The Problems with Bernie
Bernie Sanders has 3 primary ideas he’s promoting in his 2020 presidential campaign: Free education for college (this includes forgiving the debt from existing graduates), free Medicare for all, and free housing. To keep this article simple, we’ll assume that programs that put money into the economy are inflationary and programs that take money out of the economy are deflationary.
Let’s start with the idea of forgiving existing debts from past college graduates. If this is done all at once, the people who will no longer receive the payments will definitely feel the “Bern.” By eliminating those payments over night, the creditors will be much poorer. This would be extremely deflationary.
Going forward, paying for current and future college education by the government would be inflationary because the government would have to obtain this money by simply printing it out of thin air. On the other hand, if the government tries to raise taxes to cover this new program, the additional tax expense would reduce the taxpayers’ income and be deflationary. One other long-term consequence of making education free is that it cheapens the value of what the recipients receive. If everyone has a college education, how much will it be worth? Eventually a college education will be worth what a high school education is currently worth but it will take four more years to obtain it.
Free Medicare for all...once again we’re looking at a government handout or subsidy. The initial payments will be inflationary because they would be added to what is already being paid for health care. By paying for everyone’s health care expenses, many people will seek care for anything and everything, imagined or real. Demand for health care will skyrocket. Until the market can adjust and supply more care, there will be shortages of care and supplies. In the long run, more people will be drawn into the industry and prices will drop making the industry less desirable for new doctors, nurses, etc. At that point, care quality will decline.
Free housing will be initially inflationary because of all the construction that will be needed. In the long-run, however, as the new supply is being added, prices of houses will decline. There will also be fewer people wanting to fix up existing housing. I might also mention that people who receive free things don’t value them as highly. There will be more run down neighborhoods and cities. Cities could go bankrupt because they can't afford to maintain the free housing.
From a big-picture perspective, having the government supply things for free cheapens their value while increasing their cost. When has a government ever supplied something in a cost-effective manner? Waste and corruption will balloon. Projects will end before they are completed for lack of funding (political in-fighting—look at Obamacare). Vendors will go bankrupt and customers will be jilted.
Generally speaking, when something is “free,” it is taken for granted and not valued highly. It also kills the incentive for business to compete for those products or services. In the long-run, it ruins that market by creating a surplus above and beyond what the unhampered market demands. It could be generations before it recovers from the government excesses. The best answer is for the governments to leave the markets to the people and the entrepreneurs who are willing to take a chance at supplying customers with what they want rather than having politicians and bureaucrats telling people what they need...and what they can get for “free.”
Robert F. Sennholz