When Barack Obama first took office economist Ken Rogoff, who served on the International Monetary Fund and at the Federal Reserve, warned the president that the 2008 downturn was no ordinary event. Rogoff advised Obama that downturns resulting from bursting financial bubbles took a minimum of five years to resolve. That meant that recovery wouldn’t be expected to take hold until 2013. A compelling analysis of the crisis, the political stalemate in policymaking and possible solutions has been put forth by the New America Foundation, “The Way Forward”, referenced below. To wit: “The political stalemate is in part structural, but also is attributable in significant large measure to the nature of the present economic crisis itself, which has stood much familiar economic orthodoxy of the past 30 years on its head. For despite the standoff over raising the U.S. debt ceiling this past August, the principal problem in the United States has not been government inaction. It has been inadequate action, proceeding on inadequate understanding of what ails us.” The study is bi-partisan in its critique but to be honest, the solutions given, a substantial five to seven year infrastructure revitalization program, debt restructuring at the household and institutional level and global economic reform are not likely to be championed by a Republican administration in the present political environment. Throughout the entire Obama administration the Republican opposition has conceptualized the current crisis as a garden variety downturn made all the worse by what they believe to be the president’s incompetent policies and that if we could only return to conservative economic fundamentals everything would be alright. The election of Mitt Romney, a businessman, is he held forth as an obvious simple solution and therein lies the problem.
For one thing a nation isn’t a corporation, it has different problems and challenges, it isn’t driven by profit making. A nation is confronted with foreign policy, social and environmental problems that are beyond the scope of a corporation. Secondly, a corporate CEO is beholden to shareholders not the public and his focus is, as a result, rather narrow when compared to president’s. Conservative columnist David Brooks points out the difference: “At first blush, business success would seem to be good preparation for political success. A C.E.O. learns to set priorities, manage organizations and hone analytic skills. But these traits are more transferable to being a mayor, which is more administrative, than to being president…If you look back over history, you see that while business success can sensitize a politician to the realities other executives face, there’s little correlation between business success and political success.” We’ve had several businessmen in the White House, Herbert Hoover, Jimmy Carter and George W. Bush and none of them stand out as great presidents. As such a compelling question arises when we examine Romney’s record and his claims that he’s well suited to the presidency due to his business experience. For one thing Romney’s never been able to quantify whether or not, as a result of his business activity, he created a net positive number of jobs. Quoting Mark Maremont of the Wall Street Journal: “Assigning jobs numbers to private-equity firms has been a fairly rare exercise among researchers…As a result, there is no widely accepted accounting measure. Some academic experts said the Romney campaign’s 100,000-jobs count is flawed, because it gives Bain all the credit, even though other investors also played a role in the four key companies, and includes jobs added long after Mr. Romney left Bain in 1999…Little noticed amid the debate is that the four companies at the core of Mr. Romney’s 100,000-jobs claim were relatively insignificant in the context of his 15-year Bain career. The total invested in all four was about $25 million, or about 2% of the money Bain invested during Mr. Romney’s tenure.” There have been other studies on the topic as well and that raises the question of why hasn’t the Romney campaign produced some hard results that prove that Mitt Romney is the job creator he claims to be? Robert Reich, former Secretary of Labor, pointed out that if private equity companies were such efficient job creators they wouldn’t need all of the favorable tax treatment they receive. Reich pointed out that 98% of the investments channeled into the economy from private equity firms come from outside those firms and as such they aren’t effectively managing resources so much as they’re merely shuffling money around. To paraphrase Reich, through the vehicle of private equity we’ve replaced capital formation with casino capitalism and leveraged buyout firms greatly contributed to the overleveraging that brought us to the brink of disaster in 2008. The truth is that the goal of private equity isn’t to create jobs, it’s to create wealth and any job creation that results is secondary. Thus any claim made by Mitt Romney that his experience at Bain is proof positive that he’s a job creator is both intellectually dishonest and as of today, unsubstantiated.
Regarding Romney as public executive I find it interesting that he has in many ways downplayed his record as governor of Massachusetts and only talks in passing about his role in bailing out the Salt Lake City Olympics. His healthcare law is the obvious reason but his economic track record during that time doesn’t exactly burnish his image as a job creator either. An examination of several news articles reveals why Romney has chosen not to dwell on that record. Citing the Boston Globe and other sources: “Our analysis reveals a weak comparative economic performance of the state over the Romney years, one of the worst in the country. On all key labor market measures, the state not only lagged behind the country as a whole, but often ranked at or near the bottom of the state distribution. Manufacturing payroll employment throughout the nation declined by nearly 1.1 million or 7 percent between 2002 and 2006, but in Massachusetts it declined by more than 14 percent, the third worst record in the country.” FactCheck.org: “Payroll jobs in Massachusetts hit their low point in December 2003 at the end of Romney’s first year in office. And the number of jobs declined in seven of the remaining 36 months of his term, as measured by total nonfarm employment, seasonally adjusted, which is the standard measure of payroll employment used by economists and journalists. The claim that jobs increased “every single month” is false. Furthermore, Romney’s job record provides little to boast about. By the end of his four years in office, Massachusetts had squeezed out a net gain in payroll jobs of just 1 percent, compared with job growth of 5.3 percent for the nation as a whole.” The bottom line on Romney’s record as a governor who created jobs is that Massachusetts ranked 47th overall in job creation during Romney’s tenure, not exactly a winning track record on job creation. When it comes to Romney’s “turnaround” of the 2002 Olympics the one very salient fact that is constantly ignored is that Romney rescued the Salt lake City Games with $1.3 billion dollars of federal money. Beyond the billion plus that went to bail out the games there was an additional $32 million dollars in public funding for infrastructure improvement. Is it any wonder why Mitt Romney doesn’t want to spend too much time airing out the particulars of his turnaround of the Salt Lake City Olympics? After all it was almost totally a function of public spending and in today’s Republican Party that sort of idea is nothing less than heresy.
Beyond the very real questions which arise from Governor Romney’s questionable pitch that he has a track record as a job creator there are a host of questions that relate to policies on taxes and the deficit. Starting with taxes and economic growth, the link between the two is questionable at best. Citing a piece written by David Leonhardt, “Do Tax Cuts Lead to Economic Growth?” recent history shows a disconnect between taxes and growth: “The defining economic policy of the last decade, of course, was the Bush tax cuts. President George W. Bush and Congress, including Mr. Ryan, passed a large tax cut in 2001, sped up its implementation in 2003 and predicted that prosperity would follow. The economic growth that actually followed — indeed, the whole history of the last 20 years — offers one of the most serious challenges to modern conservatism. Bill Clinton and the elder George Bush both raised taxes in the early 1990s, and conservatives predicted disaster. Instead, the economy boomed, and incomes grew at their fastest pace since the 1960s. Then came the younger Mr. Bush, the tax cuts, the disappointing expansion and the worst downturn since the Depression. Today, Mitt Romney and Mr. Ryan are promising another cut in tax rates and again predicting that good times will follow. But it’s not the easiest case to make.” Now granted Romney has proposed to overhaul the tax code as an element in reinvigorating the economy but a detailed study of the plan by the Tax Policy Center has shown that “…achieving all of Mr. Romney’s top-line goals — a revenue-neutral overhaul that does not increase the tax burden of the middle class — is not arithmetically possible.” Moreover the TPC’s Donald Marron, a former Bush administration official said:”At the level of taxes we’ve been at the last couple decades and the magnitude of the changes we’ve had, it’s hard to make the argument that tax rates have a big effect on economic growth.” Another report from Congressional Research Service which analyzed taxes and growth shows: “The results of the analysis suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top tax rates appears to be uncorrelated with saving, investment, and productivity growth. The top tax rates appear to have little or no relation to the size of the economic pie.” Even Reagan era senior economic policy advisor Bruce Bartlett called current Republican Party thinking into question in an article entitled “Taxes and Employment”; to wit: “Since the beginning of the economic crisis, Republicans have insisted that tax cuts and only tax cuts are the appropriate medicine. They almost never explain how, exactly, this would reduce unemployment other than to say it worked for Ronald Reagan in the 1980s…There is simply no evidence that cutting taxes at the present time will do anything to raise employment.” The further problem with Romney’s tax proposals, beyond the fact that they remain largely a mystery on the eve of the election, is that they have the potential to explode the deficit and take the economy back into recession as is detailed in numerous references detailed below. In fact when Romney was governor of Massachusetts that state had the highest per capita debt of any state in the union, a fact that hardly inspires confidence in his ability to manage the federal debt.
There are two additional flaws in Mitt Romney’s claim that he has the heft to turn around the economy. One is a misrepresentation of the problems with regulations. Again, quoting Bruce Bartlett: “Republicans have a problem. People are increasingly concerned about unemployment, but Republicans have nothing to offer them…They assert that Barack Obama has unleashed a tidal wave of new regulations, which has created uncertainty among businesses and prevents them from investing and hiring. No hard evidence is offered for this claim; it is simply asserted as self-evident and repeated endlessly throughout the conservative echo chamber…the number of layoffs nationwide caused by government regulation is minuscule and shows no evidence of getting worse during the Obama administration. Lack of demand for business products and services is vastly more important…These results are supported by surveys. During June and July, Small Business Majority asked 1,257 small-business owners to name the two biggest problems they face. Only 13 percent listed government regulation as one of them. Almost half said their biggest problem was uncertainty about the future course of the economy — another way of saying a lack of customers and sales. The Wall Street Journal’s July survey of business economists found, “The main reason U.S. companies are reluctant to step up hiring is scant demand, rather than uncertainty over government policies, according to a majority of economists.” In August, McClatchy Newspapers canvassed small businesses, asking them if regulation was a big problem. It could find no evidence that this was the case.” Again, what we are given as a way out of the problems of a less than robust economy is a solution in search of a problem to solve and that’s hardly a solution at all.
The second additional flaw in the Romney plan is it’s silence on how to deal with the structural changes that have occured in the world economy over the past forty years and how those chages have affected the American middle class. Other than to carry on about the currency of China, the Romney plan fails to address, as pointed out by Alpert et al.; “the steady entry into the world economy of successive waves of new export-oriented economies, beginning with Japan and the Asian tigers in the 1980s and peaking with China in early 2000, with more than two billion newly employable workers. The integration of these high-savings, lower wage economies into the global economy, occurring as it did against the backdrop of dramatic productivity gains rooted in new information technologies and the globalization of corporate supply chains, decisively shifted the balance of global supply and demand. In consequence, the world economy now is beset by excess supplies of labor, capital, and productive capacity relative to global demand. This not only profoundly dims the prospects for business investment and greater net exports in the developed world — the only other two drivers of recovery when debt-deflation slackens domestic consumer demand. It also puts the entire global economy at risk, owing to the central role that the U.S. economy still is relied on to play as the world’s consumer and borrower of last resort.” A number of studies have shown that these developments have wrecked havoc particularly on the middle tier of the job market, the very segment upon which the post World War II American middle class relyed on for it’s economic existence. These developments have further accelerated the “hollowing” out of the middle class as both jobs and technological innovation have moved from west to east and show little likelyhood of that trend reversing in a big way any time soon.
I closing there is little that would leave any informed observer with the any reason to believe that a vote for Mitt Romney is anything more than a leap of faith, on the part of the voter, that he can significantly effect the American economy for the better. His entire primary strategy was to outlast his advesaries by presenting himself as a safe, if not bland, alternative within an otherwise lackluster primary season. Likewise the same can be said for his contest with Barack Obama, he has stood there parroting stock conservative talking points while failing to produce much in the way of policy particulars all the while hoping that his business experience alone would somehow serve as proof positive that he could better manage the recovery. Thus there is little on offer from Governor Romney upon which a worried and weary electorate can pin theirs hopes on in search for a better tomorrow. According to James Fallows of the Atlantic this has been Mitt Romney’s stock in trade since his earliest days at Bain: “Romney also showed weaknesses that have persisted, even though he managed to minimize their effects in this year’s primary debates. His analysis of any policy rarely moved past the level of abstraction: the problem is too much regulation, so the solution is less regulation, lower taxes, and more incentives for small-business growth. In his Kennedy debates and afterward, this reliance on generalities seemed to reflect both a political and a professional outlook. Politically, a Republican skepticism of government in general reduces the incentive to learn the fine points of difference among public programs. Professionally, Romney’s background as a consultant and private-equity investor has conditioned him to offer his managerial skills and analytic ability, and to worry about specific answers only after he’s been signed on to deal with a troubled enterprise. Robert Walker, a former congressman from Pennsylvania who chaired the Gingrich campaign in this year’s primaries, said that Romney’s trademark avoidance of detail arose from this aspect of his background. “Businessmen and consultants like to sell in glowing generalities, because they are never sure what unexpected things they’ll find when they dig into your problems.” Moreover, as per Ken Rogoff, in reality there is little reason to believe that if Mitt Romney had assumed the prseidency in 2009 that he or any other Republican would have done anything that would have produced radically different results. As such it would appear that neither Mitt Romney nor his lieutenants can provide the voting public with the evidence it needs to make a decision that they alone can create jobs and turn around the economy. The great irony of that is that Romney made business experience his trump card and yet his track record leaves so much to be desired and is, on its face and in its particulars, far from convincing. Perhaps that’s why he’s had so much trouble closing the sale with the voting public.
Steven J. Gulitti
Kenneth Rogoff; http://en.wikipedia.org/wiki/Kenneth_Rogoff
Daniel Alpert, Robert Hockett, and Nouriel Roubini The Way Forward: Moving From the Post-Bubble, Post-Bust Economy to Renewed Growth and Competitiveness;
The C.E.O. in Politics; http://www.nytimes.com/2012/01/13/opinion/brooks-the-ceo-in-politics.html?emc=eta1&_r=0
Mark Maremont: Tally of Job Creation By Bain Proves Vexing; http://online.wsj.com/article/SB10001424052702303292204577519293959381060.html
Mitt Romney Reticent About Bain Capital Debate; http://www.huffingtonpost.com/2012/05/23/romney-bain-capital_n_1540948.html?ref=daily-brief?utm_source=DailyBrief&utm_campaign=052412&utm_medium=email&utm_content=NewsEntry&utm_term=Daily%20Brief
After a Romney Deal, Profits and Then Layoffs; http://www.nytimes.com/2011/11/13/us/politics/after-mitt-romney-deal-company-showed-profits-and-then-layoffs.html?emc=eta1&_r=1&
Can Anyone Really Create Jobs?; http://www.nytimes.com/2011/11/06/magazine/job-creation-campaign-promises.html?pagewanted=2&emc=eta1&_r=0
Robert Reich on the Role of Private Equity; http://www.wnyc.org/shows/bl/2012/may/25/robert-reich-role-private-equity/
Should Romney get credit for job creation through Bain, if “any job creation was accidental”?; http://althouse.blogspot.com/2012/05/should-romney-get-credit-for-job.html
Romney’s economic record; http://www.boston.com/news/globe/editorial_opinion/oped/articles/2007/07/29/romneys_economic_record/
Myrtle Beach Blarney; http://www.factcheck.org/elections-2008/myrtle_beach_blarney.html
Mitt Romney plays the jobs card Commentary: Looking at his record, it’s a losing argument; http://www.marketwatch.com/story/mitt-romney-tries-to-play-the-jobs-card-2010-02-23?pagenumber=1
Mitt Romney and the Olympic bailout; http://www.democrats.org/news/blog/mitt_romney_and_the_olympic_bailout
Romney and the Olympics: What the Salt Lake Games say about a Mitt Romney presidency; http://www.deseretnews.com/article/865559550/Romney-and-the-Olympics-What-the-SLC-Games-say-about-a-Mitt-Romney-presidency.html?pg=all
Do Tax Cuts Lead to Economic Growth?; http://www.nytimes.com/2012/09/16/opinion/sunday/do-tax-cuts-lead-to-economic-growth.html?emc=eta1&_r=0
Tax Topics: The Romney Plan; http://taxpolicycenter.org/taxtopics/romney-plan.cfm
Taxes and the Econom: An Economic Analysis of the Top Tax Rates Since 1945; http://graphics8.nytimes.com/news/business/0915taxesandeconomy.pdf
Bruce Bartlett: Taxes and Employment; http://economix.blogs.nytimes.com/2012/05/01/taxes-and-employment/?emc=eta1
A Tax Plan That Defies the Rules of Math; http://www.nytimes.com/2012/08/12/opinion/sunday/romneys-tax-plan-defies-the-rules-of-math.html?emc=eta1&_r=0
Under Romney, Massachusetts Had Highest Per Capita Debt Of Any State; http://thinkprogress.org/economy/2012/05/16/485035/romney-debt-massachusetts/?mobile=nc
Higher Deficits Seen in Romney’s Tax Plan, and His Rivals’, Too; http://www.nytimes.com/2012/01/19/us/politics/romneys-tax-bill-and-gop-deficit-problems.html?emc=eta1
CBO Report Says Deficit Reduction Will Cause New Recession; http://www.huffingtonpost.com/2012/05/22/cbo-report-deficit-reduction-recession_n_1537774.html?ref=daily-brief?utm_source=DailyBrief&utm_campaign=052312&utm_medium=email&utm_content=NewsEntry&utm_term=Daily%20Brief
FACT CHECK: Romney’s Plan Would Slow The Recovery, Explode The Deficit; http://3chicspolitico.com/2012/06/12/fact-check-romneys-plan-would-slow-the-recovery-explode-the-deficit/
Bruce Bartlett: Misrepresentations, Regulations and Jobs; http://economix.blogs.nytimes.com/2011/10/04/regulation-and-unemployment/?emc=eta1
Don Peck: Pinched: How the Great Recession Has Narrowed Our Futures & What We Can Do About It.
90 Million Workers Won’t Be Needed By 2020, Study Says; http://www.huffingtonpost.com/2012/06/19/unskilled-workers-2020-mckinsey-global-institute-study_n_1609767.html?utm_hp_ref=daily-brief?utm_source=DailyBrief&utm_campaign=062012&utm_medium=email&utm_content=NewsEntry&utm_term=Daily%20Brief
The Seismic Economic and Political Changes that Transformed the American Dream; http://www.pbs.org/newshour/bb/politics/july-dec12/smith_10-01.html
The Structural Revolution; http://www.nytimes.com/2012/05/08/opinion/brooks-the-structural-revolution.html?emc=eta1
James Fallows: Slugfest; http://www.theatlantic.com/magazine/print/2012/09/slugfest/309063/
Stimulus Is Maligned, but Options Were Few; http://www.nytimes.com/2012/02/29/business/economy/republicans-malign-a-stimulus-but-the-plausible-options-were-few-economic-scene.html?adxnnl=1&emc=eta1&adxnnlx=1352030442-60rkb0Mri/Am1cGfZVvyIA