CAN BERNIE DO IT? The View of a Non-Establishment Economist

By L. Randall Wray

Bernie Sanders has an ambitious agenda. Too ambitious, insist his critics (including, especially, surrogates of Hillary Clinton). He would break up the big banks, reverse the redistribution of income and wealth to the top (that accelerated under the triple whammy of the Bush-Clinton-Bush administrations), restore and improve our nation’s infrastructure, and provide employment and better wages at the bottom. The critics proclaim that his programs cannot “pay for themselves”.

Using conventional macro models, Professor Gerald Friedman at UMass showed that they would. He was then attacked for using the conventional models that all conventional economists use. Apparently, these models are fine when they support austerity, but are out-of-bounds for use when they support progressive policy. Adam Davidson (of NPR’s “Planet Money”) has noted that in spite of the empirical results, even Friedman admits that perhaps only 4% of economists believe that Bernie’s programs can pay for themselves.

On one hand, anyone who understands sovereign government finance knows that a program’s ability to “pay for itself” is not an important consideration for undertaking programs that are in the public interest. Government is not like a firm that needs to focus narrowly on recovering costs and making profits. The question for government is whether there are the resources and know-how to achieve success—whether the mission is landing on the moon, prosecuting a war, or building an interstate highway system. Financial affordability is not the issue—what matters is the impact on the private sector should the government’s efforts require withdrawing resources from private use. If the government takes too many resources, this could set off a bidding war and cause inflation.

But even if policy makers, elected representatives, and voters at large fail to understand this, it strains credulity to believe that Bernie’s programs would not “pay for themselves”. All one needs to do is to look at history to remind oneself of the substantial—and continuing—pay-offs from previous efforts on the scale proposed by Bernie Sanders.

Does anyone seriously doubt whether Roosevelt’s New Deal paid for itself? In 1929 the US was a broken, under-developed country, unprepared for the 20th century. When Roosevelt took over, income and wealth inequality was the worst the US had ever seen. Unemployment and poverty had skyrocketed. The nation’s infrastructure was inadequate—much of the country lacked even basic paved roads, electrification, and indoor plumbing, let alone adequate schools, public buildings, dams, and airports. The 13 million workers of Roosevelt’s New Deal jobs programs built that infrastructure—much of it still in use today.  For example, workers in the WPA (Works Progress Administration):

shouldered the tasks that began to transform the physical face of America. They built roads and schools and bridges and dams. The Cow Palace in San Francisco, LaGuardia Airport in New York City, and National (now Reagan) Airport in Washington, DC, the Timberline Lodge in Oregon, the Outer Drive Bridge on Chicago’s Lake Shore Drive, the River Walk in San Antonio.Its workers sewed clothes and stuffed mattresses and repaired toys; served hot lunches to schoolchildren; ministered to the sick; delivered library books to remote hamlets by horseback; rescued flood victims; painted giant murals on the walls of hospitals, high schools, courthouses, and city halls; performed plays and played music before eager audiences; and wrote guides to the forty-eight states that even today remain models for what such books should be. And when the clouds of an oncoming world war loomed over the United States, it was the WPA’s workers who modernized the army and air bases and trained in vast numbers to supply the nation’s military needs. (N. Taylor American-Made: The Enduring Legacy of the WPA, When FDR put the Nation to Work, 2008)

As I wrote in my Modern Money Primer,

The New Deal jobs programs employed 13 million people; the WPA was the biggest program, employing 8.5 million, lasting eight years and spending about $10.5 billion. (Taylor 2008, 3) It took a broken country and in many important respects helped to not only revive it, but to bring it into the twentieth century. The WPA built 650,000 miles of roads, 78,000 bridges, 125,000 civilian and military buildings, 700 miles of airport runways; it fed 900 million hot lunches to kids, operated 1,500 nursery schools, gave concerts before audiences of 150 million, and created 475,000 works of art. It transformed and modernized America (Taylor 2008, 523–4).

Roosevelt also fixed the banking system. He declared a banking holiday—shutting down all the banks–and put Jessie Jones in charge of reopening them. Jones demanded letters of resignation from the top management—and where he found evidence of shady practices, he accepted those letters before reopening the banks. Finance was downsized and constrained—for two generations it was kept under lock and key.

And when the US had to join the European war, no one asked “will the war effort pay for itself?”. The government grew to 50% of the economy as production for war displaced production for American consumption. The budget deficit grew to 25% of GDP. The debt ratio grew to 100% of GDP.

The New Deal’s infrastructure provided the basis for the expansion of the productive basis needed for the war effort. Eventually the war came to an end, but the New Deal infrastructure remained, supplemented by the industrial capacity built up during the war. All of it was now ready for peace time consumption.

The nation prospered. Roosevelt’s programs paid for themselves, with unprecedented dividends. The middle class grew—and rightly, or wrongly, the vast majority of Americans considered themselves to be members of that growing middle.

Gradually the government debt ratios fell—not because the government paid off the debt (it didn’t repay any of it) but because GDP grew rapidly. There was no “debt burden”—rather, the postwar economic boom was facilitated by the safe private portfolios stuffed full of risk-free US Treasuries.

When the Cold War began, no one asked whether the renewed militarization of the economy would “pay for itself”. We needed to get into space to demonstrate our superiority. That required an interstate highway system and college educations for our young, which meant nearly free tuition at public universities supplemented with low interest National Defense Student Loans. Did all of this “pay for itself”? Of course it did—it produced the highly educated baby boom generation. The generation that fought US apartheid and demanded civil rights, that fought for women’s rights, for free speech, and that made substantial progress toward finally realizing our nation’s Bill of Rights—which had hitherto been a pipedream.

However, for the sake of argument, let us concede that Bernie’s programs might not “pay for themselves”. What if we break-up and downsize the banks, jail the banksters, tax the rich, create jobs for the unemployed, raise the minimum wage, build infrastructure, restore democracy, reverse Citizens United, get money out of politics, stop droning and bombing our neighbors,  and bring a united America into the 21st century.

But the budget deficit and debt rise.

Would it have been worth it? Only a fool would claim otherwise.

Hillary Clinton prefers to downsize expectations. She refuses to commit to policy that the crazy Republican majority won’t support. The biggest banks don’t want to be downsized. Further, her Wall Street supporters would rather not go to jail. Nor are the One Percenters (of which she and Bill are relatively new members) behind Bernie’s plan for taxes on their outsized incomes. The Clinton years and the aftermath were good for her, even if they were terrible for the bottom 99%. She prefers small changes around the edges—not Bernie’s “revolution”.

Speaking of which. I know that the word scares voters. Bernie’s an admitted Democratic Socialist. Some feel he hasn’t been entirely forthcoming about what “socialism” and “revolution” mean to him.

He has, however, just made it crystal clear in the speech he gave at the Vatican in Rome. It is a remarkable speech. The contrasts between Bernie and the Neoliberals—both Democrat and Republican—that he’s running against have been delineated. One cannot imagine a Hillary, a Donald, a Ted, or a Paul articulating anything like what he laid out.

Win or lose, Bernie has set the agenda for America for the 21st century—in a manner similar to what Roosevelt did for America in the 20th. We cannot pretend that America accomplished the goals enumerated in Roosevelt’s Four Freedoms speech of 1941.  ( They set a high bar. Bernie has raised that bar. We should not settle for a candidate who offers less. We will fall short, but it is better to have tried than to have set our sights lower.

In his speech, Bernie pointed out that “In the year 2016, the top one percent of the people on this planet own more wealth than the bottom 99 percent, while the wealthiest 60 people – 60 people – own more than the bottom half – 3 1/2 billion people. At a time when so few have so much, and so many have so little, we must reject the foundations of this contemporary economy as immoral and unsustainable.”

Forget the protestations of the mainstream economists and politicians that this is just the efficient operation of our free market economy, which rewards highly productive individuals for the tremendous contributions they’ve made to our global well-being. In fact, our economies reward rentiers—those with monopolies that create pricing power. Even if their real contributions to our economy are negative—which is surely the case for the fraudsters on Wall Street.

The math is quite simple. We could take away most of the wealth of those 60 individuals—leaving them still quite wealthy—and redistribute it to the 3.5 billion poorest people on planet earth, raising their living standards considerably without negatively impacting global production. Hillary’s surrogates will insist that it is politically impossible, but we cannot know until we try. The first step is to elect a US president willing to try.

I, personally, do not support Bernie’s propensity to link taxing the rich to his spending programs. The rich should pay more taxes because they are too rich. This has nothing to do with making his spending programs affordable. Uncle Sam does not need the money of the rich in order to pay for spending on the poor. Besides, Bernie’s spending programs will pay for themselves—just as New Deal programs paid for themselves as they created our middle class.

In his speech Bernie goes on to argue that: “society and the State must ensure wage levels adequate for the maintenance of the worker and his family, including a certain amount for savings. This requires a continuous effort to improve workers’ training and capability so that their work will be more skilled and productive, as well as careful controls and adequate legislative measures to block shameful forms of exploitation, especially to the disadvantage of the most vulnerable workers, of immigrants and of those on the margins of society. The role of trade unions in negotiating minimum salaries and working conditions is decisive in this area.”

Bernie has forcefully called for a national minimum wage of $15 per hour, which together with support for labor unions will reverse the trend of the past 4 decades of stagnant real incomes. No other presidential candidate has been willing to take such a strong stand for American workers.

Bernie rightly points his finger at the “financialization” of the economy as a major source of our nation’s ills: “We need a political analysis as well as a moral and anthropological analysis to understand what has happened since 1991. We can say that with unregulated globalization, a world market economy built on speculative finance burst through the legal, political, and moral constraints that had once served to protect the common good. In my country, home of the world’s largest financial markets, globalization was used as a pretext to deregulate the banks, ending decades of legal protections for working people and small businesses. Politicians joined hands with the leading bankers to allow the banks to become “too big to fail.” The result: eight years ago the American economy and much of the world was plunged into the worst economic decline since the 1930s. Working people lost their jobs, their homes and their savings, while the government bailed out the banks.”

There has been much debate about whether Hillary Clinton is “qualified” to be President, after accepting hundreds of thousands of dollars for speeches before Wall Street banks, and the millions those banks have provided to her family’s foundation. Bernie has questioned her judgement, not her qualification.

For me, the distinction comes down to the content of her speeches. Many have called on Hillary to release the transcripts of her talks. If she used the opportunity to scold the banks for their fraudulent—indeed, criminal—behavior, then it comes down to a judgement call. If she donated her fees to real charities (I do not mean her family foundation which quite naturally promotes her family’s interests), and if she warned the banksters that if elected president she would direct her Attorney General to investigate their frauds, then I would congratulate her for her judgement.

But if she had done that, she would be happy to release the transcripts. We must presume that her reluctance to do so indicates that she did not berate her Wall Street supporters. While we cannot conclude that she congratulated them for their frauds—and for mostly getting away with slaps on the wrist—we might conclude that she fell far short of what we could reasonably expect a potential president should have done in such circumstances. The reluctance to release the transcripts is evidence that her judgement is poor; release of the transcripts might reveal that she is not qualified for the job.

How does Bernie feel about the banksters on Wall Street? Well, we can be pretty darned sure he would not take their money. He recognizes how the flow of money from Wall Street and other corporations undermines our democracy:

 “Inexplicably, the United States political system doubled down on this reckless financial deregulation, when the U.S. Supreme Court in a series of deeply misguided decisions, unleashed an unprecedented flow of money into American politics. These decisions culminated in the infamous Citizen United case, which opened the financial spigots for huge campaign donations by billionaires and large corporations to turn the U.S. political system to their narrow and greedy advantage. It has established a system in which billionaires can buy elections. Rather than an economy aimed at the common good, we have been left with an economy operated for the top 1 percent, who get richer and richer as the working class, the young and the poor fall further and further behind. And the billionaires and banks have reaped the returns of their campaign investments, in the form of special tax privileges, imbalanced trade agreements that favor investors over workers, and that even give multinational companies extra-judicial power over governments that are trying to regulate them.”

Hillary has challenged Bernie to find a single instance in which she has changed her vote because she was paid to do so. But no savvy politician would ever do that. The corruption is rarely so specific. Selling votes leads to prison—for both payer and payee. The corruption is much more general, more pervasive, more thorough, more complete. The payments by Wall Street buy perspective, sympathetic attention, comradery, shared interests, and future careers. Expecting a Wall Street candidate to take a serious interest in regulating, downsizing, and prosecuting Wall Street is far more utopian than hoping that an outsider like Bernie might succeed in doing so.

Bernie follows Pope Francis in asking us to reject “the cult of money and the dictatorship of an economy which is faceless and lacking any truly humane goal”. He goes on:

Some might feel that it is hopeless to fight the economic juggernaut, that once the market economy escaped the boundaries of morality it would be impossible to bring the economy back under the dictates of morality and the common good. I am told time and time again by the rich and powerful, and the mainstream media that represent them, that we should be “practical,” that we should accept the status quo; that a truly moral economy is beyond our reach…

“I see that hope and sense of possibility every day among America’s young people. Our youth are no longer satisfied with corrupt and broken politics and an economy of stark inequality and injustice. They are not satisfied with the destruction of our environment by a fossil fuel industry whose greed has put short term profits ahead of climate change and the future of our planet. “They want to live in harmony with nature, not destroy it. They are calling out for a return to fairness; for an economy that defends the common good by ensuring that every person, rich or poor, has access to quality health care, nutrition and education…

“The challenges facing our planet are not mainly technological or even financial, because as a world we are rich enough to increase our investments in skills, infrastructure, and technological know-how to meet our needs and to protect the planet. Our challenge is mostly a moral one, to redirect our efforts and vision to the common good.”

President Roosevelt closed his own speech by recognizing what Americans want:

“Equality of opportunity for youth and for others.
Jobs for those who can work.
Security for those who need it.
The ending of special privilege for the few.
The preservation of civil liberties for all.”

He insisted that his vision was attainable in the immediate future:

That is no vision of a distant millennium. It is a definite basis for a kind of world attainable in our own time and generation. That kind of world is the very antithesis of the so-called new order of tyranny which the dictators seek to create with the crash of a bomb.  

To that new order we oppose the greater conception—the moral order. A good society is able to face schemes of world domination and foreign revolutions alike without fear.

Since the beginning of our American history, we have been engaged in change—in a perpetual peaceful revolution—a revolution which goes on steadily, quietly adjusting itself to changing conditions—without the concentration camp or the quick-lime in the ditch. The world order which we seek is the cooperation of free countries, working together in a friendly, civilized society.”

Note his references to morality and revolution. Like Bernie Sanders, he recognized the moral challenge to revive and continue the American Revolution against the vested interests. Today the obstacles in our path are not technical. Nor is affordability the question.

No, our barriers are self-imposed by leaders without vision, by leaders who find it acceptable to take “what is offered” by Wall Street, who claim to know “how to get things done” but who choose to do too little.

In his second inaugural address, Roosevelt referred to the founding of our nation, recognizing the importance of our national government:

This year marks the one hundred and fiftieth anniversary of the Constitutional Convention which made us a nation. At that Convention our forefathers found the way out of the chaos which followed the Revolutionary War; they created a strong government with powers of united action sufficient then and now to solve problems utterly beyond individual or local solution. A century and a half ago they established the Federal Government in order to promote the general welfare and secure the blessings of liberty to the American people… Today we invoke those same powers of government to achieve the same objectives.”

He noted that much had been achieved during his first administration, but much more had to be done:

“I see a great nation, upon a great continent, blessed with a great wealth of natural resources. Its hundred and thirty million people are at peace among themselves; they are making their country a good neighbor among the nations. I see a United States which can demonstrate that, under democratic methods of government, national wealth can be translated into a spreading volume of human comforts hitherto unknown, and the lowest standard of living can be raised far above the level of mere subsistence.

But here is the challenge to our democracy: In this nation I see tens of millions of its citizens—a substantial part of its whole population—who at this very moment are denied the greater part of what the very lowest standards of today call the necessities of life.

I see millions of families trying to live on incomes so meager that the pall of family disaster hangs over them day by day.

I see millions whose daily lives in city and on farm continue under conditions labeled indecent by a so-called polite society half a century ago.

I see millions denied education, recreation, and the opportunity to better their lot and the lot of their children.

I see millions lacking the means to buy the products of farm and factory and by their poverty denying work and productiveness to many other millions.

I see one-third of a nation ill-housed, ill-clad, ill-nourished.

But it is not in despair that I paint you that picture. I paint it for you in hope—because the nation, seeing and understanding the injustice in it, proposes to paint it out. We are determined to make every American citizen the subject of his country’s interest and concern; and we will never regard any faithful law-abiding group within our borders as superfluous. The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”

We find ourselves today in similar circumstances. For the past three decades or so, our leaders have been satisfied with progress that enriched those that already had too much, while those with too little had to learn to get by with even less. This is the challenge facing our democracy today, just as Roosevelt faced it in 1937:

“Many voices are heard as we face a great decision. Comfort says, “Tarry a while.” Opportunism says, “This is a good spot.” Timidity asks, “How difficult is the road ahead?”

…If I know aught of the spirit and purpose of our Nation, we will not listen to comfort, opportunism, and timidity. We will carry on.”

Can Bernie do it? Yes, but as he has insisted, he cannot do it unless tens of millions carry the Revolution forward.

15 responses to “CAN BERNIE DO IT? The View of a Non-Establishment Economist

  1. Pingback: How Bernie’s Economic Policies Fit into Economic Theory - New Economic PerspectivesNew Economic Perspectives