Monday, April 18, 2016

Has Bernie Burned Out?

My previous blog argued that Hillary Clinton was the better candidate for the Democratic nomination for President, mainly because she has a better chance of winning in the general election and because Bernie Sanders' program was not achievable.  Since then, Sanders, who once was a refreshing entrant in the quadrennial presidential circus, has become annoying with his pie-in-the-sky screed.  He turns out to be an old fashioned populist demagogue, a William Jennings Bryan for the 21st century (and we know how well he did).  In some ways Sanders is no different than the Republican demagogues of the right with his assaults on the usual whipping boys of populist causes over the years, banks and  the wealthy.  Of course he is substantially different in his ultimate objectives; his policy goals are for the most part admirable, but his attack format is not all that different. Trump, et al, argues, "elect me and everyone will will fall in line", i.e., Putin, corporate executives who want to move their companies overseas, Mexico, Japan, China, etc.  Sanders argues similarly with regard to bank executives and presumably the one percent.  In short, he too is an ideologue.  If there is anything to the claim of American exceptionalism it has to be based on Americans' approach to problem solving, that is, pragmatism, not dogma.  Simply put, Hillary is a pragmatist while Bernie is an ideologue.  It is this commitment to ideology (and let the facts and circumstances be damned) that has been the ruination of the Republican Party.  Bernie, like them, seeks a Utopian world, albeit his Utopia would be far preferable to theirs.

To Sanders, the enemy is big banks and the one percent who are the cause of inequality and the Great Recession.  All we have to do is lean on them and everything will work out.  However, he doesn't seem to have a clue as to how this is going to happen or really understand economics.  Certainly bankers are not nature's noblemen and have been treated too easily for their past transgressions.  I carry no brief for the banks and their officers.  The chicanery they have indulged in is breathtaking. But breaking up the banks is not going to solve our ills.  Bernie doesn't seem to understand the difference between revolution and reform.  Revolutions seldom turn out well. Arguably Trump and Cruz are also seeking a revolution, of a different kind of course.  A common by-product of revolution is civil war, or, in peaceful times, more extreme partisan politics.  Reform is not as exciting, but is more likely to achieve results.  It is the route to take and that Hillary subscribes to.

Surprisingly there are other echoes of the Republican dogma in Sanders' approach to the economy. The Republicans have forever argued that you can cut taxes substantially without reducing social programs (although they would prefer to do both) because the increase in economic growth will generate the revenue to offset the tax cuts (all mainstream studies refute this).  Sanders believes that raising the minimum wage, spending a trillion dollars on infrastructure and offering free college will inspire such enthusiasm and determination that people will work harder and invest more, and the economy will generate the tax income to pay for it.  Thus his plans won't cost money, they'll raise money.  If you recall my last blog, to believe this you have to believe in the tooth fairy.  The economic profession certainly doesn't believe it.

Bernie focuses on the excesses of others, and there is more than enough of that, but he is short on practical solutions and seems to miss the point on many of these issues.  Let's be clear at the outset.  I am in favor of raising the minimum wage, increasing taxes on the wealthy and spending substantial sums on improving our deteriorating infrastructure ... and so is Hillary.  As far as breaking up the banks, that in itself is not going to improve the lot of the middle class or the poor.  The size of the big banks is a subset of a more important issue - what we should be talking about here is monopoly power - the closing out of medium and small businesses in a range of industries.  Whatever happened to the Antitrust Division of the Department of Justice? There are too many mergers and acquisitions which leave only a handful of competitors in a number of sectors which give them a virtual monopoly on buying and/or selling.  We see it in the health care and insurance sectors as well as the banking sector.  This should be a major priority of the next President, but it does not have the same allure as "breaking up the banks".  Sanders seems to be unaware of this issue.  His focus is very narrow.  It is all about "Wall Street".  There is much to criticize about Wall Street, but the nation's economic issues are much broader than that.  Although the financial sector is in many ways unique, which may require additional considerations, if bigness as such is to be evaluated it should be done in the context of maintaining or increasing competition.

But let's just focus on the banks for the moment.  There is more work to be done in the regulatory area, but Dodd-Frank has made a good if slow start.  The big banks have shed many businesses. They have been forced to become simpler and safer, if not always smaller.  Increased capital requirements have significantly penalized the banks for their size and complexity and required them to find ways to shrink on their own.  Recently the plans of five of the eight largest banks to wind themselves down in case of a crisis have been rejected by bank regulators.  The tools are in place in existing legislation. The Democrats need to concentrate on defending and fine tuning Dodd-Frank rather than breaking up the banks which is a non-starter politically, even if it were deemed to be desirable.  By pushing for the latter, Bernie would, in the face of determined Republican opposition, lose any opportunity to further the reform process.  Hillary, on the other hand, would have a much better chance to move that process along, in part because she is not perceived as an enemy of Wall Street.

Then there is the issue of Glass-Steagall.  Bernie wants to bring it back, and I would agree with the principle of separating commercial banking from investment banking, particularly in light of the Great Recession.  However, the economic experts have concluded that the existence of Glass-Steagall would not have prevented the Great Recession.  On that basis, it would seem more practical to rely on the regulators under Dodd-Frank to develop the mechanisms to ensure that the risks that Glass-Steagall was meant to eliminate are addressed.  This may mean strengthening Dodd-Frank, but again Hillary is better positioned to push that through than Bernie with his all or nothing approach.

When it comes to the bail-out of the banks and the auto industry, Sanders has a checkered record due to his ideological hang-ups.  Although he was in favor in principle of the bail-out of the auto industry (which was essential), he was strongly opposed to the bail-out of the banks.  This would have been a disaster for the financial sector and the US and world economies.  But Bernie is not a pragmatist; he is a Utopian and is not guided by the likely results of his actions as long as he can maintain his ideological purity.  Sound familiar - say, the Tea Party?  Beyond this, when, due to the Republicans in Congress, funds for the auto bail -out would only be available from funding which would also be used for the bank bail-out, Sanders voted against appropriation of such funds.  Talk about cutting off your nose to spite your face.

What about free college education for all?  That's a great idea, but it's not affordable, at least for now. Again, the problem should be approached incrementally.  No qualified student should have to forego a college education due to lack of funds.  There are mechanisms already in place to help, but they are not enough.  They need to be enhanced.  To do this the Republicans in Congress have to be brought on board.  Bernie is not going to be able to do this with his proposal for free college education for all. It would be a non-starter.  There is also the other side of the equation - how to lower the cost of college education.  The next President needs to be able to develop ideas as to how this can be done and bring along the academic community to support such ideas.  I don't see Bernie having the flexibility to do this.

The issue of international trade agreements is the subject of Bernie's most frantic rants.  This is a very complex subject, and even Hillary is backing away from TPP under the pressure of electoral politics. However, I believe she will be amenable in principle to trade agreements with the appropriate protective mechanisms.  Bernie never will.  He refuses to accept the reality of the modern world.  The United States has lost, and will continue to lose, manufacturing jobs with or without trade agreements.  Our future, as it has been for many years now, is in the service and technology areas. What we need to do is educate our young people and promote development in these areas, and that requires allocating funds for these purposes.  Our enemy here is not less developed countries which can manufacture at less cost, but the Republican Party which will nor appropriate the necessary funds.  In addition, we have to provide relief for those workers who are displaced by loss of manufacturing jobs through job retraining, income support and job placement assistance.  I never read about Bernie addressing these issues.  He seems to think we can restore our manufacturing sector as it was.  Maybe in Utopia - he and Donald Trump who is going to impose 35% tariffs on imports.  We should concentrate on helping the people who need help and not try to roll back the tide.

Finally there is the issue of campaign finance.  Nobody in the Democratic Party, including Hillary, disagrees with Bernie on this.  So, what is he going to do about it?  Only through the right Supreme Court appointment is there any possibility for help.  Even under the best of circumstances that is not going to play out for several years.  In the meantime one must be able to compete with the other side. That Bernie has been able thus far to do this in his own way is a tribute to him, but not to play the game when it comes to the general election would be suicidal.

Bismarck got it right - politics is the art of the possible.

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