Last night, San Antonio mayor Julian Castro followed up his dud of a line about how “President Barack Obama” is the answer to how we “multiply” individual success with one that garnered huge applause:
Mitt Romney, quite simply, doesn’t get it. A few months ago he visited a university in Ohio and gave the students there a little entrepreneurial advice. “Start a business,” he said. But how? “Borrow money if you have to from your parents,” he told them. Gee, why didn’t I think of that?
The roaring audience certainly thought this was clever, a good jab at rich-kid Romney — who has the privilege of borrowing money from their parents to start a business, after all? But there are two points to be made here: First, Romney wasn’t actually suggesting this as a natural strategy for students ex nihilo; he was telling them the story of subway-sandwich savant Jimmy John:
On Friday afternoon here, Mr. Romney recounted their tales during a guest lecture to students at Otterbein University, a private liberal arts college in suburban Ohio.
Mr. Romney started with Jimmy John, the founder of Jimmy John’s Gourmet Sandwiches.
“He graduated from high school and he didn’t want to go to college,” Mr. Romney said. “And he said to his dad, can I borrow some money, I want to start a business.”
His father was skeptical, but he loaned him $20,000. “The only thing that would work for $20,000 was a sandwich shop, so he started making sandwiches,” Mr. Romney said.
The rest, Mr. Romney said, is more or less history. His outfit went national. “His sandwiches are doing pretty well,” Mr. Romney said, chuckling.
Mr. Romney encouraged the students in the room to follow Mr. John’s path. “Take, take a shot, go for it. Take a risk. Get the education. Borrow money if you have to from your parents. Start a business.”
Of course, not every $20,000 loan turns into a business with 1,200 franchises, but Romney’s point was taking a risk and borrowing to invest in a business or an education is a good idea, and he’s precisely right to suggest that young people should look first to their families, rather than the government, for support in those endeavors.
There’s no question that entrepreneurs and small businesses are key drivers of the economic growth the U.S. needs, and yet small-business loans are exceedingly hard to come by, even before the recent credit crunch (it’s worth noting, also, that Dodd-Frank’s new strict regulation of smaller banks has already made them more circumspect about making such loans). Access to credit has always been a serious obstacle in the way of start-ups, never more so than now.
And it’s not like the amount of money necessary to start a small business requires having George Romney for a dad. Even after the economic downturn, in fact, many American families are wealthy enough to extend a loan that could enable someone to start a business, or certainly to augment other sources of funding (obviously much of this wealth is tied up in real estate, but this is a much better way than a new bass boat to use a home-equity loan).
But most important, those of an entrepreneurial age don’t have this wealth, but their parents do: While the median household net worth of people under 35 is just $9,300, those 55–64 have a net worth of $179,400, and those 65–74 are worth $206,700. Considering families with children, one should also increase these numbers by about 15 percent, because that’s the average of all households, and married couples are worth about that much more than the average household.
There are some caveats, obviously: Small-business loans are very risky (the default rate is about 20 percent), but the loans can generate a healthy return for the elderly in loco parentis investors at a time when individual investors are chasing returns. (If the business is successful, of course, they could also choose to end up with a healthy slice of equity.) Further, the numbers I listed only indicate that households in the upper half of the wealth distribution have at least that worth or more, but that’s a lot of Americans; it’s hardly just Cranbrook-Kingswood graduates whose parents could stake them.
Familial transfers we don’t think of as “investments” per se, like time spent on family-rearing, generate tremendous returns for society; more explicit forms of intergenerational investment should be laudable enterprises, not objects of ridicule. Families are an incredibly powerful way, and a lot better than trusting in President Obama, to “multiply” talent and success. Ignoring these benefits in favor of assuming that the federal government, rather than families, should be supporting small businesses and entrepreneurs is evidence that it’s Castro, not Romney, who “doesn’t get it.”