Michael Bloomberg and Entitlements: Rational (at Least in the Past), but not Right

The race for the Democratic nomination is very depressing. All the candidates – even supposed moderates such as Biden and Buttigieg – are openly advocating a much bigger burden of government.

I’m hoping some of their proposals are simply election-year pandering, that they really don’t believe in statism, and that they would be reasonable if they got to the White House.

We got a good bit of economic liberalization under Bill Clinton, for instance, even though he didn’t campaign as any sort of libertarian.

Some people speculate that Michael Bloomberg, the former New York City mayor, might be this year’s closet moderate. A few people have even sent me this CNN article as proof of his underlying rationality.

…when he was mayor of New York City, Bloomberg twice compared Social Security to a “Ponzi scheme” and repeatedly said cuts to that program as well as Medicare and Medicaid had to be part of any serious solution to reducing the federal deficit. …if there’s ever a Ponzi scheme, people say Madoff was the biggest? Wrong. Social Security is, far and away,” Bloomberg said in a January 2009 appearance… “We are giving monies out with the next guy’s money coming in and at the end of — when the music stops — it’s just not gonna be enough chairs for everybody,” Bloomberg said. …Bloomberg’s past comments are at odds with the mainstream positions within the Democratic Party. …During other radio appearances, Bloomberg called for passing Simpson-Bowles, the deficit cutting plan named after former Wyoming Republican Sen. Alan Simpson and former Clinton White House chief of staff Erskine Bowles.

I have mixed feelings after reading that article.

The good news is that Bloomberg at one point was semi-rational about entitlements.

• He understood Social Security is a Ponzi scheme, meaning that the system is only made possible by having new people enter the scheme to finance promises made to people who joined earlier.
• He recognized that some sort of corrective action was needed on entitlements because of enormous unfunded promises, driven by demographic change and poorly designed programs.

The bad news is that Bloomberg never supported the right policies that would address both Social Security’s gigantic fiscal shortfall and the fact that the program is a really bad deal for younger workers. Instead, he supported plans such as Simpson-Bowles that would merely make people pay more to get less.

The worst news is that Bloomberg has abandoned his semi-rational view and is now urging higher taxes and program expansions. He’s presumably not as bad as some of the other candidates, but that’s damning with faint praise.

Here’s a simple way of thinking about Social Security. First, are people actually connected to reality? Do they understand math and demographics? If yes, they’re on the rational (left) side of this 2×2 matrix.

But even if people are rational and recognize there’s a problem, do they support the right type of reform (top half), which is personal retirement accounts?

As you can see, Bloomberg used to be in the bottom-left quadrant, which is bad but rational. Now he’s in the bottom-right quadrant, which is bad and irrational.

A politician who is good and rational will be in top-left quadrant.

P.S. Social Security technically isn’t a Ponzi scheme. That’s because people have the freedom to reject a con artist peddling a pyramid scam. With Social Security, by contrast, participants are legally required to be part of the scheme.

P.P.S. The logical assumption is that the top-right quadrant is empty other than a question mark. After all, any politicians who supports good policy presumably would also recognize there’s a problem. That being said, Trump could be the exception. He doesn’t think we have an entitlement problem, so he obviously belongs on the right side of the matrix. But if he decided to support individual accounts (Trump is very inconsistent on policy, but that does mean he is good on some issues), he could replace the question mark.

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Michael Bloomberg, Housing Finance, Race, and the 2008 Crisis

I have Republican friends who don’t trust Michael Bloomberg because he switched parties and Democratic friends who don’t trust him for the same reason. I tell all of them that it’s more important to focus on his policy agenda rather than his partisan identification.

Though that’s not a happy topic, at least from a libertarian perspective. For instance, I recently criticized his very bad tax plan.

And when he was mayor, I dinged him for his regressive views on the 2nd Amendment and his nanny-state approach to lifestyle choices.

Today, let’s consider his view on housing finance, which has generated controversy since video has surfaced with Bloomberg stating that the financial system got in trouble because anti-redlining policies required banks to make loans to customers in poor neighborhoods.

Other candidates, such as Elizabeth Warren, argue that this makes Bloomberg a supporter of racist practices (with the obvious implication that he might actually be a racist).

I’m reluctant to make such accusations, especially when I tracked down this longer version of the video and discovered that Bloomberg merely listed a bunch of policies that contributed to the housing bubble and financial crisis.

Redlining was the first thing he mentioned, but he also cites the Federal Reserve (dispenser of easy money) and Fannie Mae and Freddie Mac (dispensers of housing subsidies).

In the latter part of his answer, he focused on “securitization,” which is what happens when mortgages are bundled together and sold to investors (as “mortgage-backed securities”).

Much of what he says isn’t controversial.

But I want to point out a sin of omission.

Bloomberg mentioned Fannie Mae and Freddie Mac, but only in passing. This is troubling because these two government-created entities, as explained in this video, deserve much of the blame for both the bubble and the subsequent crisis.

Yes, the Federal Reserve also deserves criticism for flooding the economy with too much liquidity.

But it was the government’s housing intervention, specifically Fannie Mae and Freddie Mac, that channeled much of that excess liquidity into the housing market.

Simply stated, financial institutions were willing to make sloppy loans because they knew those mortgages could be bundled into securities and sold to Fannie Mae and Freddie Mac.

Though many banks were steered into also investing in mortgage-backed securities thanks to other misguided government regulations.

P.S. The wise approach, needless to say, is to shut down Fannie Mae and Freddie Mac as part of an agenda to end government intervention in the housing sector.

P.P.S. Obama was bad on this issue and Trump is bad on this issue, so I won’t be surprised if Bloomberg also is bad on this issue if he gets to the White House.

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Bloomberg Proposes Huge Increase in America’s Tax Burden

One of the most significant developments in 2020 politics is how Democratic presidential candidates have embraced hard-left economic policies.

Prominent analysts on the left have noted that even Joe Biden, ostensibly the most moderate of the candidates, has a very statist economic platform when compared to Barack Obama.

And “Crazy Bernie” and “Looney Liz” have made radicalism a central tenet of their campaigns.

So where does Michael Bloomberg, the former mayor of New York City, fit on the spectrum?

The New York Times has a report on Bloomberg’s tax plan. Here are some of the key provisions, all of which target investors, entrepreneurs, small business owners, and other high-income taxpayers.

Former Mayor Michael R. Bloomberg of New York unveiled a plan on Saturday that would raise an estimated $5 trillion in new tax revenue… The proposal includes a repeal of President Trump’s 2017 tax cuts for high earners, along with a new 5 percent “surcharge” on incomes above $5 million per year. It would raise capital gains taxes for Americans earning more than $1 million a year and…it would partially repeal Mr. Trump’s income tax cuts for corporations, raising their rate to 28 percent from 21 percent. …Mr. Bloomberg’s advisers estimate his increases would add up to $5 trillion of new taxes spread over the course of a decade, in order to finance new spending on health care, housing, infrastructure and other initiatives. That amount is nearly 50 percent larger than the tax increases proposed by the most fiscally moderate front-runner in the race, former Vice President Joseph R. Biden Jr. …Mr. Bloomberg’s advisers said it was possible that he would propose additional measures to raise even more revenue, depending on how his other domestic spending plans develop.

These are all terrible proposals. And you can see even more grim details at Bloomberg’s campaign website.

Every provision will penalize productive behavior.

• Higher personal income tax rates will discourage work and entrepreneurship.
• Higher corporate income tax rates will undermine U.S. competitiveness.
• Higher capital gains taxes and higher death taxes will lower saving and investment.

But there is a bit of good news.

Though it would be more accurate to say that there’s a partial absence of additional bad news.

Bloomberg hasn’t embraced some of the additional bad ideas being pushed by other Democratic candidates.

It would…maintain a limit on federal deductions of state and local tax payments set under the 2017 law, which some Democrats have pushed to eliminate. …the plan notably does not endorse the so-called wealth tax favored by several of the more liberal candidates in the race, like Senators Elizabeth Warren and Bernie Sanders.

I’m definitely happy he hasn’t embraced a wealth tax, and it’s also good news that he doesn’t want to restore the state and local tax deduction, which encouraged profligacy in states such as California, New Jersey, and Illinois.

It also appears he doesn’t want to tax unrealized capital gains, which is another awful idea embraced by many of the other candidates.

But an absence of some bad policies isn’t the same as a good policy.

And if you peruse his website, you’ll notice there isn’t a single tax cut or pro-growth proposal. It’s a taxapalooza, what you expect from a France-based bureaucracy, not from an American businessman.

To add insult to injury, Bloomberg wants all these taxes to finance an expansion in the burden of government spending.

For what it’s worth, this is my estimate of what will happen to America’s tax burden (based on the latest government data) if Bloomberg is elected and he successfully imposes all his proposed tax increases. We’ll have a more punitive tax system that extracts a much greater share of people’s money.

P.S Take these numbers with a grain of salt because they assume that Bloomberg’s tax increases will actually collect $5 trillion of revenue (which won’t happen because of the Laffer Curve) and that GDP won’t be adversely affected (which isn’t true because there will be much higher penalties on productive behavior).

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