Extremist views don’t mesh well with economics. While they often sound good in theory they don’t work well in practice. This was the crux of much of my criticism of the Republican debates last week (see my comments on the gold standard and Rand Paul’s views). Unfortunately, some of the same (well, very different actually) extremist views are on display in the Democratic debates. Bernie Sanders is front and center here and while his views often sound good in theory I think they can aptly be described as populist, extremist and largely impractical. Let’s explore a few of his core views on economics:
Sanders wants to raise the federal minimum wage to $15, a %100+ increase from the current rate of $7.25. This sounds good in theory, but there is ample research showing that this could be a very dangerous price increase. Yes, when it’s wrapped in the usual Sanders rhetoric about how corporations are evil, greed loving entities that need to redistribute more of their wealth to the middle class, a bigger wage increase sounds that much better. But we have to be smart about this.
The states in the USA are not the same. There are microeconomies inside of the US macroeconomy. After all, a wage hike in New York is not the same as a wage hike in South Dakota because the cost of living is totally different. When the federal government enacts a broad price hike they are imposing a cost on businesses that will impact many companies in much more harmful ways than others. Luckily, we have some pretty good research on the topic and even leading Democratic researchers on the minimum wage are worried that $15 would be too much too fast (see here and here).
Now, in fairness, Sanders isn’t all that clear on the timing of his wage hikes. He’s proposed legislation that would phase in the hikes over the next 5 years, but who knows what he’d do once he got into office. After all, this is a man who has stated that he’ll definitely raise taxes on the rich, but isn’t sure what that rate will be. What he did reassure us of was that it wouldn’t be 90% like it was under Eisenhower. How reassuring…
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