Yuval, Avik Roy, Ramesh, Michael Walsh, and Jonathan Last at The Weekly Standard, among many others, have all written perceptively about the relationship between Mitt Romney’s work at Bain Capital and our political economy.
I think that this paragraph from Jonathan Last gets to the nub of the issue:
Romney’s work at Bain differs in some important ways from how he has characterized it thus far. When Romney says that his goal at Bain was to “create jobs,” that’s not entirely true. As a private equity firm, Bain’s goal was to maximize return on investment (ROI) for a small group of high net worth investors. Sometimes that meant giving seed money to a promising start-up. Sometimes it meant rescuing a company and turning it around. Sometimes it meant finding revenue streams a company hadn’t realized—including government bailouts. Sometimes it meant off-shoring a company’s jobs. And sometimes it meant finding a company whose component parts were worth more than the whole—and dismantling it.
Without respect to the electoral politics and messaging for a moment, the predominant form of “bad” capitalism in contemporary America is created by the joining of a capitalist enterprise with the coercive power of the state, not by the impurity of the motivations of the capitalist. This distinction is crucial for defenders of free enterprise.
This perversion of capitalism normally arises in one of two ways: (1) the crony capitalism of state-backed enterprises, or (2) the implicit violence of lawbreaking by dishonest capitalists. The root problems that need to be addressed in finance in the U.S. are things like Fannie / Freddie, too-big-to-fail, government bailouts of specific companies and so forth, on one side, and Madoff-type scandals, on the other. No real political economy is ever textbook-pure, so there will always be some of both of these, but they ought to be reduced from their current levels.
But requiring that businesspeople make decisions based on some putative idea of altruism, even if such a stricture could be defined and enforced, would be a terrible idea. Capitalists should not be restricted as to intention, but as to method. As a rough-and-ready rule, they should be forbidden from using force. The government may also choose to place additional regulations on them (weights and measures rules, minimum wage laws, non-discrimination laws, etc.). While any given regulation is debatable, some formal regulation is required for real markets, and capitalists should have to obey the law. Further, real markets depend to some extent on informal norms — e.g., general commercial honesty, an ethic of “a deal’s a deal,” and so on. This last point can obviously get somewhat fuzzy, but is still important.
Within these constraints, we should generally want capitalists to pursue their self-interest in business dealings. This is not some falling short of humanity, but the way we grow the material wealth of the society as a whole over time. This is the meaning of Adam Smith’s famous aphorism that:
It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest. We address ourselves, not to their humanity but to their self-love, and never talk to them of our own neccessities but of their advantages.
The valid criticism of Romney as a capitalist would be that he worked government angles to seek advantage for himself, or broke laws or crucial norms. Seeking to make more money within the rules is a good thing, not a bad thing, for a capitalist to do. That is, Romney’s immediate goal was almost certainly to make money, not to “create jobs.” But the effect of Romney’s actions was to do this — though most of these jobs were created indirectly. This is Adam Smith’s famous “invisible hand.”
Romney was working to “create jobs” only in the sense that if you believe in this, you can have confidence that you are doing your part to increase overall material well-being of society by acting as a self-interested capitalist. More precisely, if all capitalists act this way, then over time, society will advance materially. Tracking your indivudal contribution, or even knowing if it was positive or negative, is a fool’s errand. This is why the very act of trying to count the jobs created at Staples, assessing how many would have been created had Mitt Romney not agreed to take the job running Bain Capital instead of somebody else, estimating how many of these Staples jobs need to be netted against other jobs that therefore were not created at other business supply stores, and so forth is so self-defeating. If we could accurately calculate things like that, we would have much less need for markets in the first place.
The key argument made by critics of “financial capitalism” that can be construed as consistent with all of this relates to the idea of informal norms. In simplified and illustrative terms, this argument would be that by doing something like breaking a norm against laying people off after age 50, these firms create value for themselves, but at the expense of the long-term degradation of society, and therefore the transfer of wealth from almost everyone else to themselves. This is a huge subject that will not be resolved in a blog post, but the key problems that critics of leveraged buyouts seem to point to are layoffs and moving production offshore. Restraining business from doing either of these things is a terrible idea for long-run wealth (and job) creation, and goes to the heart of the creative destruction inherent to real free enterprise.
Obviously there are shades of gray, and as I said all markets require regulation, but we need to be grown-ups about the choices we face. Enjoying the growing wealth created by free markets without the pain, uncertainty, and risk that they involve is a fairy tale for an advanced economy.
To end with a word on the politics, I agree with Yuval that this implies that Romney’s work at Bain is only a partial preparation for high political office. On one hand, it would presumably help him to see the economy in a more practical light; but on the other, participating in a capitalist economy is a very different task than regulating it. I have no idea how the politics of this will play out, what is the best way for a Romney campaign to communicate these ideas, or even if they should be communicated at all. But I am convinced that “de-politicizing” our now much politicized economy is very important for America’s future growth and prosperity.
Romney wouldn't have to worry about or face these accusations if he wasn't EXPLICITLY touting his experience as a 'job-creator' and contrasting that to Obama!
It's a self-inflicted wound, a veritable Plaxico Buressian mistake, and one that will continue to bleed for some time. Romney cannot afford to have a period of sustained inquiry into his former dealings for three reasons:
1, Inevitably, there will be SOME instances in which Bain Capital profited tremendously while the workers of the businesses they took over did not or were even laid off. That's a tough sell in any environment. If Bain was truly interested in the future of these businesses, why were they paying themselves a ton of money, instead of re-investing that money in growing the business? The truth is that they were not always interested in the future of the businesses, but rather, in returns for their investors.
2, 'Creative Destruction' is a tough sell for many low-information voters. It requires a much broader view of our economy and how economics work than the vast majority of Americans seem to have. And it's understandable; if you or your spouse was laid off in the last several years, it's pretty difficult to look at Creative Destruction as an ethical thing, even if it is necessary for our economy to achieve maximum efficiency.
3, Discussions of Bain are toxic for Romney, as they will eventually lead to discussions about the money he still receives from them, and the taxes he pays on that money. Romney CANNOT AFFORD to have prolonged conversations regarding the extremely low tax rates he pays, especially in light of the fact that he is actively running on lowering his own taxes tremendously, while raising them on many working-class families.
Reply to this commentLinkReport AbuseAll valid observations, but Romney is not competing against a Platonic ideal candidate. Are these challenges for Romney worse than Gingrich's record of millions from Freddie Mac or Obama's billions of bailouts for his union buddies? I'd like a perfect candidate but none seem to be running.
Reply to this commentLinkReport AbuseIt's up to the individual to judge whether these are bigger problems than the other candidates. I don't think they necessarily ARE bigger, but Romney has made the strategic decision to base his campaign on his past experience as a exec. at Bain, which opens him up to examination and criticism of that record.
My guess is that in the general election, he's going to pivot right back to using his time as governor of MA as his prime experience and qualification. That ought to be interesting to watch.
Reply to this commentLinkReport AbuseI completely agree with The Fish on the Romney - Bain Capital thing. And I also agree with him that travis is not answering his questions and attacking him personally. Fish, you certainly have the better argument, and argument style - FYI.
Regarding the Romney-Bain thing, I think it is perfectly fine to discuss his record at Bain, while he was there, and let people think of it what they will. What if it happens to be true large portions of these "jobs" Mitt created were indeed jobs sent oversea? Is this a modle of capitalism we want for our country? I thought we ewre against creating, or even using the current environment to send jobs overseas. Maybe we aren't from the looks of these posts on this topic.
Research Bain, instead of your brain, and lets see if Mitt makes his tax info public, and if he even talks about the Bain years, as he so illustrates to us gives him special powers to be president.
What if the obama machine finds out later this year that mitt at bain outsourced jobs? That he leveraged patents to create a "mini-monopoly" to create a "value" to a purchased company, hurting other companies in the process, and then sold it for big returns? What if he, in his dealings with Bain, lobbied favor for a purchased company with the government, either with taxes, regulations, or possibly policy changes, and profited?
I am a hard-core conservative, no longer a republican. I think it is IMPERATIVE to vet this Bain issue of Romney's now, then to have the obama machine own it later. We are already losing the 99-1%, rich-poor argument, and I don't see how ignoring Romney's claim to the presidency would help our side, or the country going forward.
Didn't we win the last election, the right that is? If so, why then are we running the the left?
Reply to this commentLinkReport AbuseI completely agree with The Fish on the Romney - Bain Capital thing. And I also agree with him that travis is not answering his questions and attacking him personally. Fish, you certainly have the better argument, and argument style - FYI.
Regarding the Romney-Bain thing, I think it is perfectly fine to discuss his record at Bain, while he was there, and let people think of it what they will. What if it happens to be true large portions of these "jobs" Mitt created were indeed jobs sent oversea? Is this a modle of capitalism we want for our country? I thought we ewre against creating, or even using the current environment to send jobs overseas. Maybe we aren't from the looks of these posts on this topic.
Research Bain, instead of your brain, and lets see if Mitt makes his tax info public, and if he even talks about the Bain years, as he so illustrates to us gives him special powers to be president.
What if the obama machine finds out later this year that mitt at bain outsourced jobs? That he leveraged patents to create a "mini-monopoly" to create a "value" to a purchased company, hurting other companies in the process, and then sold it for big returns? What if he, in his dealings with Bain, lobbied favor for a purchased company with the government, either with taxes, regulations, or possibly policy changes, and profited?
I am a hard-core conservative, no longer a republican. I think it is IMPERATIVE to vet this Bain issue of Romney's now, then to have the obama machine own it later. We are already losing the 99-1%, rich-poor argument, and I don't see how ignoring Romney's claim to the presidency would help our side, or the country going forward.
Didn't we win the last election, the right that is? If so, why then are we running to the left? Let's not be afraid to challenge our own candidates, like the left. It is not about capitalism, but about him touting his record of creating jobs. IT IS THAT SIMPLE!
Reply to this commentLinkReport AbuseIsn't Mr. Fish from the left side of the spectrum, a Democratic Party supporter?
Reply to this commentLinkReport AbuseIn fact, I have a life-long history of voting for Republican candidates in both State and Federal elections. While I occasionally have voted Democrat - and this has increased in large part due to the destruction of the party and their principles brought about by the Bush admin - I'm a holdover from the sensible days of the GOP, back when fiscal conservatism was a larger topic than Endless Tax Cuts, which is all today's crop seem to think matters.
Reply to this commentLinkReport AbuseWhere's the laugh track?
Reply to this commentLinkReport AbuseHoly cow, someone voted Fish a thumbs up 0.000003 seconds after posting. Never would have guessed that.
1. Bain people making money - that's the whole point, Fish, of Bain. You simply don't like this. You're not alone, unfortunately, because even though you're a smart guy, you and others have been taught a load of poop over the years about how a society should best operate. You're not really a fan of capitalism, as much as you scream you are. You're not. If you were I would not BS you and say you were not.
2. It wouldn't be as tough a sell if people like you actually knew the primary point of capitalism, which isn't making jobs. The jobs happen to be nice benefits from the capitalist, whose motivation for doing what he's doing doesn't really matter. Again, you're a smart guy. But you can't fully comprehend this. Again, you're not alone. But instead of pandering to the lowest common denominator, and you seem to think of no other way around it, why not educate everyone about capitalism? Why not get rid of this class warfare, this disgusting envy that rots people from within because they start hating other people they don't even know for making money? I can't imagine wasting my life being angry at what other people make. Makes no sense, I couldn't get anything done in my own life.
3. Really goes back to your Point #2, which really goes back to Point #1. In fact, you don't really have three different points at all. Did you even know that? What you have are three different ways of expressing your disgust for capitalism. It's jealous, class warfare BS. Why are you so scared of capitalism, Fish? Why are so many people like you scared? Who taught millions this pathetic, meek, outlook on life? Are you mad because you aren't as rich as Romney? I'm not as rich as Romney, either, and I don't feel threatened by him or what he believes. I don't give a $#!% what his tax rate is, as long as he's not breaking the law. That's not to say there shouldn't be ridiculous tax rates in this country. But that's another discussion. The bottom line is that I I'd like as many people to strive toward Romneyville than Obamaville or any other Leftistville out there because leftists turn people on one another just like you're doing here. The left makes society less free, less good. History has proven this.
You're a smart guy, Fish. You have lots of knowledge but little wisdom.
Reply to this commentLinkReport Abuse1. I don't have a problem with Bain making money, or what they do, at all. In fact, I've SPECIFICALLY TOLD YOU that I don't have a problem with this in three separate posts now. You ignore this in large part b/c it destroys your narrative about me.
My only point is that Mitt can't use his time there as evidence that he is a 'job-creator.' Which seems to be a pretty valid point.
2. 'Envy' is usually a catch-all excuse put forward by those who can't understand the motivations of others. Without any actual evidence to back up the accusations, however, there's little reason to take them seriously.
3. You have no good response to point #3, and that worries you, because it is a major problem for Romney in the upcoming general election. Your obfuscating paragraph is unintersting to me and doesn't answer the question of how Romney is going to respond to the pointed inquiry regarding the amount of taxes he pays, and why they are so much lower than almost every other middle-class American pays, and how he is seeking to lower them even further. I would be interested in seeing what your actual response to that would be - far moreso than a misplaced and inaccurate ad hominem attack on your part.
Reply to this commentLinkReport AbuseLet me let you in on a little secret, Fish: If you had no problem with Bain, you wouldn't have written what you've been writing today and in the past. It's that simple. You would agree with everyone who's been disagreeing with you. It ain't that hard to figure out. The most ridiculous thing about your responses is that you run away from the stuff you've written. You can't even stand up to yourself. You have to actively seek other people to vote a Thumbs Up! to validate what you put down because either you're that insecure about it, or you want more weight behind what you write. I mean, good Lord, I don't know anyone who craves the Thumbs Up! more than you.
I read what you say about Mitt. I understand your point about him saying he's a job creator and that he can't say he's a job creator. Where, then, did all the jobs created while he was at Bain, come from? Were no jobs created? Was one job created? If you actually focused like a laser beam on just that, which you have not been doing, because I've been reading people elsewhere who have been doing that, and they're not writing what you're writing, then I'd believe your motivation for all this. But the fact that drone on and on and on about class warfare garbage means there's a different, underlying message to what you write, whether you notice or not - I've noticed it, Fish.
Reply to this commentLinkReport AbuseI didn't give you the courtesy of answering your direct questions, sorry, because I've been so caught up in the rest of the junk you've put down.
how Romney is going to respond to the pointed inquiry regarding the amount of taxes he pays
He has to release his tax forms. Will he? I don't know. Do I care? Yes, he should.
and why they are so much lower than almost every other middle-class American pays
First, how do you know what he pays? He hasn't released his tax forms. Second, why phrase the question as you did? Do you not get why it's hard to believe it when you say you've got no problem with Bain? You're obsessed with Romney's wealth. It's a turn-off to you. If it were not, you wouldn't be talking about it incessantly like Robert Reich. You disguise your disgust by saying - gee, how is Romney going to convince voters X,Y,Z - when it's really you who can't stand the piles of money he's made. I don't detect a lot of honest empathy for Romney's predicament, if there is one, and there is only one if you think as you do, which is what I've said before, which for some idiotic reason you classify as ad hominem. You are what you are. I've said that before, too.
...and how he is seeking to lower them even further.
Lower what further, and/or for whom? You need to be specific. Business taxes? Income taxes? What's your beef? There are genuine criticisms to be made, I'd like to know what yours are.
Reply to this commentLinkReport AbuseAre you really proposing that my belief that Romney is a candidate with major problems makes me some sort of outlier around these parts? I don't have empathy for Romney's predicament, because the man is a flip-flopping fool who brought every problem he is currently facing on himself. You're definitely right about that part.
About the 'envy' thing that you keep forwarding, I honestly don't understand where such an accusation stems from. I couldn't care less how much money he has or makes, and I'm certainly not complaining about my lot in life. I'm very lucky and hopefully will continue to be so in the future. None of that changes the salient facts regarding Romney, and the questions that he will face this Fall.
As to your last point, I have highlighted three ways he's trying to lower the amount of taxes he pays/raise his own income in a post below.
Reply to this commentLinkReport AbuseAre you really proposing that my belief that Romney is a candidate with major problems makes me some sort of outlier around these parts?
No.
About the 'envy' thing that you keep forwarding, I honestly don't understand where such an accusation stems from.
I know.
I have highlighted three ways he's trying to lower the amount of taxes he pays/raise his own income in a post below.
Gersen addressed that, which went over your head.
Reply to this commentLinkReport AbuseI knocked his points down easily. I don't know how that counts as 'over your head.'
You seem to be much more heavily invested in 'winning' these online discussions, than you do actually forwarding logical and well-thought out arguments yourself. But there is no winner in online discussions; only people making points, and the reader decides. I highly doubt your repeatedly and myopic focus on my personality or history convinces anyone of anything, other than the fact that you have a problem staying on point when presented with arguments you have no good response to.
Rather than outsource your work to Gersen, why don't you try responding to what I wrote yourself?
Reply to this commentLinkReport AbuseYou write this:
You seem to be much more heavily invested in 'winning' these online discussions
After you wrote this:
I knocked his points down easily.
Couple that to your Thumbs Up! obsession, along with a mirror, and maybe one day you'll see how it all adds up.
Rather than outsource your work to Gersen, why don't you try responding to what I wrote yourself?
Because what he said was sufficient. If you have other points beyond what was discussed, have at it.
Reply to this commentLinkReport AbuseAllow me to interrupt this discussion for a second to congratulate (and thank) the Fish for being a lonely voice of reason in this thread.
As someone who knows a thing or two about finance (and as a conservative in the traditional sense of that word), I find people like Colonel Travis both depressing and incredibly boring.
Good to know there is at least someone who is trying to respond to these comments intelligently.
Okay, that's it. Thanks Fish. Now back to work for me (in the financial industry maybe???? ;)
Reply to this commentLinkReport AbuseTo respond briefly to your points:
1. You apparently understood nothing Jim Manzi wrote.
2. You apparently have a very low opinion of most voters if you think they can't understand that (to use but one example) the advent of personal computers made everyones' lives better, even if it put the manufacturers of typewriters out of business.
3. Taxes are paid on income, not wealth. I have no doubt Romney pays his fair share. It's funny that we have a Treasury Secretary who cheated on his taxes, yet you think a discussion of tax rates on capital gains is somehow toxic.
Reply to this commentLinkReport AbuseSorry, this was supposed to have been a reply to TheFish.
Reply to this commentLinkReport AbuseI say it's high time to make the attempt to communicate what needs to be communicated about basic free-market economics and the benefits to everyone. I don't think anyone's even tried since about 1986.
Reply to this commentLinkReport Abuse