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Bernie’s Utopian Nightmare

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Bernie Sanders’ appeal among young people has increasingly focused on delivering the supposed benefits a socialist society can give them; free education, free health care, and a government-mandated ‘living wage.’ But his vision for a socialist utopia flies in the face of reason – and the saddening saga of socialism in Europe.

Sanders’ latest missive accusing Senator Mitch McConnell of denying pensions to coal miners in Kentucky, West Virginia and Pennsylvania typifies a fervent belief that the government can be a cure to all ills. The coal industry has been hit hard over recent years – in particular because of the shift to cheap natural gas, but also, because of increasingly onerous government regulations that have impacted the costs of production. As a consequence, several large producers are now threatened with bankruptcy and restructuring. A bipartisan bill was floated in Congress to enable the federal government to step in and fund the miners’ pensions in situations in which the companies go out of business.

In recent speeches Sanders has also called for increasing the minimum wage, making college free and criticizing the fact that student loan costs exceed cost for other types of credit. “It makes no sense that students and their parents pay higher interest rates for college than they pay for car loans or housing mortgages,” he tweeted recently. But actuaries – people who price credit and measure risk in lending – might beg to differ. There are all sorts of reasons that student loans might be more expensive than car loans or mortgages. Chief among them is the fact that student loans are often given to individuals with no assets, income or productive capacity. Although the hope is that a student will eventually graduate from college, get a job and repay the loan – there is really no guarantee. And in the absence of some sort of asset to use as collateral, the costs of default to the lender would be high. This risk gets baked into the interest rates charged for such loans.

As part of his campaign platform on education, Sanders proposes that all state college education be made free of tuition. He points to countries like Germany and Chile as having made public education free, but fails to mention the sky high income tax rates that make this possible. These proposals are designed to appeal to young people because at the end of the day they won’t be the ones paying for the supposedly free lunch.

This kind of government wealth transfer is exactly the opposite of what the country needs at this point. While funding college for able-bodied students might be nice, the government is already deeply in debt to existing unfunded liabilities to seniors. If there is to be any tax transfer this is where it should be going – to those who are too sick or too old to work.

Europe has been stung by its blank check socialism and is quickly retreating from the welfare state policies of the last century or so. Countries like Greece and Portugal are practically on the verge of economic collapse, facing massive unemployment and – ironically – the very problems that socialism was supposed to solve. Pensions have been cut, and people are being put out on the street. Germany has escaped a similar fate because the weak Euro has made their exports more attractive, and, most notably, because it does not have to fund a large military.

The social welfare system in France, which leads the world in spending an incredible 32 percent of its GDP on social programs, has become totally unsustainable. When old age pensions were introduced there, workers outnumbered retirees by almost seven to one. Now there are more people on welfare than actually working. The system has become totally corrupted over the years – with so many programs and subsidies that tax rates have skyrocketed. Businesses have left France en masse, and many of the wealthiest members of society have sent most of their assets overseas, placing a greater burden on a shrinking tax base.

Even more insidiously, socialist countries have dis-incentivized entrepreneurship and work. Young people rightly calculate that in many cases it is more beneficial to live off the state than become economically productive. Economic freedom has declined considerably due to draconian labor rules and high taxation.

America could soon follow suit if people buy into Sanders’ socialist vision. America already spends twenty percent of GDP on government benefits. We already have a regulatory environment that constrains business development, saddling young vulnerable enterprises with costs that make them almost unsustainable. Rural America in particular is suffering from a dearth of small business development, as only large, politically powerful enterprises are capable of thriving in such environments.

All of this works perversely against the very workers and people Bernie purports to want to help. Corporate consolidation driven by regulation and cost minimization has a direct impact on driving down workers’ salaries and benefits. And it is too late, once an industry has been regulated into oblivion, to try and save the workers’ pensions. Government does not have all the answers, and neither in this case does Bernie Sanders.

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