Editor's note: This story was originally published in October. Given Bernie Sanders' continued fight against Hillary Clinton for the Democratic nomination, it's worth taking another look at what the U.S. economy may look like under a President Sanders. The introduction and sections on health care, Wall Street and Sanders' overall political leanings have been updated.
Would you want a socialist in the White House? If the polls are accurate, very few people would. But it's closer to happening than almost ever before, with self-avowed socialist Bernie Sanders running a close second to Hillary Clinton to win the Democratic nomination for President of the United States and floating the idea of a contested convention.
The Vermont senator has shaken up the Democratic presidential field, igniting crowds all over the country and giving front-runner Clinton a run for her money for the party nod. While Sanders as president remains an unlikely scenario, given Clinton's delegate and popular vote lead, it's worth pondering what the U.S. markets and economy would look like with the Democratic Socialist at the helm.
"The great thing about Bernie Sanders is that there's no guile about him. His authenticity is pretty much based on him saying what he believes," said Middlebury College political science professor and expert in presidential politics Matt Dickinson. In other words, Sanders might be a bit better off if he used the "s-word" less.
While the U.S. economy would certainly look different with Sanders in the White House, it might not be as crazy as you'd think.
Of course, a Sanders presidency would face a number of hurdles to enacting its proposals -- ahem, Congress, which is controlled by Republicans, who don't exactly love socialists. But taking legislative hurdles out of the equation, we can glean much of what a U.S. economy run by Sanders would look like.
Among Sanders's most significant proposals are implementing a single-payer health care system, breaking up big banks, raising the minimum wage to $15, and ending free trade agreements NAFTA, CAFTA, permanent normal trade relations (PNTR) with China and the recently-signed Trans-Pacific Partnership. He also says he will make college tuition-free by implementing a financial transaction tax on Wall Street.
Thus far, most of the senator's ideas -- economic and otherwise -- have been focused on spending, without a clear picture on how he would pay for his proposals. However, one can infer that paying for his programs would require one of two things (or a combination of both): an increase in the deficit, and higher taxes.
"He doesn't really detail the impact of taxes on the overall aggregate growth of the economy. He basically just says, 'Well, we'll just raise more money by raising taxes,' but he doesn't really discuss the impact on productivity," Dickinson said.
Well, let's take a closer look.
Single-Payer Health Care: Sanders' Fat-Wallet Proposal
Sanders has been promoting the implementation of a single-payer health care system for months on the campaign trail and released his full plan in January. As president, he would toss Obamacare and replace it with a "Medicare for all" system that he says would cost $1.38 trillion per year but save people and businesses more than $6 trillion over the next decade.
Senator Sanders defended his plan at the sixth presidential debate in Milwaukee, Wisconsin in February.
"There is one major country on Earth that does not guarantee health care to all people," he said. "There is one major country -- the United States -- which ends up spending almost three times per capita what they do in the U.K., guaranteeing health care to all people, 50% more than they do in France, guaranteeing health care to all people, far more than our Canadian neighbors, who guarantee health care to all people."
In October, Gerald Friedman, a professor of economics at the University of Massachusetts at Amherst estimated a single-payer health care system such as the one proposed by Sanders would cost the U.S. federal government $15 trillion, and seven of his other programs -- including increased spending on public infrastructure, expanding social security and making tuition free at public institutions -- would cost an additional $3.5 trillion.
The good news? Friedman also says the health care overhaul would enable up to $10 trillion in savings for the general public. And the other programs? Another $1.1 trillion in additional savings over 10 years. And excluding the issue of likely higher taxes, the programs could mean seven million more jobs and a nearly $4 trillion increase in economic activity in 2026.
The bad news? Regardless, the programs could spook the markets.
If Sanders' policies deepen the budget deficit for many years down the road, that could impact the bond market and creditors, who in the face of uncertainty often drive up interest rates or simply stop giving out loans at all. Essentially, it could mean it would be more expensive to run the government, which could exacerbate any cost issues a Sanders budget might face. Former President Bill Clinton learned this lesson the hard way early in his tenure and was forced to prioritize deficit reduction instead of fulfilling his spending promises. In the Bob Woodward's 1994 book on Clinton The Agenda, the President is described as saying, "You mean to tell me that the success of the program and my reelection hinges on the Federal Reserve and a bunch of f------ bond traders?"
Friedman points out that a single payer health care program would also negatively impact the earnings of pharmaceutical companies, health insurers and hospital chains that in recent years have been among the best performers in the markets and have benefited from rising prices for their products and services, though it wouldn't put them under all together. Moreover, it could actually make other sectors more profitable, such as life insurance, if overall health improves and people live longer as a result of better access to health care. And Friedman estimates such a system would save the U.S. $600 billion a year. While still a net loss in the near-term, a Sanders-run health care system could potentially incur major savings over time.
The Wall Street Offensive
Wall Street probably wouldn't love a Sanders presidency, but he wouldn't mind, anyway. He has consistently cast the financial industry as the villain, blaming for income inequality, political corruption and racism.
"I would imagine that, given his rhetoric about Wall Street regulation and changes in minimum wage and other issues, the stock market would probably, at least initially, respond pretty poorly to a Sanders presidency, and I think it would rebound only if policies under Sanders were shown to be economically positive," said John Hudak, a fellow in governance studies at Washington, D.C.-based think tank the Brookings Institution.
In both 2008 and 2012, the stock market plunged in the wake of the election of President Barack Obama (a Democrat), and stocks surged when President George W. Bush (a Republican) won reelection in 2004. Given that Republicans are seen as having more Wall Street-friendly policies, the results are not surprising, even though some studies suggest the economy does better with a Democrat in the White House.
"The basic question that drives everything is whether the financial markets believe the Sanders numbers add up," Dickinson said.
The Vermont senator has taken direct aim at big banks and corporations and has introduced the "Too Big to Fail, Too Big to Exist Act," which would essentially identify banks considered too big to fail and give the treasury secretary a year to disassemble them. He has said the bill would mean an end to some of the largest financial institutions in the United States, including JPMorgan Chase (JPM) - Get JPMorgan Chase & Co. (JPM) Report , Citigroup (C) - Get Citigroup Inc. Report , Goldman Sachs (GS) - Get Goldman Sachs Group, Inc. (GS) Report , Bank of America (BAC) - Get Bank of America Corp Report and Morgan Stanley (MS) - Get Morgan Stanley (MS) Report .
If he succeeds, onlookers say the economic implications would be far-reaching and largely positive.
"Breaking up the big banks would be a step towards reducing the 'too big to fail' and forcing responsible behavior, which would stabilize the economy," said Friedman.
"Breaking up the big banks is twofold. First, it will reduce systematic risk created by large, complex, and unmanageable banks. Second, it will eliminate the unfair competitive advantage that big banks have, since everyone knows the government would not let them fail in a crisis," said James Kwak, an associate law professor at the University of Connecticut.
"It would help the economy tremendously because that would free up loans to mainstream business, main street businesses and other ventures that would help the economy," said Michael Greenberger, law school professor at the University of Maryland and director of the center for Health and Homeland Security.
Of course, not everyone agrees that the end of the big banks would be a good thing for the U.S. economy. Kenneth H. Thomas, a economist and former lecturer at the University of Pennsylvania's Wharton School, made the argument in a July 2015 essay in American Banker that America needs "too big to fail" banks. "The single most important lesson we should have learned from the financial crisis is that a handful of giant entities are simply 'too big to fail' and must be bailed out to avoid catastrophic results," he wrote. "After watching our system nearly go over the cliff with the Lehman bankruptcy, our Beltway bureaucrats finally 'got it' and began bailing out systematic private and public entities. Even then, they acted in a painfully slow and perilous manner, doing too little, too late."
Higher Taxes Everywhere, and an End to Free Trade
Sanders has pledged to hike taxes on the wealthy, including a progressive estate tax on the top 0.3% of Americans who inherit more than $3.5 million and lifting the cap on taxable income (the limit of annual wages or self-employment income that is eligible for social security taxes) to above $250,000 (it is currently set at $118,500 for 2015).
He has especially targeted big corporations, pledging to ensure they pay their "fair share" and stop shifting profits and jobs overseas to avoid paying taxes. He has gone as far as to call out specific companies like General Electric and Verizon, for what he considers less-than-noble practices in taxes and other areas.
Should he succeed, it won't just be major companies that feel the hit.
"Higher corporate taxes are not such a big issue for the corporations themselves," said Kwak. "Corporations will pay higher taxes, so the profits available to shareholders will go down. But they will respond in part by increasing prices and in part by reducing employee compensation, so the impact of the taxes will be spread across consumers, employees and investors."
Sanders has also promised to enact a tax on Wall Street speculators and raise the minimum wage to $15 by 2020. The moves don't necessarily indicate hostility toward corporate America but do demonstrate greater willingness to tax corporate profits and redistribute wealth.
"If that happens, then we'll start to see a change in the distribution of national income, which will be interesting in itself, in poverty, higher wages, smaller inequality, but also will put the economy on a path to more stable footing," Friedman said. "The economy is much less stable now than it was before with the great run-up in inequality, and Sanders will be looking to reverse that a little bit, move us to a more balanced distribution of income and a more stable economy."
His Wall Street speculation tax would likely drive down securities prices as well.
And, he has pledged to shut down trade policies NAFTA, CAFTA, PNTR with China and the Trans-Pacific Partnership, which would have mixed results but could bring more jobs back to the U.S. His stance has certainly earned him points with voters.
"The theory on these trade agreements is that jobs grow abroad, and whatever benefits happen with regards to exporting our markets, our products, is completely overwhelmed by the loss of American jobs," said Greenberger. "And jobs have gone abroad under existing trade agreements, and those who understand these trade agreements say the same thing will happen with the Trans-Pacific trade agreement."
According to an analysis from the conservative Tax Foundation, Sanders' tax plans would raise a huge amount of revenue but may spur a decline in national growth. The group calculates that tax revenue would climb $9.8 trillion over the next decade but that GDP would fall by 9.5%.
Left of the Center, but Not the USSR
While Sanders' policies would push the United States more toward the left, it would not exactly turn the country into Cuba.
When asked at the February debate how big the government would be under a President Sanders, he said, "Of course there would be a limit," though he reiterated there is much work to be done, adding, "In my view, the government of a democratic society has a moral responsibility to play a vital role in making sure all of our people have a decent standard of living."
Sanders' executive experience as the four-term mayor of Burlington, Vermont demonstrates his bark may be tougher than his bite, as he maintained the city's finances in check and worked to regulate the city's waterfront development plans successfully.
"I guess if you're trying to extract lessons, it's that maybe his rhetoric is a little more extreme than his actual actions will be as president. He may be more pragmatic and less willing to break up financial institutions and raise corporate taxes to what they were in the '50s," Dickinson said.
And on social issues, a Sanders presidency would mean a more left-leaning, progressive America as well -- though again, perhaps not as much as you may think.
His record on gun control is a mixed one. In the wake of the Oregon school shooting in early October, the senator called for "sensible gun-control legislation;" however, some argue that Sanders' voting record as a representative of Vermont, a state with lax gun laws, demonstrates opposition to such laws. During the early 1990s, he voted against the Brady Bill, which requires background checks for firearm purchases, and in the early 2000s, he voted in support of a law preventing gun victims from suing firearms manufacturers. He touched on guns on Sunday's episode of "Meet the Press" and said taking another look at the "liability issue" may be worthwhile.
Sanders has pledged to fight for equal pay for women, and his proposal to expand social security would likely impact more women, who are often more likely to be living in poverty, than men. He has said he would only nominate Supreme Court justices who "understand that Row v. Wade is the law of the land and recognize the rights of women to have access to family planning services."
The senator has long been a supporter of lesbian, gay, bisexual and transgender (LGBT) rights and in 1983 as mayor supported the city's first ever pride parade as well as signing a city ordinance banning housing discrimination. He is currently cosponsoring the Equality Act, which would expand the Civil Rights Act of 1964 and other anti-discrimination legislation to include protections with respect to sexual orientation and gender identity. And on race, he has pledged to address "four types of violence waged against black and brown Americans: physical, political, legal and economic." He has also put focus on the issue through the lens of private prisons -- an industry he has pledged to end.
On the hot-button issue of immigration, Sanders has said he would bring about comprehensive reform to bring over 11 million undocumented workers "out of the shadows" and sign the DREAM Act into law to offer the opportunity of permanent residency and eventual citizenship to those brought to the U.S. as children. It is worth noting, however, that in 2007 he voted against a comprehensive immigration reform bill over concerns about how guest-worker programs would negatively impact American workers. Six years later in 2013, he voted for a similar measure after an amendment was included providing $1.5 billion for state and local job programs for young people.
This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.