The New York Times (hardly neutral, I know) has it that Bernie Sander’s spending plans will cost an almost unbelievable extra $3 trillion a year. This would increase the size of the federal government by around 40%, and although Bernie says it will deliver free healthcare, college educations and welfare, it will not be delivering a free pony to every American like other candidates have promised.
Being sightly skeptical of politicians promises, I think taking a closer look at the spending plans of Bernie is probably a good idea. Firstly, he will pay for college education by way of a financial transactions tax. Which is an utterly terrible idea. If you implement an FTT you shrink the total size of the economy, and you decrease general tax revenues. This isn’t exactly hard. When you increase the price of capital, you decrease the amount of investment, and thus make us all poorer. The little that would be raised by and FTT would be offset by the reduction in other taxes, which is why the EU didn’t even go through with it.
So, point one done with. So, free healthcare – what is not to like? Granting Sanders that it would be cheaper, the phrase “you get what you pay for” comes to mind. The NHS may well spend less on healthcare, but it also has lower cancer and heart disease survival rates. Oh, and on a personal note, I did spend a whole 7 hours of last Friday in a NHS hospital for 2 blood tests and 6 minutes with the doctor. Again, you get what you pay for.
And then we have what every freedom loving, aspiring American wants; more welfare! And that is basically what we have to go off, since he doesn’t really speak about the specifics of why he wants to increase the money on welfare provision, or where he would like to spend it. So, erm, yeah!
Last week there was of course one economist who said that Sanders plan would increase the total size of the economy, Gerald Friedman to be precise. However as Worstall points out, the dynamic effects are depended on so heavily that they undermine the analysis. Sanders is proposing to spend trillions; this will not be a good thing.