Why Bernie Sanders would be bad for the U.S. economy

It is fair to say that Bernie Sanders has received a quite sensational surge in popularity over recent months. His increased popularity comes as a result of the idealism which he exhibits, which has appealed to many a disaffected American. However, while this surge in popularity could come as a newfound victory for American progressivism as a whole, it means that not enough people are taking the time and effort to properly analyse his economic policies, which are quite frankly ludicrous and absurd. While I admit that some of his progressive policies, such as to greatly decrease unnecessary government spending, would actually help the economy, most of the policies which he goes on and on about are simply not going to work. The first absurd policy of his, which I will hopefully try to debunk here, is the Robin Hood tax on Wall Street speculators.

In Sanders’ own words, he wants to “establish a Robin Hood tax on Wall Street speculators”, which is basically a speculation fee of just 0.03 percent on the sale of credit default swaps, derivatives, options, futures, and large amounts of stock”. According to Sanders, this “would reduce gambling on Wall Street, encourage the financial sector to invest in the job-creating productive economy, and reduce the deficit by $352 billion over 10 years, according to the Joint Committee on Taxation.” The only problem with this is the fact that the tax would cost future users of the aforementioned financial products, while also shrinking the economy. The logical conclusion to garner from this is that wages would be reduced, which means that the government would actually receive less in revenue now than they would have before. The $352 billion which this policy alleges to save would be dwarfed by the amount that the government would lose from a lesser revenue in tax, so in fact, this policy is disadvantageous and would not work.

His socialist views will also mean that America’s “welfare state” would expand. As seen in Britain during the Labour era, this does not work and only serves to create a culture of entitlement. This directly goes against the purported “American Dream” where everyone can have a happy and good lifestyle if they work hard. If Sanders somehow got himself into the presidency, the American Dream would be nothing more than words on paper, as people could quite easily just sit at home, doing nothing, and still make enough money to survive. While I am not against handouts for people that need the money, such as the disabled, I am firmly against rewarding the able unemployed simply because of their laziness. I acknowledge that some people may not be able to find a job also, however the expansion of the welfare state simply means that there is no incentive to anymore. This would simply breed economic stagnation, which is most definitely bad for America, as in my opinion, it is a symptom of laziness and breeds radicalism (which I will write about in another article).

Sanders also says that he wants to “establish a currency manipulation fee on China and other countries”. He backs this up by saying “China is manipulating its currency, giving it an unfair trade advantage over the United States and destroying decent paying manufacturing jobs in the process. If we imposed a currency manipulation fee on China and other currency manipulators, the Economic Policy Institute has estimated that we could raise $500 billion over 10 years and create 1 million jobs in the process.” The problem is that China’s devaluation of the yuan actually makes imports cheaper, meaning that the U.S. consumer will be able to buy goods for cheaper prices, which can only be good for their amounts of disposable income. Sanders stopping this happening means that the working class man or woman which he so heavily identifies with will get poorer and poorer, as his or her real purchasing power is being depleted by this frankly egregious policy. One of the main policies which the Sanders campaign is striking into the hearts of everyday Americans is to help the working class man or woman. If that is the case, then why is he so eager to deplete their purchasing power? This is a question which can only be answered by the man himself, but regardless, the fact remains that this policy is counterproductive, as are all of the aforementioned, in my opinion.

17 Comments Add yours

  1. Gina Hauser. says:

    I’m 46years young, and very impressed with your article. I’m so glad to see a young person with some political knowledge. Keep up the great work, and I’ll keep checking in. What do you think of Donald Trump and Carly Fiorina?

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    1. Thank you so much! It is my honest opinion that it is refreshing to see some honesty in politics from Trump, although his policies are frankly shocking. The whole Republican race has just become a race to come up with the most right wing policies. It’s entertaining to watch as an outsider, however nothing productive will really come out of it.

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  2. I disagree..Berny is honest as his Political career says…..He stands for equality..He may win or lose but my heart is with him

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    1. He may be honest, but his economic poliicies are frankly unworkable, in my opinion.

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  3. Geoff Zinderdine says:

    Shrey, I am afraid your idea that wages must be decreased if there is a tax on derivatives is a non sequitur. Firstly, for financial instruments there is no appreciable labor component. Secondly, in the real economy there are many, many tax components for manufacturers that are simply a cost of doing business. As long as taxes are equitably applied across the board, they do not give any competitive advantage or disadvantage. People want to invest on US exchanges. Charging a small fee to invest in our country’s preeminence is good policy.

    Thirdly and most importantly, you should investigate the shadow economy of derivatives. Their notional value is many times the annual GDP of all the countries in the world combined. They introduce tremendous systemic risk as we saw in 2008. If we are going to be on the hook as taxpayers to bail out “too big to fail” banks when they have assumed too much risk through these derivatives, then they should contribute to our society in a robust way in good times when they are making money selling swaps. Otherwise we are just socializing the risk and privatizing the profit, which is predatory and un-American.

    I can’t really speak to Bernie Sanders’ policies as I have not looked at them in depth, but we should be careful not to have ideological blinders on. Trump is calling for additional taxes on hedge fund guys, who right now are paying solely capital gains tax on all of their earnings at a much lower rate than the rest of the productive economy. A fair tax system that keeps America great is not a partisan issue.

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    1. Thank you so much for this lengthy comment. Firstly, I want to make clear that I am in no way a Trump supporter, nor will I ever be. In financial markets, the statement “buy low and sell high” is frequently heard. If there is a tax on this, that might discourage some from investing in the financial markets.

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      1. Geoff Zinderdine says:

        I am not supporting anyone either at this time, though I think Trump has tremendous comedic value as a sort of reductio ad absurdum of the “dog whistle” racism that has been the Republican modus operandi for most of recent memory. My point is just that across the political spectrum there is a recognition that our tax system in its current form is not sufficient to invest in infrastructure, support our military and pay our debts.

        With regards to discouraging investment in the markets… tell me, in this age of ZIRP where is this money going to go to maximize returns? It certainly can’t get a better return by remaining in cash. People will invest in financial vehicles regardless of whether there is a transaction tax or not.

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      2. Thanks again for the comment. Your point is somewhat valid when it comes to bonds, however I would argue that the amount of people investing in the stock market is set to dwindle, with the financial crisis of 2008 being the primary factor towards a downturn in investor confidence. Also, as people become increasingly frugal with their money, they may be discouraged from buying large-cap stocks as a result of this transaction tax.

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  4. I’d love to hear your opinion on Hillary Clinton’s proposed economic policies, and whether or not Sanders pushing her left may force into uncomfortable territory, further left than she’d like to be.

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      1. Sure, may do that soon 🙂

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  5. samantha says:

    Hi Shrey. Very interesting post. Why, specifically, do you think that the Robin Hood tax would shrink economic development? Are there any past examples of this? Why don’t you think that investors will accept and even adapt to the tax if it is implemented?

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    1. Thanks for the comment. This is simply because this tax will only cost future users of these financial products in the long run, while reducing liquidity. This means that the government gets less in tax because of lower wages, etc. etc. Hope that answered your questions 🙂

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  6. Jack Curtis says:

    Sanders spouts nonsense as is said here, little doubt of that. Few of his competitors strike this reader as much better … However, on experience, much of his promised salvation will likely vanish with his election, should he succeed. As President Obama expanded the Bush trends, our next Prez seems to me likely to expand President Obama’s accomplishments in fact if not in rhetoric.

    Subject of course, to any economic realities that may interfere …

    If we keep writng, maybe eventually fewer folk will be open to nonsense!

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  7. Jack Curtis says:

    Bernie must be having fun pinning donkey’s ears on so many college folk …What seems more worrisome to me: None of the rest of the candidates seem significantly more serious!

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    1. I mean, I’d prefer Bernie above anyone else at this point, simply because I can’t stand Hillary’s lies anymore, and Trump is Trump lol 🙂

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