Category: US business

Veronique de Rugy:

If you haven’t heard yet, the release of the so-called Panama Papers has revealed that top global leaders such as Russian President Vladimir Putin and Iceland’s prime minister may be using companies and other business entities created by a Panama-based firm as a way to avoid taxes or conceal wealth. It’s creating quite an uproar. Unsurprisingly, with very little evidence of actual illegality on the part of the law firm from which the documents were stolen—or most of its clients—the usual suspects are already calling for sanctions or dramatic and punitive changes to international tax laws.

The French finance minister, for instance, already put Panama back on the list of countries that aren’t sufficiently willing to help enforce onerous French tax law. That’s despite France’s removal of Panama from its list of uncooperative states and territories in 2012 after reaching a bilateral agreement on precisely that issue.

President Barack Obama, on the other hand, recognizes that most of the activities reported in the stolen pages are legal. As such, he wants to do something that might be even more radical than what France has done. He proposes making it illegal to legally reduce one’s tax burden. Falling back on some generic and zero-sum concept of tax fairness, he told reporters that we “shouldn’t make it legal to engage in transactions just to avoid taxes” and that he wants to enforce “the basic principle of making sure everyone pays their fair share.”

No matter what paper you read or what program you listen to, this story is couched only in terms of a groundbreaking discovery that exposes how everyone and every company linked to an offshore account has run afoul of the legal system. Not true.

It is just a guess right now, but I predict that we will find out that most people who use tax havens are honest and law-abiding citizens—perhaps more so than politicians. As the Cato Institute’s Dan Mitchell pointed out as soon as the papers came out, most parts of this story and other tax haven stories are non-stories.

International businesses, investors and entrepreneurs require international and neutral tax structures, such as the ones offered by Panama and Switzerland. The notion that having a company or a trust in Panama is automatically bad—or that because a few people use Panama accounts to do illegal things, all such arrangements are automatically bad—is ridiculous. Mitchell compares it to saying that “we shouldn’t allow cars to be sold because someone may use one as a getaway car in a bank robbery.”

Now, if someone is illegally hiding taxes from his government, he should be punished—in the same way the guy driving the getaway car should be—but we shouldn’t punish the tax structures or the car company. If you want more global trade and more global investments, international bureaucracies such as the Organisation for Co-operation and Economic Development and governments around the world shouldn’t make it harder to operate international businesses and engage in cross-border investment and business.

Unfortunately, that’s the direction in which this whole drama is going. For years, France has punished its entrepreneurs and businesses with high taxes and terrible laws. As a result, last year alone, some 10,000 French millionaires called it quits and moved abroad. However, rather than reform its tax laws and streamline its government, it wants to put its grabby hands on some cash stored legally in Panamanian trusts. Why not, as long as the OCED is willing to help?

But it won’t work in the long run. France and other high-tax nations can try very hard to destroy tax competition, financial privacy and the sovereignty of countries with better tax structures, but they still won’t be able to afford their big and broken welfare states. Some European welfare states—e.g., Italy, Spain, and Greece—have already hit the wall, and it’s only a matter of time until France joins their ranks.

Instead of going after countries such as Panama and the important and legal structures they offer to international businesses and investors, high-tax nations and the media should wait to see whether any laws were actually broken. And while they’re waiting, they should reform their own governments’ self-destructive fiscal systems. That’s the real financial scandal.

For all the people who support Donald Trump because of his business experience, read Inc.‘s story about Trump and his vendors:

One of the (too many to count) unfortunate trends from this year’s presidential campaign is blame for our Recovery In Name Only on free trade.

Gary Galles has something to point out for fans of The Donald (assuming he’s sincere about opposing free trade, which as with everything else about him is subject to question) and (though he’s not mentioned by name here) Comrade Sanders:

Donald Trump promises to “Make America Great Again.” Unfortunately, his “us versus them” view of economic exchanges, prominent in his “America doesn’t win anymore” rant, would fail introductory economics. And his protectionist promises cannot make us great again, only less great and poorer.

Trump’s protectionism rehashes a bogus patriotism argument. Imports are pilloried as harming American industry, creating an excuse for “we must defend America” protectionist policies. Since imports always harm American producers of competing products by reducing demand for their output, those wanting protection for themselves find that convincing, as do many who overlook the logical cheat.

The conflict is framed as one between foreign producers and American producers, where patriotism should lead us to favor American producers. If that were accurate, and we cared more about “our” producers, we would give them preference, other things equal. But this is a massive misrepresentation. Protectionism is actually a conspiracy between American producers and the American government to rip off American consumers and foreign suppliers.

Depicting protectionism as domestic producers versus foreign producers ignores the central issue—when do American consumers buy from foreign producers? When they offer a better price and quality deal. Consequently, when trade restrictions take away those superior options, they make American consumers poorer. And patriotism does not imply our government should help American producers beggar American consumers.

Making protectionism even worse is that it is a negative-sum game. The resources represented by the difference between lower-cost imported goods and higher-cost domestic goods are simply wasted for each unit of domestic output inefficiently “protected.”

Our founders, undeniably patriotic, saw through the protectionist farce. For instance, Thomas Paine, the fiery rhetorician stoking America’s revolution, argued that free trade derives from principles “on which government ought to be erected,” and that interference with such commerce impoverishes us:

I have been an advocate for commerce, because I am a friend to its effects. It is a pacific system . . . rendering nations, as well as individuals, useful to each other.

If commerce were permitted to act to the universal extent it is capable, it would extirpate the system of war, and produce a revolution in the uncivilized state of governments.

The invention of commerce . . . is the greatest approach towards universal civilization that has yet been made by any means not immediately flowing from moral principles.

Commerce is no other than the traffic of two individuals, multiplied on a scale of numbers; and by the same rule that nature intended for the intercourse of two, she intended that of all.

There can be no such thing as a nation flourishing alone in commerce. . . . When . . . attack is made upon a common stock of commerce, the consequence is the same as if each had attacked his own.

Merchants of different nations trading together . . . each makes the balance in his own favor; consequently, they do not get rich off each other; and it is the same with respect to the nations in which they reside . . . each nation must get rich out of its own means, and increases those riches by something which it procures from another in exchange.

Free trade is simply freedom to choose who you will associate with in productive ways, and how you will arrange those associations, without artificial limitations. It is an essential part of self-ownership.

Unlike Donald Trump and fellow protectionists, Thomas Paine opposed the forced impositions of tyranny. He recognized that free trade benefits each participant, whether or not it crosses borders. So he warned that protectionism is not patriotic, but instead reflected “the greedy hand of government, thrusting itself into every corner and crevice” for favored interests against those it is supposed to represent. Following Paine, Americans should recognize that winning again primarily requires government to stop forcing us to bear such impositions, not to expand them.

University of Michigan Prof. Justin Wolfers finds a few problems with Comrade Sanders’ economic plans:

An academic study that predicted Bernie Sanders’s economic platform would cause an enormous economic boom turns out to have been based on faulty math, or bad economic logic.

The analysis produced by Professor Gerald Friedman, an economist at the University of Massachusetts at Amherst, got a lot of attention when it argued that fully implementing the Sanders program would lead per capita gross domestic product — a measure of average income — to grow one-third higher in 10 years’ time than it otherwise would be. In this economic nirvana, jobs would be plentiful, unemployment rare, poverty low, inequality less severe and the budget in surplus. The study is not an official campaign document, but it has been lavishly praised by Mr. Sanders’s campaign.

It’s such an eye-popping claim that four leading Democratic economists, all former chairs of the Council of Economic Advisers, countered that it “cannot be supported by the economic evidence,” scolding Mr. Friedman that it makes “it that much more difficult to challenge the unrealistic claims made by Republican candidates.” And that in turn led to a thousand think pieces, accusations (and denials) of bad faith and an ugly public spat.

The problem is that for all the name-calling, none of Mr. Friedman’s critics had figured out what he had gotten wrong.

Until now.

Christina Romer and David Romer, two of the leading macroeconomists of their generation and both professors at the University of California, Berkeley, have just released a careful forensic examination of Mr. Friedman’s analysis. (Ms. Romer was one of the four original Democratic economists who had criticized Mr. Friedman’s work. And full disclosure: Mr. Romer was for many years my collaborator in editing the Brookings Papers on Economic Activity.)

Their excavation uncovered one crucial but buried tidbit, and it’s basically the whole shebang.

But first, some background. Most economists believe that temporary increases in government spending will yield temporary increases in output. To see why the effect of stimulus is temporary, realize that if raising government spending raises output, then because the end of a stimulus program means cutting government spending, the same forces are later set in motion, but in reverse. And so in the standard story, a temporary stimulus improves the economy, but only temporarily.

Here’s the problem: Mr. Friedman’s calculations assume that removing a stimulus has no effect. The result is that temporary stimulus has a permanent effect.

The issue here is all about levels versus changes. In the usual telling, changes in government spending lead to changes in output. In Mr. Friedman’s spreadsheets, changes in government spending permanently raise the level of output. Mr. Friedman confirmed to me that this was how he had made his calculations.

The same levels-versus-changes confusion leads Mr. Friedman’s calculations to show that a permanent increase in the level of government spending — like that proposed by Senator Sanders — will yield a permanent rise in the rate of change of output. This is the reason he finds that the Sanders plan has such enormous effects on economic growth.

There are two interpretations of Mr. Friedman’s findings. The first is that he has simply gotten his math wrong. The second is that he has a different view about how the economy operates. Either way, his numbers don’t represent conventional economic thinking. And they’re at odds withempirical studies documenting that temporary fiscal stimulus does tend to have temporary effects.

Yet Mr. Friedman has described his analysis as “using standard assumptions and methods.” Likewise, his staunchest defender, James Galbraith, argued that, “What Professor Friedman did, was to use the standard impact assumptions and forecasting methods of the mainstream economists and institutions.” In copious footnotes, his paper quite self-consciously draws inspiration from standard analyses, such as those published by various government agencies.

The problem is that conventional analyses link changes in government spending to the changes in output, not to its long-term level as in Mr. Friedman’s analysis. Effectively Mr. Friedman is arguing that boosting government spending boosts the economy, but cutting government spending as the stimulus program ends has no effect. For all of the detail spelled out over 53 pages and 97 footnotes, this one critical assumption is never mentioned.

Here’s why this matters. Mr. Friedman claims to “make a conservative estimate of the stimulative effect of the Sanders program by using a relatively low spending multiplier.”

The multiplier is a number that quantifies how strongly government spending influences output. He relies on the Congressional Budget Office for estimates of the multiplier, and shades them a little, which makes them appear conservative. The multiplier he uses is on average 0.89. In the Congressional Budget Office models that he’s drawing from, this means that if the government spends $100 more today, output will rise by $89 this year, but when that stimulus is withdrawn next year, output will then fall back to its earlier level.

From start to finish, that $100 extra government spending yields $89 worth of more stuff. By contrast, in Mr. Friedman’s figures, output stays $89 higher each year, forever. Over a 10-year period, this means that $100 of government spending yields a total of $890 worth of more stuff, implying a 10-year multiplier of 8.9.

This is not a conservative estimate; it’s so high that I know of no study that suggests such large effects, nor of any economist who would defend this view. This is why Ms. and Mr. Romer say that Mr. Friedman’s “estimates of the likely demand effects are dramatically higher than standard approaches imply,” and that his estimates are “not just implausibly large, but literally incredible.”

When I pointed Mr. Friedman to this critique of his analysis, he simultaneously accepted and rejected it.

He accepted it, telling me that “I may have made a mistake.”

But he also rejected this critique, arguing that his figures are based on an alternative view of the world, stating: “To me, when the government spends money, stimulates the economy, hires people who spend, that stimulates more private investment. That remains, and at the next year, you’re starting at the higher level.” He admits that this “is not standard macro,” and described it as the understanding of an earlier generation of economists — a sub-tribe of Keynesians he called “Joan Robinson Keynesians.” (Joan Robinson was a contemporary of John Maynard Keynes at Cambridge.)

When I pressed Mr. Friedman on whether he was right to conclude that standard assumptions suggest that Mr. Sanders’s economic program will have such large effects, he said, “I have to stop saying ‘standard.’ ” It became apparent in our conversation that he simply hadn’t realized that he had mischaracterized mainstream economics, leading him to describe his disagreement with Ms. and Mr. Romer as “a measure of my ignorance of modern macro, and my disagreements with modern macro.”

In 1958, Leonard E. Reed wrote a classic essay, “I, Pencil,” to explain the advantages of free trade. Reed’s punch line:

The lesson I have to teach is this: Leave all creative energies uninhibited. Merely organize society to act in harmony with this lesson. Let society’s legal apparatus remove all obstacles the best it can. Permit these creative know-hows freely to flow. Have faith that free men and women will respond to the Invisible Hand. This faith will be confirmed. I, Pencil, seemingly simple though I am, offer the miracle of my creation as testimony that this is a practical faith, as practical as the sun, the rain, a cedar tree, the good earth.

Reed’s essay, which is worth reading for those who haven’t, is echoed by Chelsea German:

What would life be like without exchange or trade? Recently, a man decided to make a sandwich from scratch. He grew the vegetables, gathered salt from seawater, milked a cow, turned the milk into cheese, pickled a cucumber in a jar, ground his own flour from wheat to make the bread, collected his own honey, and personally killed a chicken for its meat. This month, he published the results of his endeavor in an enlightening video: making a sandwich entirely by himself cost him 6 months of his life and set him back $1,500.

(It should be noted that he used air transportation to get to the ocean to gather salt. If he had taken it upon himself to learn to build and fly a plane, then his endeavor would have proved impossible).

The inefficiency of making even something as humble as a sandwich by oneself, without the benefits of market exchange, is simply mind-boggling. There was a time when everyone grew their own food and made their own clothes.  It was a time of unimaginable poverty and labor without rest.

The greater the number of people involved in exchange, the more beneficial the process becomes. This morning, thanks to international trade, I am drinking coffee grown in Latin America, viewing a computer screen with eyeglasses made in Europe, and typing this blog post on a keyboard made in Asia. Fortunately, freedom to trade internationally has improved, on average, around the world. Increased trade has helped raise living standards and decrease global poverty.

However, the recent trend in the United States is less positive. If trade protectionist politicians, like Bernie Sanders on the left and Donald Trump on the right, have their way, then U.S. freedom to trade internationally may deteriorate further. They put down trade by claiming that it harms the U.S. economy and destroys jobs. Yet, there is a widespread agreement among economists that free trade is key to prosperity. (Learn more about the relationship between increased trade and jobs here).

This morning, as you drink your coffee, take a moment to consider where it comes from. You probably would not be drinking it right now if it were not for trade. This video elegantly draws attention to the myriad ways in which the exchange of goods and services across national borders touches lives and helps raise living standards. Almost everything you use is the product of a complex web of human cooperation, often extending beyond your country. Even something as simple as a bag of groceries or a pencil is the end result of a “symphony of human activity that spans the globe.”

Kevin D. Williamson provides a guide to Donald Trump’s four bankruptcies:

Trump has a peculiar way of speaking about bankruptcy: He has a deep aversion to the word itself. He speaks of “putting a company into a chapter” without ever answering the implicit question: “Chapter of what? Moby-Dick?” The answer, of course, is the U.S. Bankruptcy Code, to which Trump has taken recourse at least four times over the course of his business career. The chapter in question is the famous Chapter 11, which applies to business bankruptcies. Trump proudly insists that he never has had recourse to Chapter 13, the personal bankruptcy code. This is his apparent justification for saying that he’s never been bankrupt. But of course one of the purposes of Chapter 11 bankruptcy is to keep men such as Donald Trump out of Chapter 13 bankruptcy.

Trump’s first bankruptcy was in 1991 after he borrowed a stupidly irresponsible amount of money to finance that monument to excruciatingly bad taste known as the Trump Taj Mahal in Atlantic City. Trump is such a good manager that the casino’s slot machines began failing during its first week of business. Never one to let reality stand in the way of his confidence, Trump had financed the $1 billion project largely with junk bonds, which meant very high interest payments. Trump did not make enough money to meet his interest payment and so was forced into bankruptcy. His ownership of the casino was diluted, and he ended up having to give back 500 slot machines to the company that had provided them.

Trump himself was on the hook for nearly $1 billion in the deal, according to the New York Times, a sum that exceeded his net worth. He was forced to sell a fair amount of his personal property, including a yacht, as well as the failing air-shuttle service he’d been attempting to launch for some time. As Boston bankruptcy attorney Ted Connolly put it, Trump used the bankruptcy proceedings to negotiate away his personal liabilities while leaving the business saddled with debt. Unsurprisingly, the casino endured further financial problems, including bankruptcy. Trump’s ownership stake was diluted steadily, and he eventually was removed from the board. By the time of the casino’s most recent bankruptcy — which is to say, the bankruptcy it currently operates in — Trump could plausibly say that it wasn’t really his business any more, in spite of the fact that his name and face are all over it.

Trump’s second bankruptcy came with his acquisition of New York City’s Plaza Hotel. The great dealmaker did essentially the same thing with the Plaza that he had done with the Taj Mahal: He borrowed too much money, at rates he could not afford. And in much the same way that he has contemplated putting his abortion-loving sister on the Supreme Court, he made his then-wife, Ivana, president of the Plaza. Once again, Trump was unable to make his debt-service payments. Once again, he lost much of his ownership stake — 49 percent went to Citibank — and, once again, he found himself having to run for the doors as parties with deeper pockets and more managerial acumen took over to clean up his mess. In the case of the Plaza, that was CDL Hotels International, of Singapore, and Prince Walid bin Talal, of Saudi Arabia. The Saudi prince laments that he was twice forced to “bail out” Donald Trump, whom he describes as a “disgrace to the United States.”

In 2004, Trump Hotels and Casino Resorts, a holding company for various Trump properties including the Taj Mahal and a riverboat-gambling company in Gary, Ind., went into bankruptcy, having acquired $1.8 billion in debt while raising only $130 million through an initial public stock offering. Same story: Trump had borrowed too much money, at a rate he could not afford (15 percent, in fact, which lets you know how credit-worthy the market deems Trump to be), and once again he was obliged to give up most of his ownership stake.

Trump Hotels and Casino Resorts was reorganized as Trump Entertainment Resorts . . . which promptly went bankrupt, filing for Chapter 11 protection in 2009. (That’s right: Trump, who wants to be president of these United States, was in bankruptcy that recently.) Too much debt at an interest rate that he couldn’t afford to pay? Check. Loss of ownership? Check. Trump and his daughter, Ivanka, both resigned from the board just before the bankruptcy filing, inviting unkind rodential-nautical metaphors.

It is no wonder that he’s had his greatest success renting his name to Macy’s and pretending to run a business on television rather than actually running a business.

So, those are the bankruptcies about which Donald Trump is lying. Trump also is lying about self-funding his campaign: Like any other politician, most of his money comes from donors. That famous fund-raising for veterans? The money is going into Trump’s personal foundation.

Trump has repeatedly failed his business partners and lied about it. He has lied about self-funding his campaign. He has lied to his wives and his family. Given that he received a low-risk draft status because of a health condition that he does not have, he almost certainly lied to the military he seeks to command.

The thing about habitual liars is, they lie habitually.

If you’re voting for Trump because you think he’s a straight shooter, you’re a bigger sucker than those chumps losing money on both sides of the table in Atlantic City.

Read more at: http://www.nationalreview.com/article/431420/donald-trumps-2016-debate-lies-he-went-bankrupt

My favorite online meteorologist, Mike Smith, veers from weather:

We’ve heard a lot recently about the evils of “the rich” or the “1%.” That is not an accurate description of the problem. I believe there is an important distinction to be made depending on how the person becomes “rich.”

Here’s an example: the late Walt Disney (and, to a lesser extent, his brother Roy) built the Walt Disney Company with a vision of providing wholesome family entertainment. After nearly going bankrupt several times, they succeeded. Given the inflation since Walt passed away in 1966, in today’s dollars he would be a billionaire many times over. And, that is just fine with me. Walt risked his money. No one was forced to buy a ticket to “Mary Poppins” or to Disneyland. He succeeded because he created entertainment that people voluntarily wanted to purchase. He also created thousands of good-paying jobs.

At the time of Walt’s 1966 death, he was making a salary of $312,000 per year. In today’s dollars, that would be a salary of $2,243,000 per year. That seems fine to me considering the company was built on his ideas and his risk. Of course, Walt was building great wealth via the 28% of the company he still owned at the time of his death and, again, that is just fine with me.

Now, consider the current CEO of Disney, Robert Iger. He makes $43,490,567 per year of which more than $24 million is cash payments (rest in stock, airplane, etc.). His cash compensation is roughly 11 times Walt’s. He was not one of the founders of the company and he is largely insulated from personal catastrophic loss (through insurance, not having to personally guarantee loans, etc.). Disney was recently in the news for replacing U.S. computer programmers with foreign workers. In fact, per their public disclosures, six Disney executives are currently making more than Walt would be after converting his final salary to 2016 dollars.

Let me be clear: I am not passing judgment as to whether Mr. Iger earns his salary or not. That is for Disney’s directors or stockholders to decide. They may be pleased the company is saving money by switching to non-citizen programmers.

But, from my personal point of view, American society gains much more from Walts than from Roberts. The point of this posting is to explain that railing against “the rich” – without differentiating — is a very bad idea. From mine, and most economists’ perspective, there are “good rich” and “bad rich.” The illustration below demonstrates my point.

One of the (many) reasons this blog is so critical of Al Gore is that he has gotten very rich (with a gigantic personal carbon footprint) almost entirely as a rent seeker by using exaggerated science. The fact that, in 2013, he made $100 million selling, to Mideast oil interests (!), a TV network almost no one watched was predatory influence-peddling at its worst. There is a lot of rent-seeking in solar and wind energy (extra fees and regulations from government forcing the use of “alternative” energy) with global warming as the excuse. This drives up the costs all of us must pay without adding value (a light bulb needs 100 watts of electricity to illuminate and the bulb doesn’t work any better whether the watts come from cheap coal or expensive solar).From where I sit, many of the problems we have with the U.S. economy is that we have gotten away from free enterprise (capitalism) and morphed into a nasty mix of “crony capitalism,” rent-seeking (the government forcing people to pay unneeded fees, taxes, permits, etc.), and other parasites that subtract rather than add value to the economy.

There is far, far too much of this toxicity in the U.S. economy today and far too little true entrepreneurship and genuine free enterprise. We need to encourage job-creating entrepreneurs and discourage the rent-seekers. If a future Walt Disney should cure cancer by creating a one-dose $50 pill and, in the process, get very rich, that is fine with me! Jobs and tremendous value will also be created along the way. …

I simply wish to clarify that politicians merely railing against, and wanting to tax, “the rich” will not get us anywhere. In fact, it may take a bad situation and make it worse.

Donald Trump added economic value and employs, by one estimate, 22,450 Americans. Trump also got his billions in part through what Smith describes — getting governments to let him take over property by eminent domain without fairly compensating the property owner. The Evil Koch Brothers employ 2,400 Wisconsinites, but liberals consider them bad because they don’t like the Koch Brothers’ politics. Liberals are, of course, wrong.

Bret Stephens:

Last Friday a crane collapsed in lower Manhattan, killing a man named David Wichs. The next day the papers told the story of his life: a Jewish immigrant from Czechoslovakia; a math whiz with a degree from Harvard; a thoughtful neighbor and husband; “the nicest, most trustworthy person that I have known,” according to his boss, Mark Gorton, of Tower Research Capital. Mr. Wichs was just 38 when he died.

I never met Mr. Wichs, but reading about him reminded me of so many people I know in his industry—prodigiously bright and slyly funny, reasonably wealthy but rarely ostentatious, family men of the type who show up at school auctions and United Jewish Appeal dinners. Maybe they voted for Barack Obama the first time, probably not the second. They’re the people who, even now, make American finance the envy of the world.

They’re the most demonized people in America.

That’s the import of Bernie Sanders’s remark, in his debate last week withHillary Clinton, that “the business model of Wall Street is fraud.” The senator from Vermont went on to say that “corruption is rampant” in the financial sector, his evidence being that “major bank after major bank has reached multibillion settlements” with the feds.

This wasn’t the first time Mr. Sanders has accused Wall Street of fraud, and it surely won’t be the last. No political or social penalties attach, in today’s America, to the wholesale indictment of this entire industry and the people who work in it. Had another presidential candidate made a similarly damning remark about some other profession—public-school teachers, say, or oil-rig workers—there would have been the usual outcry about false stereotypes, the decline of civility and so on. When Bernie says it about Wall Street there’s a collective shrug, if not nodding agreement.

Some six million people work in financial services in America, according to Commerce Department figures. Take only the securities and investment end of the business, and you’re still talking about 900,000 people, a population that considerably exceeds Vermont’s 626,000. Is Mr. Sanders suggesting that some large proportion of those 900,000 is in on the fraud; that every man among them is a Madoff—including David Wichs? And if they are the criminals he alleges, does he mean to put a few thousand of them behind bars?

Those are questions that ought to be put to Mr. Sanders, and ones his supporters might also want to ask themselves. The strength of the Sanders candidacy is said to lie in the purity of his idealism, especially in contrast to the morally flexible and ideologically ambidextrous candidacy of Mrs. Clinton.

But the reason Mr. Sanders is drawing his big crowds is neither his fanatical sincerity nor his avuncular charm. It’s that he’s preaching class hatred to people besotted by the politics of envy. Barack Obama, running for president eight years ago, famously suggested to Samuel “Joe the Plumber” Wurzelbacher that “when you spread the wealth around it’s good for everybody.”

Mr. Sanders dispenses with the niceties. “I do not have millionaire or billionaire friends,” he boasts, as if there’s an income ceiling on virtue. That’s telling the 10,100,000 American households with a net worth of at least $1 million (excluding the value of their homes) to buzz off.

It is also telling any intellectually sentient voter that the drift of the modern Democratic Party runs in the same illiberal direction as the Trumpian right, only with a different set of targets. Mr. Sanders thinks Wall Street’s guilt is proved by its capitulation to the demands of a government that could barely prove a single case of banker fraud in court.

Another interpretation is that a government with almost unlimited powers to break, sue, micromanage or otherwise ruin an unpopular institution is not a government banks are eager to fight. The problem with capitalism isn’t that it concentrates excessive economic power in the hands of the few. It’s that it gives political power ever-tastier treats on which to feast. Covering for that weakness is the reason Wall Street plows money into the pockets of pliable Democrats like Chuck Schumer, Cory Booker—and Mrs. Clinton.

That’s something Mr. Sanders will never understand, being the sort of man whose notion of wisdom is to hold fast to the angry convictions of his adolescence. That may be why he connects with so many younger voters. But it’s also why his moral judgments are so sweeping and juvenile. Wall Street remains one of America’s crowning glories. To insinuate that the people who make it work are swindlers is no less a slur than to tag immigrants as criminals and moochers.

My colleague Holman Jenkins once cracked that some plausible ideas vanish in the presence of thought. I would add that some widespread beliefs vanish in the presence of decency. That goes as much for Bernie Sanders’s economic prejudices as it does for Donald Trump’s ethnic ones, a thought that ought to trouble the placid consciences of this column’s more liberal readers.

Someone should tell Comrade Sanders that according to God and Moses, theft and envy are prohibited.

The Wall Street Journal observed this from the Democratic presidential candidate that took place while I was doing something more worthwhile Wednesday:

President Obama has spent seven years denouncing Wall Street and persuading young progressives that the U.S. economy is rigged for the benefit of wealthy financiers. So how will he now persuade them to support Wall Street’s favorite Democrat?

This is the political trap Mr. Obama has sprung on Hillary Clinton, who made it difficult to watch Wednesday’s Democratic town hall on CNN as she squirmed in response to a question about speaking fees she collected from Goldman Sachs. Host Anderson Cooper asked her whether she really had to be paid $675,000 for giving three speeches.

“Well, I don’t know. That’s what they offered,” said Mrs. Clinton—to much audience laughter. She then tried the argument that every Secretary of State does it, and then settled on the unbelievable claim that at the time she took the money she didn’t know she would be running for President again. Mr. Cooper was so startled he asked her to repeat the point.

The laughter likely occurred because the average voter can guess that the traders at Goldman have a keen sense of value. And they’re not trading $675,000 for the entertainment value of Hillary Clinton appearances.