February 19, 2016
Catherine Rampell joined the chorus of critics of the Gerald Friedman analysis of the economic impact of Bernie Sanders’ platform. For folks who missed it, Friedman is an economics professor at the University of Massachusetts who produced a 53 page paper that projects the budgetary and economic impact of Sanders’ proposals. (Friedman’s relation to the Sanders campaign is not clear.)
Many economists do not find the projections credible. Among other things, Friedman projects average annual productivity growth of 3.6 percent. This compares to a Golden Age average of 3.0 percent and a post-crash average of just over 1.0 percent. It also projects that the share of the population that is employed will reach new highs. This is in spite of the fact that the population will be considerably older at the end of Friedman’s projection period than at its previous peak and that Sanders also has a number of proposals that will make it easier for people not to work.
Rampell and other Friedman critics have rightly noted these elements of his program. Sanders proposes to increase Social Security benefits and have universal Medicare. This will make it easier for many people to retire earlier than might currently be the case. Sanders also proposes to make college free. This would likely reduce the percentage of college students who work, as well as increase the number of people who go to college.
These policies are both likely to lead to sharp reductions in labor force participation at both the older and younger ends of the age distribution. This highlights a point that many of us have made in comparisons of employment rates in European welfare states and the United States. The United States does better than countries like France (although worse than Germany and Denmark) when we look at employment rates for the population as a whole, but it looks pretty much the same if we focus on prime age workers (ages 25-54).
The difference is that France and other European countries have more generous pensions and universal health care coverage, which make it easier for older workers to retire. And college is either free or low cost (often with subsidies for students) so that it is not necessary for college students to work. As Rampell and others have acknowledged, these are not necessarily bad policies, but they do mean less work and less growth.
Sanders anti-growth agenda goes further. He also wants all workers to have paid sick days and paid family leave. And, he has proposed legislation that would guarantee all workers at least two weeks a year of paid vacation. If we get this, it means that even among those working, we will see fewer work hours a year. (Thankfully, Sanders is not going as far as those lazy Germans, who get more than five weeks a year of paid vacation.)
It’s great to have prominent economists and columnists highlighting these aspects of the Sanders’ program. On average, we put in around 20 percent more work hours a year than workers in Germany, the Netherlands, and several other European countries. This difference in hours explains most of the gap in per capita income between the United States and West Europe. It’s far from obvious than the extra hours and associated extra income translate into a better standard of living. It would be very useful to have a serious debate on the topic. Perhaps the Sanders campaign will be the trigger.
There is one other important point to make on this issue of work hours. Many prominent economists, including folks like Paul Krugman and Larry Summers, now recognize that the U.S. and other major economies now face chronic problems of inadequate demand (a.k.a. “secular stagnation”). The idea is that the economy is not currently constrained by its ability to produce goods and services; it is limited by the demand for goods and services. If we had more demand in the economy, whether from consumption, investment, the government, or net exports, we would see more output and employment.
There are well-known reasons why we aren’t seeing higher demand from consumption, investment, and net exports, and we are not likely to see much increased demand from the government (hello deficit hawks). This leaves us stuck in an economy with millions of people who are unable to find work or who can only find part-time work when they need full-time jobs.
If we find ourselves unable to boost demand, then one way to get the unemployed back to work is to reduce supply. If we can give people an incentive to work less (e.g. paid vacation or facilitate early retirement) then we can open up jobs for those who do not currently have work. Economists always fume at this idea of increasing employment in the context of an economy that is already deemed to be operating at its capacity, but the standard arguments do not apply in the context of an economy that suffers from inadequate demand.
Perhaps we can have a serious discussion of measures like paid family leave, paid vacations, and work sharing, both as measures that are good in their own right, but also have the potential to bring us closer to full employment. If the distinguished economists attacking Friedman’s analysis can stop their fuming and start thinking, perhaps we can go this route.
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