘efficiency criteria’”, for example.) It’s not inconceivable then that over 25 percent of the labor force could find itself part of the scheme.

This crowd-out is likely to be particularly acute in low productivity regions, and (ironically) after economic downturns. A nationwide jobs guarantee program paying $15 an hour will be particularly attractive to workers in low wage regions, and by setting a de facto wage floor the program will prevent private investment in regions on the basis of cheap labor.

Though no doubt there would be some demand spillovers from well-paid jobs, the net consequence is highly likely to be weaker private sector job creation in poor regions, which has been the experience of countries such as Britain with a nationwide minimum wages and public sector national pay bargaining. Proponents of the scheme see “higher labor standards” as a good thing, but absent productivity improvements, policies which raise labor costs significantly will reduce the quantity of workers demanded.

There’s good reason to expect the policy will reduce the efficiency and productive potential of the economy too. Taxes will eventually need to be raised to cover the net cost of the program. In infrastructure and care giving provision, costs will rise – because nobody would now work in these directly substitutable sectors for less than the wage and conditions offered in the job guarantee program. This will waste resources, and there’s highly likely to be overinvestment in lots of relatively low value ventures and programs to ensure workers are employed, especially given the explicit aim is to provide employment rather than deliver projects at low cost.

Throwing resources at regions with higher levels of unemployment and after recessions too will work directly against market signals and deter the mobility of labor (in geographic and industrial terms) and capital to its most productive uses given prevailing market conditions. This is important: yes, employment is highly likely to have some positive externalities; but the real driver of better living standards over time are productivity improvements, discovered by market-based activity. 

Proponents of this policy seem to put an enormous weight on the idea that time out of the labor market has huge scarring consequences which could be ameliorated by any type of temporary employment. But the literature on this shows that temporary jobs do not provide the workers with skills to improve longer-term labor market outcomes.

Corruption and incentives

As if all these consequences were not bad enough, such a program will be ripe for corruption and political interference at the government, provider and individual level. Senator Sanders’ plan would be administered by the Department for Labor, with local and state governments submitting projects to regional offices for consideration. There’s a huge question mark on whether projects will be considered on economic grounds, when there might be an incentive for make-work schemes to aid particular politicians or indeed to put resources towards “public good” causes or NGOs more in line with the ethos of the governing party. For Democrats this might be for environmental issues. For Republicans it might be, say, for a wall on the southern border.

NGOs and local public bodies themselves will have incentives to apply for federal funds for projects that would otherwise have occurred anyway, and to maximize the number of applications. Pork barrel projects would proliferate. What is more, at the individual level, the guarantee coupled with the purported unwillingness to judge worker performance on a commercial basis will incentivize low levels of work effort on the margin.

Conclusion

The Jobs Guarantee then is an extremely large and costly endeavor, which would have major economic consequences and risk a large federal politicization of the labor market and public project delivery. 

The US does have serious labor market issues to contend with - not least depressed labor participation and a weak productivity outlook - but are things really so bad that they require such a risky and extensive policy response?

Well-paid jobs and low levels of real unemployment are outcomes desired by all. But attempting to achieve that through this program amounts to cracking a nut with a sledgehammer, undermining what matters far more for living standards: efficiency and productivity. 

Socialized Medicine: From Anecdote to Data

Last night’s CNN duel between Senators Bernie Sanders and Ted Cruz on the future of Obamacare was pretty illuminating for a recent arrival to the United States, with Senator Sanders’ playbook all-too-familiar to those of us from the UK.

Sanders wants a single-payer socialized healthcare system in the United States, just as we have in Britain. Any objection to that is met with the claim that you are “leaving people to die.” The only alternatives on offer, you would think, are the U.S. system as it exists now, or the UK system. Sanders did not once acknowledge that the UK structure, which is free at the point of use, inevitably means rationed care, with a lack of pre-screening. He also failed to acknowledge that lower health spending levels (indeed, even public spending on health is lower in the UK than the United States now) are not the same as efficiency—which is about outputs per input.

In the face of anecdote after anecdote about those saved by Obamacare and the virtues of a government-run health system, Cruz countered with some anecdotes from the UK showing the consequences of rationed care: a Scottish hospital turning away pregnant women, a woman in Wales waiting eight hours on the floor for an ambulance to arrive after a fall, and a hospital in Essex canceling life-saving cancer treatment because there were no free beds in intensive care. He could also have talked about the Mid-Staffs scandal, or a recent documentary showing doctors deciding between saving a cancer patient or a pensioner bleeding to death.

Anecdotes are powerful in helping to persuade people, and there are good reasons to use them in debates. Yet they are always susceptible to the charge that all health systems have extreme failures. Perhaps more powerfully then, the inadequacies of the UK system show up systematically in the data about how well conditions are dealt with (data from my former colleague Kristian Niemietz’s reports here and here):

  • In the United States, the age-adjusted breast cancer 5-year survival rate is 88.9 percent, compared with just 81.1 percent in the UK
  • The United States leads the world on the equivalent stat for prostate cancer (97.2 per cent) vs. 83.2 percent in the UK
  • Lung cancer: 18.7 percent in the United States vs. 9.6 percent in the UK; bowel cancer: 64.2 percent vs. 56.1 percent
  • Just in case you think I am cherry picking: U.S. survival rates are also better for leukemia, ovarian cancer, stomach cancer, and liver cancer—all of those for which I can find comparisons
  • The age- and sex-standardized 30-day mortality rate for ischaemic stroke is just 3.6 per cent in the United States vs. 9.2 per cent in the UK; for haemorrhagic stroke, the figures are 22 percent vs. 26.5 percent

I could go on. All of which is to show that your probability of dying from a range of common conditions is much higher in the UK than here. Perhaps that’s why (with no hint of irony) The Guardian’s write-up of a Commonwealth Fund Report suggesting the UK’s health system was “the best in the world” said “the only serious black mark against the NHS was its poor record on keeping people alive.”

Topics:

Capitalism, Global Trade, and the Reduction in Poverty and Inequality

Drawing on a new World Bank study, Washington Post columnist Charles Lane today notesa vast reduction in poverty and income inequality worldwide over the past quarter-century” – despite what you might think if you listen to Pope Francis, Bernie Sanders, and other voices prominent in the media.

Specifically, the world’s Gini coefficient — the most commonly used measure of income distribution — has fallen from 0.69 in 1988 to 0.63 in 2011. (A higher Gini coefficient connotes greater inequality, up to a maximum of 1.0.)

That may seem modest until you consider that the estimate’s author, former World Bank economist Branko Milanovic, thinks we may be witnessing the first period of declining global inequality since the Industrial Revolution.

Note that this hopeful figure applies to the world’s population as though every individual lived in one big country. When Milanovic assessed the distribution of income between nations, adjusted for population, the improvement was even more striking: a decline in the Gini coefficient from 0.60 in 1988 to 0.48 in 2014.

The global middle class expanded, as real income went up between 70 percent and 80 percent for those around the world who were already earning at or near the global median, including some 200 million Chinese, 90 million Indians and 30 million people each in Indonesia, Egypt and Brazil.

Those in the bottom third of the global income distribution registered real income gains between 40 percent and 70 percent, Milanovic reports. The share of the world’s population living on $1.25 or less per day — what the World Bank defines as “absolute poverty” — fell from 44 percent to 23 percent.

So maybe this is a result of all the agitation on behalf of a more moral or planned economy? No, says Lane, citing Milanovic:

Did this historic progress, with its overwhelmingly beneficial consequences for millions of the world’s humblest inhabitants, occur because everyone finally adopted “democratic socialism”? Was it due to a conscious, organized effort to construct a “moral economy” as per Vatican standards?

To the contrary: The big story after 1988 is the collapse of communism and the spread of market institutions, albeit imperfect ones, to India, China and Latin America. This was a process mightily abetted by freer flows of international trade and private capital, which were, in turn, promoted by a bipartisan succession of U.S. presidents and Congresses.

The extension of capitalism fueled economic growth, which Milanovic correctly calls “the most powerful tool for reducing global poverty and inequality.”

This is the good news about the world today. Indeed, it’s the most important news about our world. We hear so much about poverty, inequality, gaps, resource depletion, and the like, it’s a wonder any NPR listeners can bear to get out of bed in the morning. But as the economic historian Deirdre McCloskey says, this is the “Great Fact,” the most important fact about our world today – the enormous and unprecedented growth in living standards that began in the western world around 1700. She calls it “a factor of sixteen”: we moderns consume at least 16 times the food, clothing, housing, and education that our ancestors did in London in the 18th century. And this vast increase in wealth that began in northwestern Europe, mostly Britain and the Netherlands, has now spread to most of Europe, the United States, Japan, and increasingly to the rest of the world.

Sweden Isn’t a Good Role Model for Bernie Sanders

Senator Bernie Sanders wants to dramatically increase the burden of government and he claims that his policies won’t lead to economic misery because nations such as Sweden show that you can be a prosperous country with a big welfare state.

Perhaps, but there are degrees of prosperity. And a large public sector imposes a non-trivial burden on Nordic nations, resulting in living standards that lag U.S. levels according to OECD data.

Moreover, according to research by a Swedish economist, people of Scandinavian descent in America produce and earn much more than their counterparts at home.

That’s not exactly a ringing endorsement of the Nordic Model.

But there actually are some things we can learn from places such as Sweden. And not just things to avoid.

As Johan Norberg explains in this short video, there are some very good policies in his home country. Indeed, in some ways, his nation is more free market than America.

I especially like Johan’s explanation about how Sweden became a rich country before the welfare state was adopted.

And he’s right that Sweden had a smaller government and a lower tax burden than the United States for a long period.

The Good News You May Not Have Noticed in This Horrid Election Year

Michael Kinsley’s short oped “And Now For Some Good Newsis one of the most uplifting things I’ve read in a while:

The overwhelming Democratic front-runner is a woman, yet all the questions that used to be raised about whether a woman could be president have disappeared…

The Democratic front-runner’s rival is a Jew, which also has not been an issue…

This election season has seen the president nominate a person who would be the fourth Jew (out of nine justices) on the Supreme Court. The other five seats are filled by Catholics. No fuss at all…

[O]ne of the remaining GOP candidates is Latino, as was another who recently dropped out of the race…[Ted] Cruz still could win the nomination. There was also a black candidate who did well with voters, but the fact that Ben Carson is African-American was simply not an issue…

Most encouraging of all, after an initial explosion of joy and self-congratulation, the fact that our president for the past eight years has been a black man has largely receded into the background.

I plan to return to Kinsley’s op-ed when this election inevitably stoops to yet another new low.

Contrary to Trump-Sanders Theory Imports Rise in Booms and Fall in Recessions

Real GDP Growth and ImportsNearly all surviving Democrat and Republican presidential candidates (except John Kasich) have essentially endorsed the shared campaign theme of Donald Trump and Bernie Sanders that the U.S. economy is weak because we import too many goods from foreign countries.  If only we could raise the cost of imports with tariffs, according to the Trump-Sanders theory, then the U.S. economy would supposedly have more jobs and higher real wages.   

Paying more for anything (such as Fords or iPhones) is no way to get rich.  Yet that concept somehow eludes many non-economists.  Theory aside, the idea that fewer imports are good for the economy is the exact opposite of what we have experienced.  The fact is that U.S. imports always fall when the economy slips into recession and imports rise briskly whenever the economy does.

A Libertarian Argument for Bernie Sanders?

Will Wilkinson notes that there is a libertarian argument for Bernie Sanders. I’m not sure I buy the precise point Wilkinson is making. Sanders says he wants to make the United States more like Finland, Sweden, and Denmark. And those countries do indeed rank higher than the United States in the Cato Institute’s Human Freedom Index, compiled by my colleagues Ian Vásquez and Tanja Porčnik. But Sanders wants to emulate those countries in the ways they are less free than the United States (i.e., expanding government transfers), not in the ways they are more free (taxes and regulation). I think this powerful Sanders ad featuring Eric Garner’s daughter Erica is a much better libertarian argument for Sanders.

Pages