“Who can take a sunrise, sprinkle it with dew, cover it with chocolate and a miracle or two…The Candy Man! The Candy Man can ‘cause he mixes it with love and makes the world taste good!”—Sammy Davis Jr., “The Candy Man”, 1971.
It is only human to be attracted to “free.” One of the tried and true retail promotions is the BOGO….”Buy One, Get One Free.” Even if the price paid for the first item is too much, getting a free one cuts it in half. Because, well, we got one free! Even better is when a retailer offers something free to the first 50 customers through the door at a particular time. The line will form at the door about 3am.
We love free.
So it’s only natural that when a politician offers “free education”, “free health care” or a guaranteed “living wage” (free income regardless of what the market would pay for that type of work), our ears perk up. Now we’re talking a free life, a life free of any responsibility to pay for anything. Isn’t that an intoxicating promise! Even Sammy Davis, Jr. cannot match that!
Investor’s Business Daily cites studies by Manhattan Institute’s Brian Riedl in which he pulls out his bubble-bursting spreadsheet and analyzes the real cost in dollars for all of the happy, happy programs proposed by the Willie Wonka of American politics, Bernie Sanders, as well as aspiring protégé Alexandria Ocasio-Cortez. Riedl even generously accepted their fantasy numbers for costs which are ridiculously low.
Riedl’s total cost for such Candy Land gimmes as free college, social security expansion, free health care and student loan forgiveness: $42.5 trillion over 10 years.
Ouch! Suddenly that 1970s happy anthem just ground to an abrupt halt.
Because it’s not free
Current federal spending over the next 10 years is expected to top $44 trillion dollars and run a $12.4 trillion dollar deficit. That’s before any of the pie in the sky, sing-song litany of promises by the Democratic-Socialists like Sanders and Ocasio-Cortez are added. Where do they propose to come up with the money to double current costs, which are already running trillion dollar per year deficits?
Even slashing spending on defense by half, and cutting state level spending on anti-poverty programs would come up $34 trillion short over 10 years, says Riedl.
To raise $34 trillion, Riedl calculates, would require “seizing roughly 100% of all corporate profits as well as 100% of all family wage income and pass-through business income above the thresholds of $90,000 (single) or $150,000 (married), and absurdly assuming they all continue working.”
Let that sink in. Even if the federal government slashed defense spending by half and the states abandoned anti-poverty benefit programs, all to make room for these programs, corporations would still have to have up to 100% of their profits taken in taxes, single people would be taxed 100% on income over $90,000 and married couples 100% over $150,000 to pay for “free college”, “Medicare for all” and the like.
It’s not free. But don’t tell that to The Candy Man, Bernie Sanders. Because hard reality bursts the pipe dream.
The Return of 1970s stagflation
We’ve been telling you for some time now that former Fed Chairman Alan Greenspan is predicting a return to 1970s style stagflation in the 2020s: a sluggish economy plagued with sharply rising prices.
Setting aside Democratic-Socialist pipe dreams, spending just on the current path is unsustainable, already running trillion dollar deficits each year. That is unsustainable and cannot possibly be covered by taxes. To pay for it, the federal government in cooperation with the Federal Reserve will be forced to pay for such deficits with inflated money.
It is very likely that your current portfolio of investments and retirement portfolio are not positioned for a high inflationary environment. America hasn’t seen such inflation in 40 years.
At Cornerstone Financial Services we are preparing our clients for an inflationary economy in the 2020s.
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