“One Percent” Sanders: Do the Math

“One Percent” Sanders: Do the Math

“One Percent” Sanders: Do the Math

By Walter Donway

March 28, 2016

Here is a 2016 Presidential campaign math problem for you: Subtract one percent from Bernie Sanders, and what remains? That’s correct. Nothing.

Sanders focuses on the richest “one percent” of Americans—not “the rich” or capitalists—and identifies his victims as the middle class—not “the poor” or the proletariat. This is just politics. If you identify a group for persecution, you may lose their votes, so you’d better keep that group small. Like one percent.

The senator from Vermont has one issue. The richest Americans are getting richer while the American middle class is getting hosed—and steadily melting away. The solution is to tax the rich to aid the middle class.
And that, essentially, is his whole pitch. Sen. Sanders is a rare American politician who labels himself a “socialist”—a spasm of honesty to be commended. In Europe, such frankness is less rare. Four years ago, French President Francois Hollande was elected on the platform of the Socialist Party. The French economy, now, is frighteningly stagnant and Hollande is grappling with his own colleagues to pass a few measures to increase economic freedom.
Sen. Sanders’s socialism, for which he merits an award for the most heroic cryogenic preservation of a deceased idea, has a modern spin. He focuses on the richest “one percent” of Americans—not “the rich” or capitalists—and identifies his victims as the middle class—not “the poor” or the proletariat. This is just politics. If you identify a group for persecution, you may lose their votes, so you’d better keep that group small. Like one percent.
As for the middle class, that is where the votes are. What for the old-time socialists was the exploiting class—the bourgeois, the propertied class, the capitalists—is now, for Sen. Sanders, the victim. In America, today, there are too few “poor”—lower-income, we call them—to elect you President. And anyway, many of them tend not to vote. There is one exception, for Sen. Sanders: those under 30 years old—more about that later.

“Over 99 percent of all new income generated in the economy has gone to the top 1 percent.” –This claim rests on research by a couple of economists widely quoted in the press. Those who fact-check such assertions of politicians declare that what Sen. Sanders claims is literally true—and virtually meaningless because it applies in only one limited, idiosyncratic context.

So here is his pitch. It is not a fast ball or a curve ball. Sen. Sanders has only one pitch. In recent years, the top one percent of Americans has gotten all the new wealth; the middle class has gotten nothing—or lost. “In fact, the latest information that we have shows that in recent years, over 99 percent of all new income generated in the economy has gone to the top 1 percent.”
This claim rests on research by a couple of economists widely quoted in the press. Those who fact-check such assertions of politicians declare that what Sen. Sanders claims is literally true—and virtually meaningless because it applies in only one limited, idiosyncratic context.
In the years between 2009 and 2013, the average income for the richest one percent of Americans increased from $871,100 annually to $968,000 annually. During the same period, for the other 99 percent of Americans, average income dropped from $44,000 to $43,900.
Here, in one paragraph, is the foundation of the revenant socialism of Sen. Sanders, the math behind the slogan—everything that Bernie Sanders is as a candidate.
If all new wealth is going to one percent of Americans, and all the rest are slipping behind, we have a problem.
This carefully cropped and photoshopped statistical picture can be viewed in different lights. Perhaps least important are the data themselves. Nevertheless, that is where we will start.
The income figures used in the comparison are gross income before any taxes and do not include any government benefits. The figures exclude income from Social Security, unemployment compensation, veteran’s benefits, Medicare, welfare, tax credits, and food stamps. For tens of millions of Americans within the 99 percent; these benefits are a huge contribution to annual income.
As for the one percent, the income figure is before any taxes that they pay. The Congressional Budget Office reported that in 2014 the top one percent received 15 percent of before-tax income and paid more than 34 percent of all individual income taxes. They paid one-quarter of all federal taxes of any kind. At the same time, the bottom 90 percent of taxpayers paid about 32 percent of taxes—less than the top one percent paid.
Bernie, Bernie, did you just not know? Do you just keep forgetting to mention it? Just never had the opportunity to bring it up even once out of the hundreds of times you have waved the one percent-99 percent schtick?
I mentioned that I viewed supplying the statistical context of Sen. Sanders’s socialist slogan as the least important aspect of the analysis. I do. Because how much the rich pay in taxes, and how much of that money ends up paying benefits for the middle class, is not the justification for “permitting” the existence of great differences in wealth. As one economist pointed out: Your justification for keeping both kidneys—instead of having one taken by government to help a patient who needs it—because, after all, you can be perfectly healthy with one kidney—is that you have an inalienable right to your life, which means your person, your freedom of thought and action, and the work of your mind and hands. The justification is not that you may need the other kidney later on or that enough volunteers supply kidneys.
The “justification” or principled argument for disparities in wealth is that those who own that wealth earned it by work, trade, and investment of their earnings in a system that permits no one to gain wealth by force and where everyone’s right to freedom of action and property is protected equally. The outcomes in such an economic system are justified by one principle: If each person has a right to freedom of thought, freedom of action, and freedom of association—including employment and trade—then outcomes of that freedom, including property, are as inalienable as the right to life. One clear implication of the right to property that you have earned is your right to leave it to your heirs, whose right to the property is a derivative of yours.

To give Sen. Sanders his due, he argues that our economic system, today, is skewed to favor the rich—the one percent—and that the system is skewed against the middle class. This is a big issue, which I discuss at length in my book, Not Half Free.

To give Sen. Sanders his due, he argues that our economic system, today, is skewed to favor the rich—the one percent—and that the system is skewed against the middle class. This is a big issue, which I discuss at length in my book, Not Half Free, published last year. And I do agree that the “system” is skewed to benefit the wealthy, but especially and overwhelmingly the financial industry, which has become the largest in America as measured by the market capitalization of publicly owned firms.
It is the power of government, today, to intervene in every sphere of the economy—but particularly in the money supply, credit, banking, the bond market, and the real-estate mortgage market—which created the conditions and fueled the growth of the financial bubble that burst in 2007-2008 into the first full financial panic since 1907. All of the solutions proposed by Sen. Sanders would increase the reach and power of government. The remedy for “crony capitalism,” which Sen. Sanders has mentioned—and which is a major theme of my book—is to take away government’s power over the operation of the financial industry. That power only corrupts, creates cronies, and, of course, ensures huge contributions to political campaigns.
But return for a moment to “the statistic that saved socialism.” Notice that the exact period covered by the income comparison is the years after the financial crash, the stock market crash, and the onset of the “Great Recession.” A peculiar period to choose for an income comparison, but for Sanders a useful one.
In the financial crash of 2007-2008, the one percent lost trillions of dollars because their wealth is in financial instruments. They lost far more in percentage terms than the rest of the population. By the way, though, the one percent had been losing wealth relative to the general population since 2001, their “best year.” That loss just accelerated hugely during the crash.
As the economy—and especially the financial markets—rallied after 2009, the one percent regained some of those lost trillions. At the same time, much of the population gained little as the “Great Recession” ground on with low employment. Yes, it was a period in which the one percent recovered some lost ground, while the rest of us tended to stagnate.
But I do not think we should alter the direction of the American economy toward greater socialism based on that one period. Do you?
I do not want to leave you mourning for the middle class, which, according to Sen. Sanders, is diminishing as we speak. But again, yes, the interventionist-welfare state that has grown up year after year, decade after decade, does tend to favor those who are already wealthy. Why? Because the more power government aggrandizes to itself to intervene to help or hurt business, the more important becomes lobbying, campaign contributions, to ensure that my business, my industry, benefits. Every proposal by Sen. Sanders would increase the ability of government to determine the fate of businesses—to dispense favors or harm.
Again, to be fair to Sen. Sanders, he personally appears to refuse to accept such “bribes-in-advance” campaign contributions. Hillary Clinton is alleged to be the champion at getting such support on Wall Street.
But about that vanishing middle class? The New York Times, not a bastion of apologetics for capitalism, ran an article in January, 2015, with the title, “The Shrinking American Middle Class.”
Oh-oh, here comes a serious boost for Sanders socialism.
Not really. The conclusion was that the middle class has been shrinking since at least the mid Sixties because more Americans have moved into the upper middle class, the affluent class. Note that Sen. Sanders usually refers to “the past 40 years” of the demise of the middle class. The Times’s statistical charts are from 1967 to 2013, a 46-year period. And during that period, the American middle class shrank. It shrank from 56 percent of the U.S. population to 43 percent—a 13 percent drop. During the same period, the “upper income” cohort, or upper class, grew from 7 percent to 22 percent of the U.S. population—a 15 percent increase.
Holy shit, Bernie. Look at this. All those folks lost from the middle class entered the upper income class. During the same period, the percentage of Americans in the lower-income class declined from 40 percent of Americans to 34 percent.
Hey, I’m not making this up, Bernie. Check the Times.
Tell me you just forgot, Bernie. Tell me you forgot to mention that the vanishing middle class was rising into the upper class? And both the lower income and middle income groups were shrinking.
Now, where is the truth, if any, in what Sen. Sanders says? Well, he does not say it, exactly, but maybe he could use this on the campaign trail. We have discussed the 46-year period, 1967-2013. But during the 21^st Century, there has been a 10-year slowdown—the first in our recorded history—of wage growth, and, in particular, in families that qualify as high income. Since the year 2000, the income of the American middle class has shrunk; for the first time, fewer moved up into the upper class.
For the most recent eight years, of course, we have had the most “progressive” President in our history, Barack Obama. We have had the financial panic and “Great Recession” left us by President George W. Bush, which I discussed above. But those are not the reasons suggested by the Times for this first-ever slowdown, for what the Times calls “the great 21^st Century slowdown in wages growth.”
The Times suggests other reasons. There are far more Hispanic families, including millions of legal and illegal immigrants. About half of black and almost half of Hispanic households are lower income. The incidence of single mothers, unwed mothers, has increased, and that is a sure formula for poverty; married couples where both partners work tend to move into the upper class. Americans under 30 years old, especially families under 30, are way overrepresented among the “wage slowdown” victims. They are a very vocal constituency for Sen. Sanders.
In sum, for the 40 years that Sen. Sanders likes to mention, the middle class has shrunk by joining the upper class. For the past decade, largely during the Obama administration, the middle class has suffered shrinking income for the first time since measurements began. The reasons cited by the Times—the influx of Hispanic immigrants, the change of family composition from two adults to one, the under-30 Americans who are not getting an economic grip—seem to have little to do with the allegedly malign influence of the one percent who have recovered wealth lost in the financial crash.

The socialist proposals of Sen. Sanders to remedy this non-problem would increase the size, power, and reach of government in the American economy. And yet, it was this government intervention that enabled the great financial crash of 2007-2008 and the Great Recession that followed. It is the root cause of the distortions of the U.S economy that do, in fact, promote “crony capitalism.”

The only idea or slogan that defines the candidacy of Sen. Bernard Sanders is true in an excruciatingly delimited context, but in any broader context, it is meaningless. The socialist proposals of Sen. Sanders to remedy this non-problem would increase the size, power, and reach of government in the American economy. And yet, it was this government intervention that enabled the great financial crash of 2007-2008 and the Great Recession that followed. It is the root cause of the distortions of the U.S economy that do, in fact, promote “crony capitalism.” The real causes of the recent decade-long decline in middle class incomes have little to do with the wealth of the one percent.
The root premises of socialism are inconsistent with the right to life, freedom of thought and action, free trade and exchange, and the wealth that may result.
Americans who have narrowed their context to their own country, their own era, and their own present economic circumstances should think carefully before endorsing the socialist principle of Sen. Sanders, which implies the sacrifice of the wealthy to the needs of others. If this principle is asserted as a serious moral claim, it must rest upon relationships among all human beings, not just Americans.
The international agency, Oxfam, created to combat famine in the world, has turned recently (there seem to be no more famines to fight) to advocating worldwide wealth “redistribution.”  Except that it is not “redistribution” because wealth was never initially “distributed.” It was created by the ideas and efforts of individuals.
Oxfam has pointed out, with media fanfare, that one percent of the world’s population soon will possess half of the world’s total wealth. For Oxfam, the implications, consistent with the principle of socialism, are the same as those drawn by Sen. Sanders. Seize and “redistribute” wealth.
If you are an American, you most probably are on the Global Rich List, a website devoted to disparities in worldwide income. If your annual income is $32,400 a year, then you are in the top one percent of the global rich. Bernie Sanders is talking about you and your ill-gotten gains.
As I have written elsewhere, there is great worldwide economic unfairness, but it has nothing to do with the ideas of Sen. Sanders. The remedies of the economic unfairness that put the undeserving in the top one percent of global income are in exact contradiction to the socialism of Sen. Sanders.
What is “unfairly” distributed around the world? Economic freedom.  The national income levels of nations correlate consistently with their degree of economic freedom. The countries with the greatest degree of laissez-faire capitalism—or, today, the most remnants of that system—are the wealthiest. They have liberated the minds, actions, innovation, and drive that create great wealth. They have made possible Bill Gates of Microsoft; Warren Buffett of Berkshire Hathaway; Larry Ellison of Oracle; the Waltons of Wal-Mart; Jeff Bezos of Amazon; Larry Page of Google—who are all among the top 20 American billionaires on the Forbes list.
If their names are familiar, it is because they have achieved their fortunes with products that transformed the life of the American consumer, and have ushered America and the globe into the future. All started their lives in middle-class families, and some not even that—Larry Ellison came from a single-mother home in Brooklyn, and was then put up for adoption. Most of the innovations that define the American present were originated in America by middle-class men and women who rose during their lifetimes to the one percent.
Sen. Sanders is not wrong that the America economy has fallen on bitter times. He is not wrong that too much of Wall Street garners its extravagant profits thanks to government. Today, Wall Street begs the Federal Reserve daily to continue its inflationary policies—because the new money conjured up by the Fed arrives first in banks and on Wall Street. Sen. Sanders would respond to this grotesque abuse of government intervention in the American economy by increasing it.
Socialism substitutes government power and the decision-making of politicians and bureaucrats for the complex interaction of individuals daily in free trade, free exchange, free choice—manifestations of the free mind in producing wealth.
This is the economic freedom, the limited government, which always and everywhere results in the wealth of nations.