The Sanders Plan to Impoverish Americans

The latest policy proposal from Senator Bernie Sanders is that the federal government offer a $15-per-hour job to anybody who wants one.  If the Sanders policy is actually implemented, it will result in a drastic decline in the standard of living of most Americans, including most low-income Americans.  That is, the Sanders policy will result in Americans consuming less in goods and services than we are currently consuming.

The explanation of why the Sanders policy will result in Americans consuming less is simple: the policy will cause Americans to produce less, and you can't consume more than you produce.  The explanation for why the Sanders policy will result in Americans producing less is also simple: it will cause tens of millions of Americans to stop doing useful work and start doing useless work.

Let's consider a hypothetical American, Mr. John Smith, who works in a widget factory and earns $10 per hour.  Suppose his productivity is $12 per hour – that is, every hour of his labor causes the world to be $12 better off.  Of the $12's worth of value he produces, $10 goes to him, and $2 goes to his employer.

If the Sanders policy is implemented, Mr. Smith will quit his $10-per-hour job and go to work for Uncle Sam at $15 per hour.  An hour of his labor will no longer be producing $12's worth of value at the widget factory, but will instead be producing $x's worth of value at his government job.  If x is less than 12, he is less productive than before.

So how much is x?  Well, quite likely, x will be zero.  Mr. Smith might go into some make-work job whose sole purpose is to provide employment, not to actually produce anything.  John Maynard Keynes once proposed that government hire some men to dig holes in the ground and hire other men to fill the holes back up.  If Mr. Smith gets a government job of this form, an hour of his labor will literally produce nothing.

It is possible that he will have positive productivity in his government job.  But his productivity will almost certainly be less than $12 per hour; if it were possible for him to produce more than $12 per hour, then prior to the enactment of the Sanders policy, market forces would have caused Mr. Smith to quit his job at the widget factory and do more productive work elsewhere.  Even if the government decides to operate a widget factory and employ Mr. Smith at the same type of work he did before, an hour of Mr. Smith's labor will be producing less than $12 of value.  That is because a government-run widget factory will operate less efficiently than a private-sector widget factory.  One of the reasons a government widget factory will be less efficient is that its purpose is not to produce widgets as efficiently as possible; its purpose is to create as many jobs as possible.

People like Mr. Smith are not the only ones who will start doing less productive labor.  Many people currently earning more than $15 per hour will also become less productive.  To see why, let's again consider the widget factory.  The factory will no longer be able to hire a person for a job with productivity of $12 per hour without paying that person at least $15 per hour.  That is, the factory can't hire a person to do Mr. Smith's former job without losing money.  This might cause the factory to shut down.  Then employees of the factory who earn $20 per hour or $50 per hour will be laid off and forced to find a different job.  Some may take a make-work Sanders job, and others may take a private-sector job; in either case, their productivity will be less than it was before.

And so the standard of living of Americans will decrease.  It is likely that one of the mechanisms involved in this decrease will be inflation.  If the money supply stays constant, when the supply of goods and services decreases, the price of those goods and services will increase.  A person may have the same nominal take-home pay, but it will purchase less.  Mr. Smith's $15-per-hour pay may purchase less than his previous $10-per-hour pay.

It is important to point out what I am not criticizing Senator Sanders for.  I am not criticizing his desire to use the force of the state to help the poor at the expense of the non-poor.  I am criticizing his method of trying to achieve that goal.  It probably won't work: the poor will be even poorer as a result of the Sanders policy.  It is mathematically possible – though extremely unlikely in practice – that the Sanders policy would result in a decrease in the total amount consumed by the American people as a whole, but an increase in the total amount consumed by the poor.  But even if that is the case, the Sanders policy is an inefficient way to accomplish that.  The loss to the non-poor would be far greater than the gain to the poor.

What is a more efficient way to use the force of the state to help the poor at the expense of the non-poor?  Let's again consider Mr. Smith's $10-per-hour job at the widget factory.  Suppose that instead of being offered a government job at $15 per hour, he continues to work at the factory, and the government sends him a welfare check of $5 for every hour he works.  Mr. Smith will still be getting $15 per hour – $10 from his employer and $5 in government handouts.  But there will be no decrease in productivity!  His labor productivity is still $12 per hour.  Another way to look at it is this: Mr. Smith still gets $15 per hour, but the cost to the taxpayers has been reduced from $15 per hour to $5 per hour.

The most efficient method of using the force of the state to help the poor at the expense of the non-poor is for the government to take money from the non-poor and give it to the poor and do absolutely nothing else.  That is, the most efficient method is a negative income tax financed by a positive income tax, or something like it.  If it were up to me, we would abolish every single government program whose purpose, or alleged purpose, is to help the poor; repeal every single law whose purpose, or alleged purpose, is to help the poor; and instead have a negative income tax.  A negative income tax would do more to help the poor than all the convoluted schemes of Senator Sanders and those like him, and would do so at less cost to the non-poor.

The efficient way to help the poor is smaller government, not bigger government.  If Senator Sanders really does want to use the force of the state to help the poor at the expense of the non-poor, his actual policy proposals are 180 degrees from what they ought to be.