Rags to (Moderate) Riches: Bernie Sanders, Income Inequality, and Wall Street
In the ten months since Bernie Sanders first announced his candidacy for the US Democratic Party, his so-called radicalism has been dubbed every descriptor from ‘outrageous and quixotic’ to ‘trouble for Hillary Clinton.’ Sanders’ campaign is one that is centered around economic equality and grassroots activism, which he believes is imperative to carrying out progressive change in a system that’s too broken - and perhaps largely unwilling - to fix itself. Though scepticism of his ‘overtly idealistic’ policy aims hasn’t subsided, Sanders’ ascent from fringe candidate to serious challenger serves as a conspicuous reminder of the power within everyday citizens.
In an electoral system dominated by money, Sanders and his refusal to receive funding from Super Political Action Committees (PACs) was an obvious initial setback in his path to Democratic nomination. Super PACs are organisations permitted to pursue any type of unlimited political spending not directly affiliated with individual campaigns, using donations from a variety of sources (including corporations, labor unions, and the top 1%). They differ from typical PACs in that donation amounts are also uncapped, whereas individuals, for example, are not allowed to donate more than $5,000 to a normal PAC in a given year. The catch lies in the Federal Election Commission’s prohibition of direct communication between super PACs and candidates or their immediate campaign teams, though this ban has yet to prove an issue in providing influential amounts of support for campaigns.
Clinton’s campaign has garnered significant aid from these super PACs, reeling in over $9.5 million for January of 2016 alone. Much of these funds come from the very demographic Sanders and his policies condemn -- Wall Street billionaires like James Simons, who wrote Democratic super PAC Priorities USA Action a check for $3.5 million at the start of 2016. Yet the perceived disadvantage of turning down super PAC aid for Sanders’ has proven to be less of a concern than anticipated. From July to October of 2015, he accrued more than $26 million from individual donors alone, barely short of Clinton’s $28 million from super PACs and individuals combined. And in January of 2016, Sanders’ campaign raised a total of $21.3 million from over 4 million individual supporters, more than two times the amount Clinton was able to raise.
Much of the support for Sanders stems from young people; in the 18-30 age group, upwards of 80% have been voting for Sanders over Clinton, a consistent proportion throughout all primaries that have taken place thus far. A major part of Sanders’ appeal rests in his seemingly unrealistic and certainly not billionaire-backed plan to dismantle the current financial system that has been bailing out major Wall Street institutions for the past four decades, whilst moving the displaced wealth towards making public universities tuition-free, allowing current student debts to be refinanced at lower interest rates, and expanding Social Security.
During the 114th United States Congress (running from January 2015 to January 2017), Sanders introduced the Too Big To Fail, Too Big To Exist Act that would block major financial institutions from accessing the Federal Reserve’s discount window that facilitates short-term loans to these institutions during times of temporary liquidity shortage. The act is a direct invocation of the “too big to fail” theory, which states that certain financial institutions have become so dominant and interlinked that government assistance is crucial in preventing potential failures that would inevitably lead to wide-scale macroeconomic failure. Prominent economists have both preceded and echoed Sanders’ criticism of this system, such as former Federal Reserve Chairman Alan Greenspan who, following the 2008 financial crisis called for breaking up large Wall Street institutions into smaller divisions. “If they’re too big to fail, they’re too big,” Greenspan noted in 2009.
Sanders’ proposal entails establishment of a list of “too big to fail” institutions - among them JP Morgan Chase, Bank of America, and Wells Fargo - by the Financial Stability Oversight Council. The US Treasury will then be required to break up these institutions within a year of the list’s creation, in order to prevent future financial crises that have historically been bailed out by the taxpaying working and middle classes. As Sanders articulates, the power of these banks rests in their ability to say, “If we go down, the economy is going down with us.” Further criticism also points to the increase in high-risk transactions banks undertake as a result of this systemic cushion that caters to their every decision. Sanders has also discussed revival of the post-Depression 1933 Glass-Steagall Act that barred commercial banks from pursuing investment activities such as selling securities - an act that was widely cited to have created skewed market conditions that ultimately resulted in the Great Depression.
Sanders’ strategy for redistributing America’s wealth also involves progressive tax reforms and undoing corporate taxation loopholes that large corporations take advantage of by dispersing their assets outside of the US. One way this occurs is via tax haven countries - areas with little to no taxation where corporate monoliths can shuttle significant portions of their profits to. This is currently evaluated using the Financial Secrecy Index, of which Switzerland, Luxembourg, Hong Kong, and the Cayman Islands currently rank the highest in. America’s corporate law at the moment allows delayed payment of income taxes on these foreign branch profits, which Sanders’ proposal reverses by requiring income tax payment on such sources of profit as they are earned. His plan for financing tuition-free public education involves implementing a Tobin tax on financial transactions, levying a 0.005% to 0.5% tax rate on each exchange of a stock, bond, or derivative. Though seemingly inconsequential rates, the American stock market currently sees almost $300 billion worth of shares traded in a single day, with the bond market coming in at nearly $730 billion per day. The $75 billion annual cost of Sanders’ proposed university tuition reform pales in comparison.
Yet the incredulity surrounding ‘Feel the Bern’ has existed from the start, and shows few signs of diminishing. In response to Sanders’ Wall Street reform plans, Clinton has noted that the breadth and complexity of Wall Street along with its perpetual technology-driven evolution renders reductive solutions like Sanders’ break-up proposal ineffective. Financial recklessness extends well-beyond the “too big to exist” institutions, especially as the buy-side of Wall Street - hedge funds, venture capital firms, private-equity funds - grows at an exponential rate alongside the declining sell-side of banks offering financial support. Other economists have also pointed out that simply breaking up trillion dollar institutions into smaller $500 billion dollar ones does not adequately reduce high-risk behaviour, and may in fact simply multiply them on a smaller scale. The difficult-to-forecast transaction costs underlying Sanders’ proposals are also cause for concern, as they could easily cut out large portions of the predicted revenue these reforms are to elicit.
“America today is the wealthiest country in the history of the world,” Sanders stated at his Portland rally, “But most people don’t know that, most people don’t feel that, most people don’t see that -- because almost all of the wealth rests in the hands of a tiny few.” This statement rings truer than ever, and whose solution becomes increasingly more complicated each year. As the major state primaries approach, Sanders may have to adopt a more multifaceted perspective regarding corporate and social reform to continue garnering voters. At the same time however, if Sanders’ candidacy thus far has reflected anything, it’s the momentum that the common people -- and especially youth -- can generate as the most vulnerable and yet most dynamic and powerful demographic today.