Month: March 2019

Stephanie Kelton – Can The U.S. Afford Democrats’ Bold Promises?

As Democrats on Capitol Hill and the campaign trail present an array of ambitious and expensive policy proposals, from a Green New Deal to Medicare for All, the question they face most often is, “How will the government pay for it?”

The answer, increasingly, comes from a professor at Stony Brook University on Long Island, Stephanie Kelton, who has become the public face of an unorthodox strain of economics called modern monetary theory. It is pitting mainstream economists and deficit hawks against left-wing progressives.

Ms. Kelton argues the government doesn’t need to worry so much about how much it borrows to pay for spending programs. Unlike a household or business, it can never run out of money. The government can always print money to pay for debts. The constraint, according to MMT, isn’t the deficit, but whether the borrowing and spending spurs inflation and disrupts economic activity.

With inflation and interest rates now very low, the government has plenty of room to borrow and spend more, MMT advocates say. The notion has gained traction among Democratic presidential hopefuls, helping to fuel ambitious policy proposals.

“If you were being responsible, you’d want to approve new spending not because you can demonstrate that it won’t add to the deficit, but because you can demonstrate that it won’t create dislocation, inflationary pressure—real problems in the economy,” Ms. Kelton said in an interview.

The theory, which Ms. Kelton helped establish in the late 1990s, has gotten approving nods from Sen. Bernie Sanders of Vermont, the Democratic presidential contender whom she advised in 2016, and Rep. Alexandria Ocasio-Cortez (D., N.Y.).

The rise of MMT comes as mainstream economists are reconsidering the danger of deficits. Former International Monetary Fund chief economist Olivier Blanchard, former Council of Economic Advisers chairman Jason Furman and Harvard University economics professor Kenneth Rogoff have all said recently the U.S. appears to have more room to borrow than they once thought.

Republicans, too, have backed away from past opposition to large deficits. With Republicans in control of the White House and Congress in 2017 and 2018, deficits marched toward $1 trillion, in part because of tax cuts and increased military spending.

The deficit totaled 4.5% of economic output last year, compared with an average of 2.9% over the previous 50 years. Debt-to-GDP has more than doubled, from 35% at the end of 2007 to 78% by the end of 2018, and is on track to hit 93% by 2029.

“MMT has been standing with its feet in the same spot for decades,” Ms. Kelton said. “The mainstream economists keep inching, inching, a little bit closer. It’s something we’ve been watching for a very long time.”

Ms. Kelton is everywhere these days—on cable television and public radio, penning opinion columns and keynoting financial industry conferences. She has a book on MMT being released in April 2020.

Still, many mainstream economists on the left and right say MMT takes the idea of deficit spending too far.

In a survey by the University of Chicago’s Booth School of Business of 38 mainstream academic economists, 88% disagreed or strongly disagreed that countries that borrow in their own currency don’t need to worry about deficits.

The critics say MMT will lead to the very outcome Ms. Kelton and other proponents says it is designed to avoid: surging inflation and interest rates. They also say rising government spending will crowd out more productive private investment.

“How much more debt can you have on the U.S. balance sheet and not have global financial markets react? I don’t know the answer to that,” said Douglas Holtz-Eakin, president of the American Action Forum, a right-leaning think tank, and former Congressional Budget Office director. “I see no reason to run the experiment, ‘When do we have a crisis?’ Let’s just not.”

Mainstream economists say the government must tax businesses and households to pay for spending. Whatever it doesn’t raise through taxes it borrows by issuing bonds.

MMT rejects this as backward. Spending isn’t constrained by the government’s ability to raise taxes or borrow, because the government can always create more money to fund itself. The real constraint on spending is the ability of the economy to absorb new spending without creating shortages and inflation.

In this worldview, fiscal and monetary policy are more tightly intertwined than in conventional economics. The central bank could accept IOUs from the Treasury to fund new spending—a step it can’t necessarily take under current law—and inflation can be tamed by fiscal policy makers by raising taxes, cutting spending or imposing new regulations. Critics say it is politically impractical and the central bank is best left to manage inflation independently, as it is called on to do in all advanced economies today.

Some of Ms. Kelton’s toughest criticism has come from the left. Some say more government spending is justified now because interest rates are low and would help facilitate it, but they see MMT as the wrong framework for justifying such action.

Former Treasury Secretary Lawrence Summers, a Democrat, in a Foreign Affairs article panned MMT as a ”poor guide to policy in normal economic times.” When Paul Krugman, a Nobel Prize winner in economics and a liberal columnist for the New York Times, tweeted last month, “Still don’t see what we get out of it,” referring to MMT, Ms. Kelton shot back, “How about a superior analytic framework and better predictive record (20+ years running) than any other macro approach.”

She continues to advise the senator on a plan for a federal jobs guarantee, though she hasn’t formally joined any 2020 presidential campaign.

“I don’t feel like just because we’re staring down trillion-dollar deficits we’re out of room and Congress can’t be considering ambitious spending,” she said, predicting the debt-to-GDP ratio could easily reach 150% without causing problems for the economy.

Healthcare For Everyone And It Will Cost Less

A single-payer health-insurance system can finance good-quality coverage for all U.S. residents while still reducing overall health-care spending by roughly 10%, according to a study I co-authored last November. All Americans would be able to get care from their chosen providers without having to pay premiums, deductibles or copayments.

Other countries currently provide good health care to residents at a fraction of the U.S. cost. As of 2017, the U.S. spent $3.3 trillion on health care—17% of gross domestic product. Germany, France, Japan, Canada, the U.K., Australia, Spain and Italy spent between 9% and 11% of GDP on health care. Yet some measures—like those based on the amenable mortality rate, which tracks medically preventable deaths—rank the U.S. well below those countries.

“Under Medicare for All [prescription-drug] prices could fall, conservatively, by about 40%.”

The U.S. ranks so poorly in large part because so many Americans lack access to health care. Roughly 30 million people, 9% of the U.S. population, are uninsured. Another 26%, 86 million people, are underinsured—they have insurance but are unable to access medical care because their deductibles or copays are prohibitively high. If all these people were covered under a single-payer system, our study estimates that the overall cost of treatments would rise by about 12%, from $3.3 trillion to $3.6 trillion. Our 12% figure draws from our literature review and the 2016 estimates of Kenneth Thorpe of Emory University. It is modestly higher than the 11.3% estimate the Mercatus Center reported last July.

But Medicare for All could also eliminate 19% of total health-care spending. The largest saving, about 9% of total system costs, would come from dramatically reduced administrative costs in contracting, claims processing, credentialing providers and payment validation—all of which would be unified under one federal agency. Private insurers spend about 12% of their collective budget on administration, while Medicare operates much more efficiently, with administrative costs at around 2%.

Dramatic administrative cuts would mean far less paperwork for doctors and nurses. But administrative simplification would also entail large-scale job losses for the roughly two million people employed both by private health insurers and on the management side of hospitals and doctors’ offices. Our study proposes generous transitional support for these displaced workers, including income, retraining and relocation funds and pension guarantees. We estimate the full cost of this support would amount to about $120 billion, equal to a roughly 2% increase a year in total system costs if spread over a two-year transition phase.

The second major saving our study identified would come from the government negotiating down prescription-drug prices, which would eliminate about 6% of total system costs. Prescription-drug prices in the U.S. are about twice as high as in other advanced economies. Under Medicare for All these prices could fall, conservatively, by about 40%. Further savings would result through operating Medicare for All under a global budgeting system like the one in Canada. Such systems allow regulators to oversee billing and expenses industry-wide, allowing them to control fees for physicians and hospitals, reduce unnecessary treatments and fraud, and encourage preventive care.

“Taking the cost reductions and expanded coverage into account, we estimated that Medicare for All could operate with an overall budget of $2.93 trillion—nearly 10% less than current spending.”

Taking the cost reductions and expanded coverage into account, we estimated that Medicare for All could operate with an overall budget of $2.93 trillion—nearly 10% less than current spending. To finance this, the government begins with $1.9 trillion already in hand—nearly 60% of the total needed—that pays for Medicare, Medicaid and smaller public programs. The government would therefore need to take about $1 trillion out of what businesses and families now pay to private insurers.

Our study has a few ideas to generate those funds. We propose that all businesses that currently purchase health insurance for their employees be mandated to pay 92% of what they now spend into Medicare for All—saving 8% of their health-care expenditures. Larger firms that haven’t provided coverage for every worker would pay $500 for each uninsured worker, while small businesses would be exempt from these premiums. This measure would raise more than $600 billion. After two or three years, this system could make a transition to a 1.78% tax on gross receipts or an 8.2% payroll tax, either of which would generate the needed $600 billion.

The remaining $400 billion would come from two measures: a national sales tax of 3.75% on non-necessities, which would generate about $200 billion, and a wealth tax of 0.38%, after exempting the first $1 million of all families’ net worth, for another $200 billion. We also propose taxing long-term capital gains as ordinary income. The sum of these revenue streams will allow Medicare for All to operate with a 1% budget surplus.

Families would pay these taxes instead of premiums, deductibles and co-pays to private insurers. Except for those in the highest income brackets, this will produce significant savings for families as well as for businesses. Net health-care spending for middle-income families that now purchase insurance for themselves would fall by fully 14% of their income.

Add it all up and Medicare for All is actually the cheaper option for good-quality care in the U.S.

Carmen Yulín Cruz – Puerto Ricans Are Fed Up

Puerto Rico is a changed place since it was shattered by two hurricanes, rolling earthquakes, a crushing recession and debt, the protests of the summer of 2019 that ousted a corrupt governor, an incompetent interim one, and now COVID-19. It is against this backdrop that San Juan Mayor Carmen Yulín Cruz has set her sights on becoming the island’s next Governor.

The biggest fight of her political life  

If elected, Yulín, 57, will be the second woman democratically voted into La Fortaleza. The words of her grandmother, Lutarga Vega, who rose from poverty through higher education, will have sustained her.

“She told me: never start a fight, but always finish one. As you are small, you only have one chance, so hit hard.”

Once again, Yulín is “La Pitirre,” the island’s national bird, delicate yet ferocious. Against steep odds and a cadre of male politicians, she hopes to win, as she did twice before in San Juan, ignoring the voices warning her that her political capital on the island is depleted.

“I’ll tell you honestly that I believe I am an example of a message, and that message is that the country – just like San Juan where people weren’t ready (for a change) – is now a different country,” she said.

“This is a country that is tired of the abuse, a country that is tired of the doublespeak, a country tired of politicians who believe they are better than the people. And I am convinced that I not only represent that message in word but also in my actions in my public life,” she said. “I do not need to reinvent myself. The consistency of my actions speaks for themselves.”

The challenge of leading a new country

Yulín became an international darling after facing off President Donald Trump over the inept federal response to the devastation of Hurricane Maria in 2017 and the deaths of more than 3,000 Puerto Ricans.

This tiny, bespectacled woman, dressed in combat trousers and a man’s open white shirt, lobbed Trump’s words right back at him. It played well and put Puerto Rico and Yulín in high profile. (And she is doing it again with the catastrophic failure of the Trump administration – calling the president The Incompetent In Chief – after the murder of George Floyd at the hands of police.)

Even before Maria, the litany of disasters that finally drove 3.5% of the island’s population to the streets of San Juan to oust pro-statehood New Progressive Party (NPP) governor Ricardo Rosselló included a prolonged recession, Hurricane Irma and Maria, an unscrupulous debt, a Washington-appointed Junta, and a bitter colonial truth: the US really didn’t care.

But it was #Rickygate, when thousands took to the streets of San Juan demanding he leaves office, that made it clear that Puerto Ricans were fed up with government corruption and partisan politics, and wanted change.

The NPP rid itself of Rosselló like a syphilitic rash and, disregarding the message delivered via pots and ladles, stuffed its wolves into sheep’s vestments and sent out now-governor Wanda Vázquez to spread the gospel:  We are not the same as Ricky. We are the “New Government.”

“Wanda was not elected, and because Wanda was not elected, Wanda believes the island is the island of Ricky Rosselló because she is the same as Ricky Rosselló,” Yulín said.

“These people (the NPP administration) feel they are superior in Puerto Rico, and because they feel superior in Puerto Rico, they believe they can fool their own – as Ricardo Rosselló said,” she said. “Wanda Vázquez is the Corín Tellado version of Ricky Rosselló.” Tellado was a prolific Spanish writer of romantic novels.

Yulín’s campaign slogan is “Sin Miedo” (Without Fear), words of Inés Mendoza, widow of the Popular Democratic Party’s (PDP) father, Luis Muñoz Marín, and Yulín’s party.

Yet, she faces a tough race to the finish, and the second-to last hurdle, the PDP primaries on Aug. 9, will be the hardest. It will hinge on her ability to return an ossified party to its roots of Pan, Tierra y Libertad.

Is courage enough?

In charisma and message, she is stronger than her opponent Senator Eduardo Bhatia, but will it be enough to pull in the dyed-in-the-wool Populares? If she does win the primaries, she will run for governor and the cupula of the PDP will grit their teeth because they know she has a fighting chance to win an election polarized between a corrupt party and the possibility of change.

“I think people have seen that what I have been saying all my life, now there is no veneer, there are no more palm trees for us to hide behind, literally,” she said. “You can now see areas of Puerto Rico that were always there, very poor areas, that people didn’t see before, and now you cannot look the other way.”

“I believe Puerto Rico will live four years of crisis in the next quadrennium – an economic crisis, a social crisis, without even factoring in what can happen – another hurricane, more earthquakes,” she said.

“In a crisis, you need someone with a vision and knowledge of what the people want.”

A central plank of her platform is the fight against poverty and the extreme inequalities on an island where “poverty is widespread.” At least 43% of Puerto Ricans live below the poverty line.

“Someone with connections in Washington, that is respected by Washington, and that can work with Congress,” she said. “Someone that is consistent and whose only loyalty is to Puerto Rico. And someone who will fight for Puerto Ricans, for their dignity and respect.”

“All these things have to be present in someone that can also forge alliances. I have demonstrated I have all these things. All of them,” she said. “No other candidate, from any other party, meets all of these criteria.”

Yulín will definitely benefit from the internal divisions that are cracking the NPP into two factions.

It’s time to change the film

“There is an internal battle between the two faces of the NPP government. The ones that are with Pedro Pierluisi and the ones that are with Wanda.” Pierlusi, ex-resident commissioner in Washington and with uncomfortably close ties to Wall Street, is running against Vazquez in that party’s primaries.

Vázquez has run an inept administration, fielding charges of corruption, an ultra-conservative evangelical dictum, and a muzzling of the press during a pandemic.  She also just signed into law a controversial Civil Code that curtails the rights of women and the LGBTQ community.

“In the government, the actors might have changed, but the film is the same,” she said. “It’s the same chat (that brought Rosselló down,) the same contempt for the pain of the people, the same personal enrichment on the back of the misery of others, the same seed of corruption and evil,” she said. And the same republican attitude of buying votes with handouts.

Pierluisi tried, by all means, to succeed Ricky in La Fortaleza but had to leave less than a week later and make room for Wanda. Now, in the face of civil unrest in the United States and the implosion of the Trump administration, Pierlusi promises statehood and more federal monies, all the while distancing himself from his Wall Street connections.

“The farse the NPP tries to pull over on the Puerto Rican people – making them believe the NPP leaders are respected in Washington when the nicest thing Trump has called them is crooks,” Yulín said.

The reality is the NPP does not have the elections in the bag and they know it.  “They may want to appear as if they think they have it in the bag, but their numbers are not there and they know they don’t have it in the bag,” Yulín said.  “That is why Wanda is doling out money.”

“But the question is, the question that the country must ask itself and answer – if you want a different government, if you want to be treated with respect, you have to look at what politicians have done, rather than what they are going to say,” she said.

 “They are trying to buy people because they are used to buying people because they think people are for sale. Puerto Ricans are not for sale anymore. That is what I am trying to say,” she said.

“Puerto Ricans are fed up with corruption, but more than with corruption, they are tired of a government that doesn’t work, that doesn’t listen to them, that doesn’t have the people’s best interest at heart,” Yulín said.

She said Puerto Rico changed after Irma, it changed after Maria, it changed after the summer of 2019, it changed after the earthquake, and it is different after COVID-19.

“Puerto Ricans woke up and realized, as Luis Muñoz Rivera said, that power lies with ourselves,” she said. “Then hope does not depend on what you are handed out, hope is born in you.” Muñoz Rivera was a Puerto Rican poet, journalist, and politician and a major figure in the struggle for political autonomy of the island.

“And when hope lies in you and is yours, and you put it in movement, there is nothing that can stand in your way,” Yulín said.

That hope and people’s desire for a different Puerto Rico are what Yulín believes will take her to the finish line. But the words of Eleanor Roosevelt are also fitting here.

“Do what you feel in your heart to be right – for you’ll be criticized anyway. You’ll be damned if you do, damned if you don’t.”

Stagnant Capitalism

A decade after the 2008 financial crisis, faith in markets’ self-regulating abilities once again lies in tatters. There simply is no single real interest rate that would spur investors to funnel all existing savings into productive investments, and employers to hire all who wish to work at the prevailing wage.

When the Great Depression followed the 1929 stock-market crash, almost everyone acknowledged that capitalism was unstable, unreliable, and prone to stagnation. In the decades that followed, however, that perception changed. Capitalism’s postwar revival, and especially the post-Cold War rush to financialized globalization, resurrected faith in markets’ self-regulating abilities.

Today, a long decade after the 2008 global financial crisis, this touching faith once again lies in tatters as capitalism’s natural tendency toward stagnation reasserts itself. The rise of the racist right, the fragmentation of the political center, and mounting geopolitical tensions are mere symptoms of capitalism’s miasma.

A balanced capitalist economy requires a magic number, in the form of the prevailing real (inflation-adjusted) interest rate. It is magic because it must kill two very different birds, flying in two very different skies, with a single stone. First, it must balance employers’ demand for waged labor with the available labor supply. Second, it must equalize savings and investment. If the prevailing real interest rate fails to balance the labor market, we end up with unemployment, precariousness, wasted human potential, and poverty. If it fails to bring investment up to the level of savings, deflation sets in and feeds back into even lower investment.

It takes a heroic disposition to assume that this magic number exists or that, even if it does, our collective endeavors will result in an actual real interest rate close to it. How do free marketeers convince themselves that there exists a single real interest rate (say, 2%) that would inspire investors to funnel all existing savings into productive investments and spur employers to hire everyone who wishes to work at the prevailing wage?

Faith in capitalism’s capacity to generate this magic number stems from a truism. Milton Friedman liked to say that if a commodity is not scarce, then it has no value and its price must be zero. Thus, if its price is not zero, it must be scarce and, therefore, there must be a price at which no units of that commodity will be left unsold. Similarly, if the prevailing wage is not zero, all those who want to work for that wage will find a job.

Applying the same logic to savings, to the extent that money can fund the production of machines that will produce valuable gadgets, there must be a low enough interest rate at which someone will borrow all available savings profitably to build these machines. By definition, concluded Friedman, the real interest rate settles down, quite automatically, to the magic level that eliminates both unemployment and excess savings.

If that were true, capitalism would never stagnate – unless a meddling government or self-seeking trade union damaged its dazzling machinery. Of course, it is not true, for three reasons. First, the magic number does not exist. Second, even if it did, there is no mechanism that would help the real interest rate converge toward it. And, third, capitalism has a natural tendency to usurp markets via the strengthening of what John Kenneth Galbraith called the cartel-like managerial “technostructure.”

Europe’s current situation demonstrates amply the non-existence of the magical real interest rate. The EU’s financial system is holding up to €3 trillion ($3.4 trillion) of savings that refuse to be invested productively, even though the European Central Bank’s deposit interest rate is -0.4%. Meanwhile, the European Union’s current-account surplus in 2018 amounted to a gargantuan $450 billion. For the euro’s exchange rate to weaken enough to eliminate the current-account surplus, while also clearing the savings glut, the ECB’s interest rate must fall to at least -5%, a number that would destroy Europe’s banks and pension funds in the blink of an eye.

Setting aside the magical interest rate’s non-existence, capitalism’s natural tendency to stagnation also reflects the failure of money markets to adjust. Free marketeers assume that all prices magically adjust until they reflect commodities’ relative scarcity. In reality, they do not. When investors learn that the Federal Reserve or the ECB is thinking of reversing its earlier intention to increase interest rates, they worry that the decision reflects a gloomy outlook regarding overall demand. So, rather than boosting investment, they reduce it.

Instead of investing, they embark on more mergers and acquisitions, which strengthen the technostructure’s capacity to fix prices, lower wages, and spend their cash buying up their companies’ own shares to boost their bonuses. Consequently, excess savings increase further and prices fail to reflect relative scarcity or, to be more precise, the only scarcity that prices, wages, and interest rates end up reflecting is the scarcity of aggregate demand for goods, labor, and savings.

What is remarkable is how unaffected free marketeers are by the facts. When their dogmas crash on the shoals of reality, they weaponize the epithet “natural.” In the 1970s, they predicted that unemployment would disappear if inflation were subdued. When, in the 1980s, unemployment remained stubbornly high despite low inflation, they proclaimed that whatever unemployment rate prevailed must have been “natural.”

Similarly, today’s free marketeers attribute the failure of inflation to rise, despite wage growth and low unemployment, to a new normal – a new “natural” inflation rate. With their Panglossian blinders, whatever they observe is assumed to be the most natural outcome in the most natural of all possible economic systems.

But capitalism has only one natural tendency: stagnation. Like all tendencies, it is possible to overcome by means of stimuli. One is exuberant financialization, which produces tremendous medium-term growth at the expense of long-term heartache. The other is the more sustainable tonic injected and managed by a surplus-recycling political mechanism, such as during the WWII-era economy or its postwar extension, the Bretton Woods system. But at a time when politics is as broken as financialization, the world has never needed a post-capitalist vision more. Perhaps the greatest contribution of the automation that currently adds to our stagnation woes will be to inspire such a vision.

Medicare For All – I Like It! How Do We Pay For It?

Sanders Institute Fellows Robert Pollin and Michael Lighty discuss the findings from Robert Pollin’s recent study, Economic Analysis of Medicare for All at The Sanders Institute Gathering.

Pollin and his co-authors find that “on balance you have a system that delivers decent high-quality health care for everybody. Nobody ever has to worry, nobody has to go bankrupt, nobody has to fear about not being able to get care. All of that goes away, and we end up still saving a little less than 10% relative to what we pay now. That’s the core of Medicare For All.”

Economic Analysis of Medicare for All – Highlights of Study

This study provides an economic analysis of the Medicare for All Act of 2017, which was introduced before the United States Senate by Senator Bernie Sanders (S. 1804). Our analysis also addresses, more broadly, a range of issues that need to be examined seriously in considering any specific proposals for a single-payer health care system for the United States. The most fundamental goals of Medicare for All are to significantly improve health care outcomes for U.S. residents while also establishing effective cost controls throughout the health care system. We conclude that these two purposes are both achievable. This study presents both an extensive review of the relevant research literature and a range of statistical evidence. These serve as the basis on which we establish our overall assessment as to the viability of Medicare for All.

Establishing the Universal Right to Decent Health Care

Under Medicare for All, all residents of the United States will have the opportunity to receive decent health care as a basic right. This will result through establishing a health insurance system that covers all residents in a manner comparable to the coverage now provided for residents 65 years old and older under the existing Medicare program. All health care consumers will also have the right to receive care from the providers of their choice.

Increased Demand for Health Care Services under Medicare for All

At present, roughly 9 percent of U.S. residents are uninsured and 26 percent are underinsured—i.e. they are unable to adequately access needed health care because of prohibitively high costs. The demand for health care services by these population cohorts will rise significantly under Medicare for All. Medicare for All will also provide stable access to decent coverage for those currently receiving adequate insurance coverage but who may face difficulties at later points. As a high-end estimate, we conclude that overall demand for health care services in the U.S. will rise by about 12 percent through Medicare for All.

Cost Saving Potential under Medicare for All

Medicare for All has the potential to achieve major cost savings in its operations relative to the existing U.S. health care system. We estimate that, through implementation of Medicare for All, overall U.S. health care costs could fall by about 19 percent relative to the existing system. The most significant sources of cost saving will be in the areas of: 1) administration (9.0 percent savings in total system costs); 2) pharmaceutical pricing (5.9 percent savings in system costs); and 3) establishing uniform Medicare rates for hospitals, physicians, and clinics (2.8 percent savings in system costs). An additional, more modest source of cost savings, at least in the initial years under Medicare for All, would be to reduce the high levels of waste and fraud that currently prevail in service provision. As a low-end figure, we assume that achievable cost savings in these areas would be about 1.5 percent of total system costs in the first year of full operations. We also assume that further gains in waste reduction and fraud control are achievable in later years, at a rate of about 1 percent per year for roughly a decade.

Overall System Costs

As of 2017, the U.S. is spending $3.24 trillion on Health Consumption Expenditures (other than public health programs). With Medicare for All generating both increased overall demand in the range of 12.0 percent and cost savings of about 19.2 percent, total Health Consumption Expenditures would fall to $2.93 trillion. We therefore estimate that Medicare for All could reduce U.S. Health Consumption Expenditures by about 9.6 percent while also providing decent health care coverage for all U.S. residents.

Financing Medicare for All

There will be two sources of financing for Medicare for All. The first is the same public health care revenue sources that presently provide about 60 percent of all U.S. health care financing, including funding for Medicare and Medicaid. Existing public sources of funds will provide $1.88 trillion to finance Medicare for All. Given our estimate that the overall costs of Medicare for All will be $2.93 trillion, the system therefore needs to raise an additional $1.05 trillion from new revenue sources.

We provide a set of illustrative financing proposals that, in combination, can generate $1.08 trillion, thus producing a revenue surplus of about 1 percent for the system. Other approaches are also workable. We emphasize at the outset that, regardless of the specific funding framework utilized for Medicare for All, all households and private businesses will be able to pay into the system an average of 9.6 percent less than they are presently contributing to the U.S. health care system. This is, straightforwardly, because Medicare for All is able to operate at a funding level that is 9.6 percent below the current overall funding level for U.S. health care. Our proposals include the following:

Business health care premiums cut by 8 percent relative to existing spending per worker. Revenue generated = $623 billion.

All businesses that now provide health care coverage for their employees will be guaranteed to receive proportional benefits during Medicare for All’s initial 2-3 years of operation. Firms that are not offering coverage for some or all of their employees would pay $500 per uncovered worker. Small businesses would be exempt from these premium payments. We also develop proposals for either an 8.2 percent payroll tax or 1.78 percent gross receipts tax that would apply both to new businesses and more generally after the first 2-3 years under Medicare for All. Both of these measures would generate the same revenue level as the 8 percent premium reduction for those businesses now providing coverage.

3.75 percent sales tax on non-necessities. Revenue generated = $196 billion.

This includes exemptions for spending on necessities in four areas: food and beverages consumed at home; housing and utilities; education and non-profits. We also include a 3.75 percent income tax credit for families currently insured through Medicaid.

Net worth tax of 0.38 percent. Revenue generated = $193 billion. Taxing long-term capital gains as ordinary income. Revenue generated = $69 billion.

We propose that the first $1 million in net worth are exempted from this net worth tax. The tax would therefore apply to only the wealthiest 12 percent of U.S. households.

Budgetary Impacts on Businesses and Households

Under the transitional program featuring the 8 percent premium reductions for covered employees, businesses that have been providing coverage for their employees will see their health care costs fall by between about 8 – 13 percent, after accounting for administrative savings as well as their premium reductions.

For families, our results show that Medicare for All can promote both lower average costs and greater equity in financing health care. For example, we find that for middle-income families, the net costs of health care will fall sharply under Medicare for All, by between 2.6 and 14.0 percent of income. By contrast, with high-income families, health care costs will rise, but still only to an average of 3.7 percent of income for those in the top 20 percent income grouping and to 4.7 percent of income for the top 5 percent income group.

The Transition into Medicare for All

The transition out of the existing U.S. health care system into Medicare for All will entail formidable challenges. There will be three major sets of issues to tackle: 1) the overall administrative transition; 2) the impact of the transition on both the incomes of physicians and on the capacity of physicians and other providers to meet the increased demand for health care services; and 3) the displacement of workers now employed in both the private health insurance and health services industries. We provide detailed assessments of the range of issues at hand and advance proposals for managing the transition in ways that are workable and costeffective. This includes addressing the impacts on health care providers, health care consumers, and health insurance industry workers respectively.

Macroeconomic Impacts of Medicare for All

As of 2017, U.S. Health Consumption Expenditures are equal to 17.2 percent of GDP. The comparable ratio for eight other large industrial economies ranges between 8.9 percent of GDP for Italy and 11.3 percent of GDP for Germany. In addition, health care spending as a share of the U.S. economy has risen dramatically over time. In 1970, U.S. Health Consumption Expenditures equaled 6.2 percent of GDP. The Centers for Medicare and Medicaid Services (CMS) projects that the ratio will reach 18.8 percent by 2026.

Following from our estimates, Health Consumption Expenditures would fall to 15.8 percent of GDP under Medicare for All, as of the 2017 economy. This would represent a dramatic decline in health care spending as a share of GDP for the U.S., but would still be substantially higher than the figures for all other large advanced economies. We conclude that further incremental improvements in service delivery under Medicare for All should enable U.S. health care costs to stabilize at around 15.8 percent of GDP, even after taking account of the rising cost pressures resulting from an aging population.

Based on these results, we can then develop a 10-year forecast of Health Consumption Expenditures under Medicare for All, and compare this forecast with the projection by CMS of Health Consumption Expenditures assuming that the U.S. continues operating under its existing health care system. We find that, over the decade 2017 – 2026, the cumulative savings through operating under Medicare for All would be $5.1 trillion, equal to 2.1 percent of cumulative GDP.

There would also be broader macroeconomic benefits through operating the U.S. health care system under Medicare for All. Among these are that improved health outcomes will raise productivity; Medicare for All will support greater income equality; and that Medicare for All should support net job creation, especially through lowering operating costs for small and medium sized businesses.

The Sanders Institute Program Highlights

Below is a compilation of the largest projects produced by The Sanders Institute in the last 18 months including an overview of the Mission, the Fellows, various Issues addressed, and The Gathering event.


SI Deck Slide 1


SI Deck Slide 2


SI Deck Slide 3


SI Deck Slide 4


SI Deck Slide 5


SI Deck Slide 6


SI Deck Slide 7


SI Deck Slide 8


SI Deck Slide 9


SI Deck Slide 10


SI Deck Slide 11


SI Deck Slide 12


SI Deck Slide 13


SI Deck Slide 15


SI Deck Slide 16


SI Deck Slide 17


SI Deck Slide 18


SI Deck Slide 19


SI Deck Slide 20


SI Deck Slide 21


SI Deck Slide 22


SI Deck Slide 23


SI Deck Slide 24


SI Deck Slide 25


SI Deck Slide 26


SI Deck Slide 27


SI Deck Slide 28


SI Deck Slide 29


SI Deck Slide 30


Highlights Deck Yanis Slide


SI Deck Slide 32


SI Deck Slide 33


SI Deck Slide 34


SI Deck Slide 35


SI Deck Slide 36


SI Deck Slide 37


SI Deck Slide 38


SI Deck Slide 39


SI Deck Slide 40


SI Deck Slide 41


SI Deck Slide 42


SI Deck Slide 43


SI Deck Slide 44


SI Deck Slide 45


SI Deck Slide 46


SI Deck Slide 47


SI Deck Slide 48


SI Deck Slide 49


SI Deck Slide 50


SI Deck Slide 51

The Green New Deal Isn’t Outlandish – It Is A Necessity

A recent Washington Post editorial and a letter by leading economists suggest that a carbon tax is the “best first-line policy.” The editorial argues that “a high-enough carbon price would shape millions of choices, small and large, about what to buy, how to invest and how to live that would result in substantial emissions cuts.” It sounds plausible, yet it’s not the right way to approach the problem.

Let me start with a close analogy. In the 1980s, scientists realized that chlorofluorocarbons (CFCs) were destroying the stratospheric ozone layer, at great peril to humanity. CFCs needed to be replaced by safer chemicals.

To do so, the world’s government’s adopted the Montreal Protocol, which set a timeline to replace CFCs mainly by other fluorine gases without the ozone-destroying properties. That treaty has worked. CFCs are no longer used. The ozone layer is gradually being restored.

At no time was a tax on CFCs the core policy response. Governments used regulations. On a phased timeline, the Environmental Protection Agency worked with industry to drive the use of CFCs to zero.

Nobody argued for a CFC tax as the first line of policy on the grounds that millions of households were making billions of individual choices about refrigerators, air conditioners and deodorant cans. Actually, though I own all of those things, I never paid much attention to the CFCs or their replacements. The EPA and industry did that for me, thank you.

Now comes the carbon crisis, even more dire than the CFC crisis. We are in the process of utterly wrecking the planet by burning fossil fuels and thereby raising Earth’s temperature. We are now experiencing higher temperatures than in any decade of the past 10,000 years, and the temperature continues to rise.

As a result, humanity faces the risk of a catastrophic multimeter sea level rise at the current or slightly warmer temperature.

Enter the Green New Deal. It endorses the science as explained recently by the Inter-Governmental Panel on Climate Change (IPCC). We need to phase out carbon emissions just as we needed to phase out CFCs.

We’re not talking about a bit less emissions; we’re talking about a phaseout of emissions by 2050 in order to have a fighting chance to hold Earth’s temperature rise to 1.5-degrees Celsius above the pre-industrial level, a rise that should not in any way be construed as “safe,” just potentially not catastrophic.

How do we get to zero by 2050, not only in the U.S. but also in Europe, China, India and the rest of the world?  We need to move rapidly to zero emissions while keeping the energy system functioning robustly and reliably during the transition. It’s a massive transplant operation requiring the greatest skills of our top engineers and power-grid operators.

The basic roadmap is clear. Electricity should become emission-free, through a combination of renewables (wind, solar, hydro), nuclear and perhaps some carbon-capture and storage.

Light-duty vehicles should become electric, and heavy-duty trucks, ships and planes should run on some combination of zero-carbon fuels manufactured using clean energy. The electricity can manufacture hydrogen, which can be used directly (for example, in fuel cells or direct combustion) or combined with carbon to manufacture synthetic liquids and gases.

Yet to do this requires detailed planning, public infrastructure and systems-level design. It is actually not the decision of millions of individual consumers. They will buy electricity and drive cars. The technologies they will use will be zero-emitting, thanks to the genius of the engineers.

The power grid is a highly complex engineered system, made even more complex by distributed renewable generation, the emerging internet-of-things, self-driving battery-electric vehicles and the need for long-distance, high-voltage, direct-current transmission lines for inter-state trading of renewable energy.

Just as we have a unified national air traffic control system rather than thousands of planes deciding when and where to fly, we need grid managers in each state and coordination across states to manage the transition.

The California system is the case in point, as the nation’s leading edge, large-scale effort to reach zero before mid-century. California is doing this through state laws that mandate a timetable for the system to reach zero emissions. Last September, then-Governor Jerry Brown signed SB 100 calling for zero-emission power by 2045.

California’s technical pathway is a “Renewable Portfolio Standard” (RPS) administered by the California Public Utilities Commission (CPUC) and the California Energy Commission (CEC), which mandates a rising share of zero-carbon electricity up to 100 percent by 2045.

The annual RPS report is a testimony to excellence of public policy. The public authorities are guiding a highly intricate transition successfully, inexpensively and ahead of schedule. Yet the complexity is on full display: The power system needs to work reliably, second to second, in practice, not in theory.

The main tools of the RPS are mandates, called Renewable Energy Credits, that each utility must acquire by generating a requisite amount of zero-carbon electricity or by buying clean energy from an out-of-state facility within the Western Electricity Coordinating Council (WECC) region, which includes 14 states plus two Canadian provinces and the northern part of Baja California, Mexico.

To ensure that the overall mix of energy sources meets the zero-emission mandates while integrating properly within California’s grid, the CPUC works closely with each utility on detailed planning, modeling, forecasting and terms of contracting and permits for its future zero-carbon supplies.

This complex yet highly effective strategy for power generation is complemented by several state-level initiatives on zero-emission building codes, building retrofits and crucially, zero-emission vehicles (ZEVs).

The new ZEV targets call for 5 million zero-emission vehicles by 2030, especially plug-in electric vehicles. This goal is pursued through a range of measures including new infrastructure for charging stations, rebates for ZEVs and other regulations and incentives.

New York State is now aiming for a pace of deep decarbonization on par with or even faster than California.  Governor Andrew Cuomo has recently called for New York to decarbonize the power grid by 2040, mobilizing a range of technologies, including offshore and onshore wind, solar photovoltaics, zero-emission vehicles, building retrofits, energy storage, and others.  The state’s core policy framework is an RPS similar to that of California.

More generally, 29 states have RPS programs, though most not yet with the ambition of California and New York.  Yet the point is clear: The institutional structure to guide the nation’s utilities to zero-carbon systems before 2050 is rapidly coming into place.

The RPS approach allows for detailed systems planning and investments needed to maintain a high-performance power sector along the path to rapid decarbonization. In the end, customers will finance most of the transition through their utility bills.

Fortunately, with renewable energy prices plummeting and technologies rapidly improving, the incremental costs of the transition will be very low, or basically at parity with the fossil-fuel alternatives.

The first-line Green New Deal policy, therefore, should be to set a national date, 2050 at the latest and most likely far sooner, to reach zero-emission electricity generation, and an even earlier date, perhaps 2030, by which all new national auto sales will be ZEVs.

As with every great engineering challenge our nation has faced — the Erie Canal, the 20th-century power grid, the Interstate Highway System, the civil aviation system and the moonshot — we need bold timelines, clear milestones, breakthrough engineering and public-sector leadership.

No doubt, when properly regulated and guided by engineering plans, the private sector will do its part with excellence and timeliness. In that regard, a carbon tax may play a modest supporting role. Yet it need not and should not be the first-line policy for the Green New Deal.