Stock markets around the world have swooned because some people are getting the sniffles. Or, as we might also put it, we’re threatened with a pandemic of the coronavirus that might kill millions. (After all, the Spanish Flu of 1918 did kill more than World War I.) This is big stuff.
Except, really, it isn’t.
The threat of this economic disruption has dropped the S&P 500 by, as I write, about 10%. We’re back to where we were in October. Why isn’t the drop worse?
Well, partially because the disease isn’t that big of a deal, economically speaking. Technology still marches on, and the remaining people still have human wants and desires, which will get met by the market. Partly because it’s also fairly obvious that it’s all going to be short term in effect. Our latest economic statistics show that China’s economy is reopening, and we should expect production to be back near normal within a few months.
A blip in the economy simply isn’t that big a deal. We can expect capitalism and markets to fully recover, and drive us on to ever greater wealth despite such diversions.
However, it would be a much bigger deal to abandon capitalism and free markets as the basis of our economic system. Anyone who looked east from Berlin in 1989 — as I did; I was in Budapest by December that year, working in Moscow by March the next — knows that the alternatives to market economies simply do not work. They’re incapable of producing a thriving economy and a rich population.
And that’s what Bernie Sanders is promising us, after all.
Sure, the Vermont senator says that what he really wants is “democratic socialism” as supposedly seen in Sweden or Denmark, not the full-on socialism of the Soviet Union. The problem? He doesn’t understand how the Scandinavian countries actually work. Neither of them has anything similar to “Medicare for all,” just as one example. Another gap in Sanders’s understanding: Sweden has markets that offer consumers 23 different types of deodorant, the same type of consumer-focused capitalism he decries.
What would the actual economic effects of a Sanders presidency be?
Economics professor Casey Mulligan has just estimated this, and he finds that we’d seen a 24% fall in gross domestic product, for one. Sure, the size of the economy isn’t everything. But he finds wages and employment would also suffer. So, too, the negative impact would feed through into the stock markets, and Mulligan projects a 50% drop in the stock market. This would destroy the 401(k) retirement plans millions rely on.
Herein lies the problem with Sanders’s worldview. It’s not that he supports healthcare reform, changing college finance, or taxing Wall Street. These are all debatable.
Rather, the problem is the radical way that Sanders intends to achieve these goals. He’s ignoring at least a half-century of history where similar statist solutions failed woefully in Europe.
It’s not Sanders’s desire for a more equal society that’s so damaging. It’s the rampant stupidity of his actual policy proposals that makes the prospect of a Sanders presidency more economically destructive than the coronavirus.
Tim Worstall (@worstall) is a contributor to the Washington Examiner’s Beltway Confidential blog. He is a senior fellow at the Adam Smith Institute. You can read all his pieces at the Continental Telegraph.
