Ruminations, February 5, 2012
Obama vs. Romney; who’s better at managing the U.S. economy?
Mitt Romney’s Bain Capital, according to an op-ed piece in the Wall Street Journal, “saved America.”
Writer Daniel Henninger says the key to saving the American economy was Bain-like companies that took advantage of “... the deregulation begun by Jimmy Carter and continued by Ronald Reagan. Airlines, ground transportation, cable and broadcasting, oil and gas, banking and financial services all experienced regulatory rollback. Meanwhile, a competitive, globalized marketplace was rising. Management at some of America's biggest companies, confused by these rapid changes, found themselves sitting on huge piles of unused or poorly deployed cash and assets …” and were replaced by more expansion-minded managers put in place by Bain-like acquisition companies.
And even in that crowd Bain stood out. Bain was so good that its returns during Romney’s tenure averaged 88 percent annually -- and, on balance, it created more jobs than it lost.
How has Obama fared in comparison?
- Solar panel maker Solyndra received a taxpayer-guaranteed loan of $535 million and failed.
- Energy-storage firm Beacon Power received a taxpayer-guaranteed loan of $43 million and failed.
- Electronic battery maker Ener1 received $118 million in stimulus grant money and failed.
It seems clear that Romney knew what he was doing and Obama is over his head; but is that the case? Maybe.
Maybe the list is incomplete. Obama supporters will point to the $85 billion that was pumped into the American automobile industry and how that saved the industry. Could Bain Capital have moved in and acquired the auto industry? Not at those prices. In fact, Romney in an op-ed said that the auto companies should have gone through a “managed bankruptcy” that would have averted a government bailout.
Had Bain capital the resources to acquire the auto industry it is doubtful that they would have. . But even if Bain had acquired GM and Chrysler they could have been charged with corporate malfeasance because they would have had a negative return.
Does this mean that Obama was wrong? No, it means he had different objectives. From a pure economic perspective, GM and Chrysler should have been allowed to fail or enter into bankruptcy early-on. But Obama is not a financial executive seeking a return; he was a politician seeking a political solution and that’s what he got.
The “managed bankruptcy” that Romney suggested might have been better but no one knows for sure. Certainly, leaving decisions up to the courts and management would have provided fewer options for the federal government – and politically, it’s always good to have more control or, at least, the illusion of it. Given the economic environment of 2008-2009 with financial institutions failing, it was arguably politically wise for Obama (and Bush before him, to a lesser extent) to intervene in the auto industry.
Of course it’s one thing for the federal government to intervene in the auto industry, one of our largest symbols of economic industrialization and one that employed 1.6 million people – and another thing to pick winners in start-up companies. In his defense of the Solyndra, Beacon Power and Ener1 failures, Obama said that there are often failures in new industry start-ups, and he is absolutely right. The question is: Should the federal government be investing in new start-ups or is that better left to companies like Bain Capital? Bain and its ilk don’t invest taxpayer money, and should they make decisions that result in losses, it doesn’t cost the taxpayers a penny.
One would hope that if Romney is elected president, he chooses not to risk taxpayer money and at the same time recognize that sometimes political decisions (such as the bailout of GM and Chrysler) are necessary. Obama, in this arena, gets a grade of 50 percent.
Know your friends
The late Morris “Mo” Udall (D, AZ) served as a U.S. Congressman from Arizona for 30 years. He was well-known during his life as a former NBA basketball player who once ran for president, finishing second in the Democratic primary to Jimmie Carter in 1976. A liberal, Udall developed an incurable form of Parkinson’s disease and spent his last years in a VA hospital.
In spite of his fame and popularity, only one politician came to visit him during his declining years in the hospital: John McCain (R, AZ).
You don’t have to like McCain’s politics but you must admire his character.
Quote without comment
German Finance Minister Wolfgang Schauble, in an interview with the Wall Street Journal, January 30: “I don’t know how it’s best done in America, but in Germany it works like this: If you want more private demand, you have to take away people’s angst.”
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