The Berniephobes Are Wrong

Earlier this week, Lloyd Blankfein, the former head of Goldman Sachs, waded into the presidential race. “If Dems go on to nominate Sanders, the Russians will have to reconsider who to work for to best screw up the US,” he wrote on Twitter. “Sanders is just as polarizing as Trump AND he’ll ruin our economy and doesn’t care about our military. If I’m Russian, I go with Sanders this time around.”

Gaining an anti-endorsement from one of the leading experts on economy-ruining must have delighted the Sanders campaign. And it was just the latest nastygram Wall Street has sent to the Democrat leading in the presidential primary. The billionaires Jeff Gundlach and Stanley Druckenmiller have suggested that a Sanders victory would cause the stock market to tank; big money has tossed big money at every candidate who might plausibly defeat Sanders and his progressive fellow traveler, Elizabeth Warren; and bankers have spent months bellowing about the two liberals’ policies, some with smarm, some with true alarm.

A social democrat winning the nomination or the White House would damage the financial markets, hurt business investment, and slow the underlying American economy, or so the argument goes. The only problem is that there is no reason to think that this is actually true.

A President Bernie Sanders would have about as much control over the economy as President Donald Trump: outside of a recession, not nearly as much as one might think, and particularly not in the short term. Political scientists and economists have demonstrated that how well the economy performs under different administrations mostly has to do with the fortuities of market timing. President Barack Obama inherited a catastrophe that had nowhere to go but up; Trump inherited a long boom that has just kept booming. Their policies have mattered but, outside the response to the Great Recession itself, mostly on the margin. The same would be true for Sanders or Warren or Amy Klobuchar or Joe Biden or any of the other candidates. If the economy tanks on Sanders’s watch, what he does will be enormously important. If it does not, his policies would take years to change the shape of American growth.  

Presidents are just not that powerful in the United States’s polarized, divided, and choke-point-choked political system. Sanders has put out a slate of transformative economic policies, but realistically, few of them are likely to be passed, and those probably in watered-down and compromised versions. As The American Prospect, the left-of-center magazine, has noted, Sanders or another progressive could do a considerable amount via executive action, including the instant forgiveness of student debt held on the federal books. But many of the biggest changes Sanders seeks—wealth taxes, Medicare for All, the Green New Deal, a jobs guarantee—would have to wend their way through Congress.

There is no majority in Congress for any of those policies at the moment. Bodies that overrepresent old, white, and rural voters are unlikely to pass a new New Deal anytime soon. Bernie’s camp openly admits as much, as do elected progressives. Is Medicare for All achievable? “The worst-case scenario? We compromise deeply and we end up getting a public option,” Representative Alexandria Ocasio-Cortez said this week. “Is that a nightmare? I don’t think so.” Wall Street knows it, too. In a recent note to clients, JPMorgan’s analysts argued that American “political institutions” would make dramatic policy changes highly unlikely. “We put the probability of major changes like Medicare-for-all or a wealth tax at less than 5 percent.”

Would the economy tank if Congress did pass Sanders’s chosen policy regime? That is questionable as well. Sanders’s economic plans are meant to bolster the earning and political power of low- and middle-income families, while forcing companies to compete with another, taming the power of the financial system, and greening the economy. They amount to a huge fiscal-stimulus program, which would be unlikely to ruin the economy any more than the Trump tax cuts, another big stimulus program, would. The country’s staggering levels of income and wealth inequality are distorting the very fabric of the economy: raising saving relative to consumption and investment, dampening GDP growth, impeding mobility, and fraying the political system. There’s a good argument that reducing inequality would boost the country’s long-term growth rate, not hurt it.

As for Sanders’s proposed hefty tax hikes on the wealthy and on corporations: Those might slow down spending and investment a bit, and certainly might dampen animal spirits on Wall Street. (They’re already calling the prophesied sell-off the “Sanders Scare.”) But Trump’s huge tax cuts for the rich and for businesses did not speed up the economy much at all, as economists predicted. Raising taxes on the rich and on businesses would be unlikely to tamp down economic activity too much, either. Were Sanders’s election to hurt stock prices, Americans would largely not notice, at least not by looking at their own bank accounts, rather than cable news and the financial press. Stock ownership is now heavily, heavily concentrated in the hands of the very wealthy.

All that said, presidents do have considerable influence over individual industries: Think of what Trump has done to American farming, for example, or Obama’s role in the American auto market. Sanders has promised and would likely cause significant disruptions for Wall Street—if not through legislation, through antitrust enforcement and political appointees at the Treasury Department and the Federal Reserve. Banking could become a lot more boring, and investment banking could become a lot less profitable. That would not mean “ruining the economy.” But it would make life on Wall Street a lot less fun.