Monday, February 29, 2016
Teaching Economics to Bernie Sanders Supporters
1987 I walked into a college classroom as an educator for the first time. Ronald Reagan was in the last two years of his second term and the American economy was churning at full steam. Since the fall of 1982 the American economy had grown by near-record amounts for a nation at peace. The nation was on the way towards creating 20 million jobs with falling inflation and unemployment rates.
During those years teaching college students the principles of capitalism was easy. They were living through evidence that when allowed to pursue one’s self-interest – and keep the fruits of their labor – an economy could lift the standard of living up and down the income scale. It is important to note that in 1981 when most of my students were in middle or high school the top marginal income tax rate was 70%. Reagan had reduced that figure through two tax cuts that dropped the top income tax bracket to only 28%. My students knew that when they graduated they would be free to pursue their careers and start businesses without being shaken down by the IRS.
Today my students do not have the same reason to be optimistic. They have seen their parents suffer the vestiges of the ‘Great Recession’. They have grown up during a time when crony capitalism has invaded the halls of Congress while rising tax rates and historic increases in federal regulations have sapped the energy our nation’s economy needs to create real economic growth. By every measure, the 2009-2016 economic recovery is the weakest since World War II. Even our falling unemployment rate masks the reality that nearly 90 million Americans have withdrawn from the labor force, while others work only part-time or in jobs that do not match their skills, training or education.
In the wake of this new reality facing America’s young people it would seem to make the most sense that they would be looking for another Reagan. For my students who identify as Democrats I have walked them through John F. Kennedy’s massive tax cut in 1963 and Bill Clinton’s final six years when taxes on investments, savings and home sales fell and sane fiscal management of the budget prevailed.
Yet, my students – like millions of other young voters – seem to believe that Bernie Sanders can save their futures. Sanders, with his plan to provide Medicare for all; free university tuition; increased social security and family leave benefits, is an economically seductive candidate for people who are afraid that they have no economic future and therefore need economic security from that future.
However, as an economics professor, my job in an election year is to compare and contrast the major candidates economic plans and point out deficiencies in each.
This is where the Bernie Sanders wake-up call has occurred.
When my students see his tax plan that increases income tax rates on low, middle and upper-income workers – with rates rising to more than 54% for top earners – they learn that In America’s 102 year history of rising and falling income tax rates, in decades when marginal rates fell (see the 1920s, 1960s and 1980s, for example), the economy boomed and the government actually received greater tax revenue. In time periods when the government adopted a “soak the rich” mindset (1930s, 1970s and in recent times) the economy performed poorly and revenues never rose by as much as was predicted.
Moreover, they have learned that the Sander’s spending plans – which the Wall Street Journal has estimated would total $18 trillion – would further increase the national debt, and would saddle their generation with massive tax and interest rate obligations and make their college degree worth less - all in the name of expanding the social welfare network.
In short, young people today are pinning their hopes on a fairy tale. That fairy tale informs them that they can get free things from the government and no longer live with so much worry.
When they see that nothing is free and that they will have to pay for Bernie Sanders imitation of Santa Claus, that is when the real worrying begins.