Richard Nixon supposedly once said, “We’re all Keynesians now,” referring to the new accepted regime of monetary policy.
Today, we have far bigger problems than our Keynesian Federal Reserve. Any present-day politician could just as well say, “We’re all Andrew Yang now.”
Andrew Yang, for those who don’t know, is running for the Democratic nomination for president. He’s an eccentric businessman whose signature policy proposal is that he wants to give you cold hard cash. Really.
While many, including me, consider his candidacy meme-worthy, the more I think about Yang the less difference I see between him and the other options on offer.
Now, I’m skeptical of universal basic income, which is what Yang is proposing. Indeed, even according to his own stated funding estimates, if implemented his $1,000/month “Freedom Dividend” to all American adults would increase the deficit by $800 billion/year.
But at least he puts it all out there for anyone to do the math. And instead of promising specific benefits like healthcare, a cleaner environment, or a wall along our southern border, he’s offering each and everyone of us a cool $1,000/month. Actually, other than a border wall, he wants those other things, too, but that’s beside the point.
The point is this: $1,000 from Uncle Sam in your pocket every month. He is straightforwardly aiming to buy your vote. He even announced at the third Democratic debate last Thursday that his campaign would misappropriate funds to give a “Freedom Dividend” to ten lucky folks who sign up at his website (and give him their email addresses for promotional purposes, of course). For my part, I commend his straightforwardness.
Yang’s proposal is straightforwardly fantastic, a term I use in its technical sense meaning “not real.” But before everyone beats up on Yang, I’d encourage them to look at the other candidates.
Former vice president Joe Biden challenged Senators Elizabeth Warren (D-MA) and Bernie Sanders (I-VT) on the economic viability of their “Medicare for All” proposals for universal government healthcare:
Thus far, my distinguished friend, the senator on my left [Warren], has not indicated how she pays for it. And the [other] senator [Sanders] has, in fact, come forward and said how he’s going to pay for it, but it gets him about halfway there.
Now, some of Biden’s proposals are equally fantastic, but I focus on this moment because Warren’s response involved some of the finest economic alchemy I’ve ever witnessed:
[T]he answer is on Medicare for All, costs are going to go up for wealthier individuals and costs are going to go up for giant corporations. But for hard-working families across this country, costs are going to go down and that’s how it should work under Medicare for All in our health care system.
Sounds great, right? Hard-working families (that’s all of us, of course) pay less and big, bad corporations pay more. After all, they’ve got extra cash just sitting around in giant swimming pools like Scrooge McDuck, right?
Except that isn’t true at all. As Mark Perry reported for AEI last year, what the general public — and, apparently, several Democratic presidential candidates — thinks the average company makes in profit is about five times too high. People guess that average profits are 36%. In reality, they are 7.9% for the total market, 6.9% when financial companies are removed. And as far as specifically giant corporations, Perry notes that Walmart — certainly the classic, if no longer the biggest, giant corporation — makes a slim 2.1%.
The only industry that comes close to — and, in fact, exceeds — the typical guess is tobacco companies, which average 43.3%. The financial industry had a high average (though less than 36%), but the median profit is just 6%, indicating that a few outliers are throwing off the average, which, incidentally, is probably the case economy-wide.
Now, perhaps by “giant corporations” Warren meant “corporations with giant profits.” Even if that were true, given how few fit that description it seems unlikely they would provide enough new tax revenue to fund Medicare for All (though there would be some nice irony if the funding came largely from tobacco companies).
More likely, by “giant” Warren means giant in size, like Walmart, and just presumes that big size means big profits. But it doesn’t.
Now, what all this comes to is that very many of the companies that would be taxed to pay for Warren’s healthcare plan would be unable to make a profit. And as I wrote in my book, “If there is no profit, it means companies can’t pay their bills.” If they can’t pay their bills, they will have to raise prices or downsize — which will mean even less tax revenue — and if that doesn’t work, they will go out of business, which means no jobs, services, or products. Oh yeah, and no tax revenue. Non-existent companies can’t pay taxes.
Now, all this matters for people of faith because such magical thinking on the right and left is often baptized by clergy and church officials so politically disposed. I don’t want people to despair, but basically everyone is offering something for nothing right now, whether it is healthcare, a border wall, or cold hard cash. The US deficit for 2018, under a Republican Congress with a Republican president, was $779 billion, just about the amount that Andrew Yang’s “Freedom Dividend” would add every year.
Eventually, the bills will come due. The responsible thing to do — and thus the moral thing to do — is for the government to be a good steward of taxpayer money, whatever agenda it may be spending it on.
Deficits mean more debt to make up the difference, and that means that every year less revenue will be spent on any of the programs people want, whatever their political disposition, and more and more will be spent on just making our minimum debt payments. This also means that today’s “Freedom Dividend” is tomorrow’s unchosen expense, leaving a shameful legacy for our children and grandchildren, who will inherit it.
But hey, $1,000/month sounds pretty good in the meantime, right?
Image credit: “Andrew Yang eating a turkey leg at the 2019 Iowa State Fair in Des Moines, Iowa” by Gage Skidmore
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