Bernie Sanders: Economic Illiterate

Looking at Bernie Sander's website and his views on Income and Wealth Equality, I discover that his plans didn't survive some back of the envelope math.

Putting at least 13 million Americans to work by investing $1 trillion over five years towards rebuilding our crumbling roads, bridges, railways, airports, public transit systems, ports, dams, wastewater plants, and other infrastructure needs.

 

Although I thought Obama had already dealt with this with his trillion dollar stimulus - no, wait.  He said shovel-ready wasn't as shovel-ready as he thought.  Okay, this still needs to get done.  That being the case, let's check the numbers.  $1 trillion dollars over a five year period will be $200 billion a year.  That $200 billion paid out as salary to 13 million (he said "at least" so we'll go with the minimum) would be $15,384.62 each.  Wow, that's not much, certainly not enough to raise a family.  And this doesn't even account for the materials needed to do all the rebuilding, so that is a maximum salary.

 

Increasing the federal minimum wage from $7.25 to $15 an hour by 2020. In the year 2015, no one who works 40 hours a week should be living in poverty.

 

$15 per hour would lead to $120 per 8 hour day or $600 per 5 day week.  That would amount to $31,200 a year, more than double what he plans to allocate for workers on his infrastructure project.  Well, let's look at that number.  $15,384.62 a year comes to $295.86 per week and $59.17 per day.  That would be $7.40 an hour, just above the current minimum wage.  Could that be a coincidence?  Extremely unlikely.  Of course, if he gets his minimum wage increase, we'll just have to allocate $2 trillion to the 5 year plan.  Easy as pie.  It will work much better when Bernie spends twice as much as Obama did.  Maybe they are finally shovel-ready?

Creating 1 million jobs for disadvantaged young Americans by investing $5.5 billion in a youth jobs program. Today, the youth unemployment rate is off the charts. We have got to end this tragedy by making sure teenagers and young adults have the jobs they need to move up the economic ladder.

 

They may be disadvantaged youth but they require the new minimum wage too, right?  Therefore, that $5.5 billion divide equally (Bernie is big on income equality) among the million youths would be $5,500 each.  At $15 per hour, that is 366 hours and 40 minutes of work or about 9 weeks of full time employment.  Is this a summer jobs program?  If it is meant to be year round, it will be 7 hours a week.  If not, these disadvantaged youth will be unemployed for 43 weeks of the year.

 

Requiring employers to provide at least 12 weeks of paid family and medical leave; two weeks of paid vacation; and 7 days of paid sick days. Real family values are about making sure that parents have the time they need to bond with their babies and take care of their children and relatives when they get ill.

That sounds very compassionate but increases the cost of labor.  How?  Let's break it down.  Looking at my minimum wage employee who is paid $31,200 a year, even if he and all his family is perfectly healthy, I am only getting $30,000 of labor, the other $1,200 going to his paid vacation.  Since I don't get those 80 hours of labor, I have to amortize that over the rest of the year.  It works out that I am really paying $15.60 per hour.  What if he takes all 7 paid sick days?  Now he is costing me $16.05 per hour.  Gads, what if he is out for the 12 week paid family medical leave too?  Now he is costing $21.31 per hour.  Sure, that is the worst case scenario but any woman in her childbearing years will use most or all of her 12 weeks.

 

With this huge and continuous shift of costs onto employers, is it any wonder that manufacturing is moving overseas?  As the cost of labor domestically rises relative to foreign labor, the issue becomes the cost of shipping.  With the proliferation of free trade agreements that erase tariffs, that cost is dropping.  Voila, China becomes the new manufacturing hub of the world, increased shipping costs are more than offset by the reduction in labor costs, and corporate profits skyrocket.  Corporations can move.  They will only stay while it is profitable to do so.  Bernie's prescriptions will accelerate the exodus.  Oh, but Bernie thought of that.

 

Reversing trade policies like NAFTA, CAFTA, and PNTR with China that have driven down wages and caused the loss of millions of jobs. If corporate America wants us to buy their products they need to manufacture those products in this country, not in China or other low-wage countries.

 

Not only is Bernie going to more than double the minimum wage, he's going to engage in protectionism.  The Smoot-Hawley Tariff Act of 1930 was supposed to get Americans to buy domestically manufactured goods and spur growth after the 1929 market crash.  Instead, it cut imports and exports by half through a trade war.  Didn't do the Great Depression a bit of good.  But maybe it will work for Bernie.  The World Trade Organization - of which we are a member - is going to love that.  Ignoring all that, let's just ponder where this goes.  The price of all goods in the US is currently based upon the importation of a large percentage of our manufactured goods.  Merely undoing that will cause the price of goods to rise dramatically as US labor costs are already higher than overseas.  Add to this the greatly increased labor costs.  To make up for this upheaval, corporations are going to have to raise prices dramatically.  And though government will have been the architect of the disaster, business will be blamed for gouging and being greedy, just like is happening with Obamacare now.

 

At the end of Bernie's proposed path is an economy worse than what currently exists, perhaps a great deal worse.