July 17 2012
What the Bain Attacks Show about President Obama: He's Clueless about Capitalism
What, more than anything, do the Obama campaign’s relentless attacks on Bain Capital show? No, not that Mitt Romney is a heartless capitalist. Something worse.
Like the president’s recent remarks in Roanoke, the assault on Bain reveals a man and an administration absolutely clueless about how jobs are created. The frenzied attacks on Bain and the 8.2 unemployment rate are coming from the same place.
Bain has been a great job creator, according to Andy Kessler, a former hedge fund manager, who explains how the process works in today's Wall Street Journal. Unlike the president, who bailed out an automobile industry that badly needed to go through the bankruptcy and restructuring process, Bain executives understood that creating jobs is a dynamic process that often requires a bit of creative destruction:
Did Mitt Romney and Bain Capital help office-supply retailer Staples create 88,000 jobs? 43,000? 252? Actually, Staples probably destroyed 100,000 jobs while creating millions of new ones.
Since 1986, Staples has opened 2,000 stores, eliminating the jobs of distributors and brokers who charged nasty markups for paper and office supplies. But it enabled hundreds of thousands of small (and not so small) businesses to stock themselves cheaply and conveniently and expand their operations.
It's the same story elsewhere. Apple employs just 47,000 people, and Google under 25,000. Like Staples, they have destroyed many old jobs, like making paper maps and pink "While You Were Out" notepads. But by lowering the cost of doing business they've enabled innumerable entrepreneurs to start new businesses and employ hundreds of thousands, even millions, of workers world-wide—all while capital gets redeployed more effectively.
This process happens during every business cycle and always, always creates jobs. Yet is ignored by policy mavens.
It is now four years after the wheels fell off our financial system. The government has tried every gimmick to revive the economy: fiscal stimulus, monetary easing, loan write-downs, foreclosure modifications—all duds. It seems like no one remembers how an economy creates jobs anymore. The right answer, in fact the only answer, for jobs and better living standards, is productivity.
Productivity, according to Kessler, works to create jobs in three ways—one is using technology to create something entirely new. Ironically, Kessler cites as an example the ATM machine. As you remember, President Clueless once famously blamed ATMs for taking jobs from people. This shows an incredible ignorance about economics:
The inventor or entrepreneur who uses the invention benefits from sales and wealth and hires people to produce the good or service. We don't hear about this. Instead we hear about the layoffs of bank tellers, stockbrokers and media salesmen. So productivity becomes the boogeyman for job losses. And many economic cranks would prefer that we just hire back the tellers and toll collectors.
This is a big mistake because new, cheaper technology becomes a platform for others to create or expand businesses that never before made economic sense. Adobe software killed typesetters, but allowed millions cheaply to get into the publishing business. Millions of individuals and micro-size businesses now reach a national, not just local, retail market thanks to eBay. Amazon allows thousands upon thousands of new vendors to thrive and hire.
Unfortunately, there are roadblocks to productivity:
With all the iPads and Facebook and cloud-computing growth, why is unemployment still 8.2% and job creation stalled? My theory is that productivity is always happening but swims upstream against those that fight it. Unions, regulations and a bizarre tax code that locks in the status quo.
If you want an alternative vision, reread President Obama’s Roanoke speech. The president appears to be licking his chops over the possibility of future bailouts. Oh, and don't forget the regulations and higher taxes.
Mitt Romney has got to tell the American people that the Bain attacks reveal more about a president who doesn't know how capitalism works than about Romney.
If Romney can’t do a better job of explaining this, we are likely faced with the prospect of an increasingly government-run economy struggling in vain to create jobs by doing all the wrong things.