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Two Democrats, Two Myths

Paula Dwyer writes editorials on economics, finance and politics for Bloomberg View. She was London bureau chief for Businessweek and Washington economics editor for the New York Times, and is a co-author of “Take on the Street: How to Fight for Your Financial Future.”
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Almost all presidential candidacies are built on myth-making as much as they are on speechifying, fundraising, polling and turning out voters. And the 2016 finalists -- Democrats and Republicans -- are peddling some powerful myths.

By that I don't just mean the tax plans that vow to cut everyone's taxes without increasing the deficit. Or the pledges to triple the rate of economic growth while offering universal health care and free college tuition. Most voters (one hopes) can see through such phantasmagoric promises. 

But some myths are harder to discern than others. They are a mix of half-truths, often extrapolated from academic research and supported broadly by a candidate's voter base.

I'll start with two examples from the Democratic candidates.  

Hillary Clinton's promise to equalize men's and women's wages is a noble goal. Gender inequality is a major campaign theme of hers, naturally enough.

For the working women who make up a majority of her base, this gap is real. According to the latest U.S. Census Bureau data, women working in year-round, full-time jobs on average are paid 79 cents for every dollar men receive.  

Yet Clinton can't do much to fix this. She has long supported the Paycheck Fairness Act, which would require employers to prove that pay variations aren't due to gender and would increase penalties for sex discrimination. But that measure has failed to gain traction in Congress for nearly a decade. 

Legislative solutions wouldn't erase most of the gap, anyway. Discrimination doesn't always or even often explain why a woman's wages are lower. Women tend to have less experience, leave the workforce for several years to raise children, and choose jobs (such as teaching) that historically pay less and provide summers off.

One study found that about about two-thirds of the 23 percent pay gap can be explained away by such factors as occupation, geography, age and college grades. Other studies have shown that, when part-time jobs or benefits such as workweek flexibility are included in the data, or when pay differences are calculated on hourly wages, much of the disparity disappears.   

Bernie Sanders's big myth is his claim that the U.S. could have avoided a bailout of Wall Street banks in 2008-2009. "I believe that the recklessness, the greed and the illegal behavior of Wall Street drove this country into the worst economic downturn" in modern history, he argued at Sunday night's Democratic debate. "And I will be damned," he said, if working people should have to "bail out the crooks on Wall Street."

Sanders is right that underwater homeowners deserved help, too, but there was no question that banks had to be bailed out to avoid a global meltdown.

Even if you think it was possible to force the large banks into bankruptcy, and even if those proceedings were as orderly as humanly possible in a crisis, the U.S. would have had to provide hundreds of billions of dollars in bridge financing. There was no other way to keep credit flowing and companies open as courts determined the value of each bank's assets, unwound derivatives contracts, disentangled overseas obligations and made new loans while servicing existing ones.

What was the despised Troubled Assets Relief Program, which injected capital into, and purchased the  shares of, 700 U.S. banks but bridge financing by another name?  And what is the Dodd-Frank financial reform law -- which he dismisses as weak tea -- if not a forced restructuring? It bars banks from trading for their own profit, forces derivatives trades into the open, requires much more equity capital to absorb losses and protects consumers against many unsavory lending practices, to name a few of the ways banks have been overhauled.    

The alternative -- runs on banks, corporations unable to meet payrolls, businesses unable to obtain credit, students unable to pay tuition, millions of job losses -- is almost too scary to ponder. And despite Sanders's protestations, the U.S. made $65 billion in profit on $618 billion of bailout money (including funds that went to Fannie Mae, Freddie Mac and the auto companies).

Coming up, I'll describe four myths from the four Republican candidates. 

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

To contact the author of this story:
Paula Dwyer at pdwyer11@bloomberg.net

To contact the editor responsible for this story:
Katy Roberts at kroberts29@bloomberg.net