of billions. More money than they would ever know what to do with. But at that very same moment, there are millions of people in our country, let alone the rest of the world, who are struggling to feed their families. They are struggling to put a roof over their heads, and some of them are sleeping out on the streets. They are struggling to find money in order to go to a doctor when they are sick …
“And while the very, very rich become much richer, millions of families have no savings at all. Nothing in the bank. And they worry every single day that if their car breaks down, they cannot get to work, and if they cannot get to work, they lose their jobs. And if they lose their jobs, they do not feed their family. In the last two years, 15 people saw a $170 billion increase in their wealth; 45 million Americans live in poverty. That in my view is not justice. That is a rigged economy, designed by the wealthiest people in this country to benefit the wealthiest people in this country at the expense of everybody else.”
Senator Sanders has held such views throughout his more than four decades of being a Vermont-based politician. He is severely misguided, most likely because he doesn’t fundamentally understand how the U.S. economy and the private sector work. Sanders has never worked in the private sector nor done anything besides politics.
Here are my thoughts and responses to the points he makes in his speech:
The “top” 1, 10, or 20 percent is not a fixed group of individuals. The notion that income keeps flowing and wealth is accumulating the most for a fixed group of individuals is simply wrong. Think about people you know (perhaps including yourself) who earned varying amounts of money at various points in their lives. Consider pro athletes who, if they “really make it,” can earn millions per year. However, before that happens, they can endure many years of low and unremarkable wages. And the few who end up earning large sums only do so for a limited number of years. This pattern happens in other industries.
Flawed income and wealth disparity measures don’t take into account government money transfers. Income disparity measures fail to count government programs such as food stamps and Medicaid and the value of those benefits to individuals and households. The same is true for monthly Social Security benefits, pensions, and so on. Earned but not yet tapped monthly benefits can easily be worth hundreds of thousands to millions of dollars, yet these earned benefits are ignored in measures of supposed income and wealth disparity.
Sanders fails to mention unequal distribution of taxes paid. According to the Tax Foundation, the top 1 percent of income earners earned 21 percent of all income and paid a whopping 39 percent of all individual income taxes. By contrast, the bottom 50 percent of income earners paid just 3 percent of federal income taxes. No federal income tax at all is paid by 45 percent of all Americans.
Sanders completely omits any discussion of donations, especially those given by the super wealthy. Studies of wealth inequality ignore the fact that the wealthy, and especially the very wealthy, donate large portions of their wealth to charities. Sanders is correct that some Americans have tens of billions of dollars — far more money than they and their families could ever use. But these same super wealthy people give away large amounts of their wealth. So, much of the wealthiest folks’ assets end up benefiting and helping those at the lower end of the wealth and income spectrum.
Wealthy folks who don’t give away their assets during their lifetimes get whacked with hefty estate taxes. Under current federal law, only $11.7 million can be passed to heirs free of estate tax, and amounts above this are taxed at about 40 percent. Also, the wealthy are greatly limited on how much they can give away during their lifetimes to family; they’re limited to $15,000 per person per year.
It’s absurd and inaccurate to say that the economy is designed and rigged by the wealthiest to benefit themselves. In a free-market capitalist economy, small-business owners and entrepreneurs and employees at successful companies have the opportunity for upward mobility. What actually stands in the way of this economic freedom are too many laws and regulations that unequally burden small companies. Larger companies have the staff and resources to comply with such government-imposed rules more easily.
Calls for high minimum wages harm the very people such laws were supposedly designed to help. To redress income inequality, Sanders, among others, advocates a much higher minimum wage. Sanders has long sought a $15 minimum wage, which is about double the current level in many states and the federal minimum wage. However, local governments that have significantly increased the minimum wage have (not surprisingly) discovered that it creates more unemployment among entry-level workers. This makes sense because it gives businesses even more incentive to automate and minimize the number of workers.On April 27, 2021, President Biden imposed a $15 minimum wage by Executive Order for federal contractors. The order requires federal agencies to incorporate a $15 minimum wage in all contract solicitations starting January 30, 2022. Agencies will have to implement the higher wage in new contracts by March 30, 2022.
Globalization increases the opportunity for companies and the wealth they can capture because of the bigger markets for their goods. So the entrepreneurs and shareholders of such companies share in the upside of these firms. The stock market allows investors of all economic means to share in the growth and upside of companies.
Fostering an environment that encourages business is the best way to create more and better-paying jobs. Competition for workers and a shortage of workers drives up wages! Misguided socialist policies would stifle and penalize creativity and investment, and corporations would flee the United States.
History of growth and downturns
Over the long term, the U.S. economy has averaged approximately 3 percent annualized real (after inflation) growth. This rate of growth has slowed to closer to 2 percent annually on average in more recent decades.
This long-term track record for growth in the U.S. economy has been great news for workers, as it has helped to keep the historic unemployment rate low. And the purchasing power of workers’ wages has increased over the decades and generations. Consider for a moment how many people have smartphones today, which are more powerful and a fraction of the cost of the first generations of personal computers.
Furthermore, the long-term growth of the U.S. economy helps to explain the terrific long-term returns from U.S. stocks. Over the past two-plus centuries, U.S. stocks have averaged annualized returns of about 9 percent, or about 6 to 7 percent after inflation.
Now, the 2 to 3 percent annualized real (after inflation) growth rate of the U.S. economy should not be interpreted to mean that the U.S. economy grows every year and at a reasonably steady rate because it doesn’t! That’s the long-term average annual growth rate, which includes some down periods — when the economy is actually shrinking — and includes some faster growth periods, which typically happen coming out of an economic downturn. See Table 2-1 for the year-by-year growth rates of the U.S. economy since 1970.
TABLE 2-1: Annual GDP Change for the United States
| Date | GDP Growth (%) |
|---|---|
| 2020 | –3.5% |
| 2019 | 2.2% |
| 2018 | 3.0% |
| 2017 | 2.3% |
| 2016 | 1.7% |
