Sanders vs. Yang: Both are Good Candidates

Podcast available here: https://soundcloud.com/user-280580802/24-sanders-vs-yang-both-are-good-candidates

Within the Democratic presidential primaries, the mainstream media tries its best to advance their favorite horse, a bland establishment candidate, who “feels the voters’ pain”, tells their stories, kisses their babies, wants “hope” and “unity” to prevail, and to do everything they can to defeat Donald Trump. In other words, maintain the status quo regardless of the threats of climate change, growing inequality, declining labor share of income, automation of jobs, alienation and despair in the countryside. The mainstream media is betting their cards on Joe Biden, who has the highest poll values as former vice president under Barack Obama. The establishment with similar flavor are Kamala Harris, Cory Booker, Amy Klobuchar, Kirsten Gillibrand, Pete Buttigieg, Beto O’Rourke, John Hickenlooper and a few others. There are four progressive candidates that fall outside of the mainstream and these are Bernie Sanders, Elizabeth Warren, Andrew Yang and Tulsi Gabbard.

This post will focus only on Sanders and Yang, and I may write more about the two others if I see them take off in the polls. Warren has some good progressive ideas, and so does Gabbard, but Gabbard the military veteran is more coherent on opposing military invasions abroad than on other progressive priorities in domestic policy. The main argument in this post is that while Sanders and Yang are both the best candidates for president and would improve people’s lives when elected to power, there are some drawbacks in their policies. These caveats in mind, Sanders and Yang are still the best candidates to beat Donald Trump given the richness of their ideas.

Sanders is re-dusting his 2016 election campaign, and given his name recognition he has no problems galvanizing the masses and drawing tens of thousands of attendants during the rallies where he gives speeches against the billionaire class and his progressive agenda surrounding universal health care, a 15 dollar minimum wage, single-payer health care and free higher education. His ideas continue to be wildly popular, and this time he has a decent shot of gaining the candidacy, though it can’t be ruled out that the Democratic Party hacks will try to boost an establishment candidate like Biden, who has yet to announce his campaign. Another limitation to Bernie is his age. Even though he is mentally alert and physically quite sturdy, he had a bathroom accident recently hitting his head, which is not uncommon for the elderly, who have a poorer sense of balance, slower reflex and perhaps weakness in the limbs. If Bernie is elected in 2020, he will be 79 years old.

But let us assume that these are not serious concerns, what can we say about Bernie’s policy proposals? He proposes a 15 dollar minimum wage and free higher education. These are longstanding policies that I would endorse, but there are some limitations to these policies. Amazon had declared to raise the company minimum wage to $15 an hour, but they coupled that with eliminating employee bonuses, and in the case of Whole Foods (a subsidiary of Amazon), they slashed the hours and forced people into part-time work. The quality of the service has also declined, as customers complain about longer wait lines given the understaffing. And that is for an economically successful company, who abuse their monopsony power to pay lower wages than they could afford. For the low-margin companies like local pizzashops and restaurants, a higher minimum wage could push down employment or result in higher prices.

On the other hand, one must not forget why a higher minimum wage can be net beneficial to an economy. Firstly, in the case of monopsonistic, powerful firms like Walmart or McDonalds hiking the wage is about sharing shareholder rents with workers. Second, higher wages push up purchasing power among low-income workers with low savings. Third, higher wages reduce turnover, which can be quite costly for companies as they need to continuously waste resources in hiring new workers. But, again, low productivity firms could push up prices which cancels out some of the wage rises.

In cases like food service, a higher minimum wage would encourage more automation, which will increase output per worker, and so higher minimum wages are more affordable, but that also means that food service can no longer provide the employer of last resort for many young people trying to establish themselves in the labor market. More automation is net beneficial to the economy, but whether workers will benefit from it depends on social policy decisions, and the higher minimum wage won’t help in that particular case. It should be clear, however, that more automation does not mean we have to denounce a higher minimum wage. The government has the responsibility that common people are better off regardless of how much automation there is going to be.

To address labor market uncertainty, Bernie wants to introduce a job guarantee, which is about creating jobs for those who can’t find one. The implication for workers is that they have more bargaining power against private sector employers, who only want to pay low wages. The employers, therefore, hate job guarantees, because it may force them to share more rents with their workers. I am somewhat troubled by job guarantees, because they assume that the federal government knows where the labor shortfall is and then attempts to fill them. At the beginning, it might be simple to name unfilled needs like construction and public infrastructure, but once these are fixed, there are still many workers looking for jobs. The government then might create bullshit jobs, which is to hire people supervising other people and assigning bullshit tasks to others. For anyone, who cares about freedom, minimizing bullshit in society is very paramount. Work is a means to an end, and can’t become the end itself.

Bernie also endorses free higher education. That would resolve the crisis of unaffordability and student debt. It is a total scandal that people have to acquire a college degree to make it to the middle class and then increase the costs for obtaining it, so people are hooked on student loans which they have to repay for the rest of their lives. Given that jobs are pretty poor even for college graduates, people are putting off important life decisions like buying a house, opening up a business or starting a family.

The free college tuition, however, does not address the underlying driver of rising college expenses, which is the increasing concentration of administrators, who are managing the university rather than doing the teaching or research. The taxpayer could be saddled with paying the salaries of the many administrators, and the rising higher education subsidies could create a political backlash. Furthermore, incentivizing a college diploma, when the value of it continues to decline is merely creating a dispossessed and educated lumpenproletariat similar to the unemployed college grads in Egypt who fueled the Arab Spring that toppled Hosni Mubarak.

Overall, I still endorse free college, but I am cognizant that not everyone will want to go to college. Given that most people cannot finish their studies on time (either because they work full time, have a family to raise or because their learning aptitude is small), there already are a lot of people that are unjustly being warehoused in universities. As a graduate student and someone who wants to work in a university later on, there might be a self-serving will to bring more students (i.e. customers) to my university (i.e. business), but that is surely not the socially optimal outcome. Subsidizing vocational training as a parallel policy is also of import.

So what about the entrepreneur Andrew Yang? Andy came out of nowhere and now has over 66,000 donations and is polling at 1%. He is an entrepreneur, who presents himself as a true alternative to Trump, because he is an “Asian guy who likes math”, which always creates a predictable laugh in the audience. It has become the favorite line of his speech. Andy’s ability to rattle off numbers, figures and statistics are unparalleled for a politician and reveals his policy competence. He has over 70 detailed policy proposals on his website, which is unusually detailed and specific. No “hope”, “change”, “unity” and half-hearted measures that preserves as much of the status quo as possible. Andy is 44 and does not have the age constraint that Bernie has. Andy does not endorse the higher minimum wage, job guarantee and free higher education, naming similar objections to the ones I raised above. So then what makes him progressive?

It is his promise of a universal basic income (UBI), or freedom dividend. Unlike the other candidates, for Andy automation is the single most important policy area that dominates all others, because economic insecurity has come from the loss of well-paying manufacturing jobs to automation and the rise of low-wage service jobs. And now self-driving cars and AI are threatening the service jobs as well. UBI is a necessary policy proposal and should be preferred over a job guarantee, because you don’t need the giant bureaucracy to administer it and it would fit the freedom imperative, as individuals decide themselves what to do with the money. UBI also does not make assumptions about workers in high vs. low productivity jobs, which is a critical distinction for the higher minimum wage proposal. UBI would provide a better cushion of economic security than a college degree. A UBI could also address work disincentives embedded in the current welfare system, where any gains in labor income are associated with losses of benefit income, thus trapping people in low-wage jobs.

Fears about inflation and universal laziness are completely overblown. Inflation assumes funding from money printing rather than existing production. Inflation is not an issue if it comes from taxes. The food stamp program is not creating food inflation, because the heavily publicly subsidized farmers produce so much surplus food that it’s better to give it away for free and feed the poor. Fear of inflation also assumes dysfunctional markets, which is somewhat of a problem in housing and health care, where housing stock in certain areas is scarce, and health provision is artificially restricted by the inefficient health care system we have. In those cases, to preserve the value of the UBI, accompanying government policy would be to promote the creation of public housing trusts, which fund the development of municipal affordable house building, and single payer health care that would cut the administrative waste and profits in the insurance and pharmaceutical industry.

Universal laziness is a dark image of human nature. But I think the reality is the opposite, where many people work pointless bullshit jobs and they would be free to work whatever they think suits them best, and that includes activities that are for the benefit of society like doing care work but also producing music, art or literature. When people are asked what they would do with a basic income, most people say that they will be responsible and they will retrain and work for other sectors that better fit their interests. With a UBI that puts you below the poverty level (only $1000 a month in Andy’s proposal), the labor disincentives are not strong enough anyway. The universal laziness assumption comes from the belief that other people will be lazy, but one of the perspectives have to be wrong: either everyone likes to work- as they think of themselves or everyone hates to work- as they think of others. UBI could also work to pay for itself, because of increasing effective demand in the economy and the added economic activity.

Are there any outstanding issues with UBI? In Andy’s plan he wants to offset the $2.4 trillion headline cost of UBI by replacing existing social benefits like food stamps and cash assistance for the poor, which is supposed to feed 500 to 600 billion dollars to fund the UBI (see Yang 2019). Furthermore, he wants to add a value-added tax, which would presumably be on any Amazon transaction and Google or Facebook click. This is where more and more of the national surplus gets created and concentrated, but both proposals can be designed in a very regressive way, because cutting social transfers in exchange for $1,000 a month could leave the poor in the same state or even worse off. On the other hand, cash assistance is quite rare anyway, and the very poor might not even apply for it. In states like Arizona, the cash assistance is only 278 dollars, and food stamps is another 250 to 300 dollars, so generally the poorest should be somewhat better off with UBI, so the anti-poor charge does not truly apply to Andy’s proposal.

The bigger worry is with regard to VAT, which amounts to a consumption tax rather than an income or wealth tax. The advantage of the VAT, which is very common in Europe at even higher rates, is that it is hard to evade and raises lots of cash. The concern is that the poor carry a bigger burden for the VAT, because even the rich do not need to consume much more basic goods, and it would be a smaller percentage of their total income. The poor, on the other hand, are likely going to spend all of their income, so the VAT tax burden would fall heavier on them. I understand the political calculations of a VAT, which is likely causing less resistance among the rich, and even the poor and the middle class might not notice the tax if like in Europe the total gross price is listed in the final bill rather than the price without tax, as is the case with US sales taxes. A more progressive solution would be to apply a wealth tax to fund at least part of the UBI. There are concerns that the rich can simply move their wealth overseas. Capital is quite mobile, and taxing capital is likely only feasible with binding international agreements that would make it impossible for the world’s oligarchs to hide.

The progressive proposals of the best Democratic candidates Bernie Sanders and Andrew Yang have certain weaknesses, but their policy ideas are certainly much better than the dysfunctional status quo offered by the other candidates, including Trump. The working class is squeezed by international competition and automation, and Bernie’s and Andy’s solutions are going to mitigate the many social tensions that have been building up, so one of them deserves to win the Democratic nominations and beat Trump in 2020.

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