Bain Capital

The Democrats are making Bain Capital a focus in their efforts to undermine Mitt Romney's credibility on his economic policy, and the Republican's are pushing back hard to distance Bain Capital from the discussion.  Here is a link to an excellent summary of what private equity companies do by Robert Reich.   http://robertreich.org/post/20930554256

Here is why I think Bain Capital is extremely pertinent.  Mitt Romneys economic plan is rooted in his claim he will create jobs by protecting the wealthy from new taxes and cutting the size of the Federal deficit by cutting government jobs.

It is a variation on the strategy that Romney employed very successfully at Bain Capital to make lots of money.  But success in the private sector is measured differently than success in government.  Businesses can lay off lots of people to improve their profitability, and the people they lay off are not their problem.  If the economy is good many of them will find a job with some business that is hiring, if the economy is not good - well - its not Bain Capitals problem if they made some peoples lifes incredibily hard.  For the broader economy allowing business to act callously in general works because the private sector is composed of lots of businesses, so even as some are laying people off, normally others are hiring.

But there is only one government.  Economic studies that looked at 70 + governments that have downsized in the last 40 years or so found they always experienced both a decline in GDP and a rise in unemployment (except in high interest rate environments when Government was sucking up all the capital - definitely not our current situation).  Is that really what we want to accomplish as we try to climb out of the economic collapse of a couple years ago.  We can't go on expanding government forever, but the time to trim is in a good economy (like during the Republican administrations early in the last decade that became famous for running up the deficit with earmarks and handouts to rich people).

But beyond the pragmatic economics, government shouldn't be about profitability for the select few rich and powerful - that is exactly the historical problem democracy's were created to address.  That was Ghadaffi's Libya, or now, Putin's Russian.  Governments primary justification is to protect people from one another by mediating to ensure everyone has a fair shot in life.  When government downsizes, particularly in an economic downturn, it is consigning a big group of it's citizens to a difficult period of life, and undermining social stability, to protect the well off from a little inconvenience.

Bain Capital is extremely instructive as the apparent reason an intelligent guy like Romney seems to truly believe cutting government will improve the economy in the face of history that says otherwise.  After all, downsizing companies by firing people worked very well for Bain.

Our obsession with 1/2 of Free market theory

The last decade or so the media is constantly talking about entrepreneurs, and how the free market rewards people who do things better or more efficiently.  The economists buzz word is competitive advantage.

But there are many other ways to succeed in a free market.  The South's competitive advantage in their cotton based economy in the first 80 years of our countries existence was slavery.  They had very low labor costs because they used slaves.

In manufacturing a companies competitive advantage could be skimping on public safety by dumping hazardous chemicals.  Or worker safety.  Or they may lie about the quality or nature of their products in their advertising.

Yet in our political dialogue anyone who addresses the negative ways to obtain competitive advantage is always accused of being anti-business.  It would be helpful if politicians talked more about the negative characteristics of free markets rather than celebrating the positives and painting the negatives as unrelated to free markets.