Archive for the ‘Capitalism’ Category
We basically have this now anyway.
The problem is we now have 79 federal means-tested welfare programs that spend a bit more than $1 TRILLION annually.
These 79 federal welfare programs include . . .
- 12 programs providing food aid;
- 12 programs funding social services;
- 12 educational assistance programs;
- 11 housing assistance programs;
- 10 programs providing cash assistance;
- 9 vocational training programs;
- 7 medical assistance programs;
- 3 energy and utility assistance programs; and
- 3 child care and child development programs.
How would a low-education person living in poverty even navigate this maze of federal programs?
This impoverished person would need to hire a lawyer (for $300-$500 per hour) to figure out how to get the benefits to which she’s entitled.
How many people have actually found a job through a federal jobs training program?
According to the Census Bureau, 44,000,000 Americans are living below the poverty line.
This means if we simply divided the $1 TRILLION among the 44 MILLION Americans in poverty, we could provide $22,727 each year for every man, woman, child, and baby living in poverty.
That’s $90,909 per year for a family of four living in poverty — if the government simply wrote these families a check each month.
Of course, the poor are not getting this money. It’s being siphoned off by the government bureaucracy. It’s also being passed out in the form of grants to non-profits — ACORN-style “community organizing” groups to turn out the vote for Democrat candidates.
What would be an appropriate amount for people in poverty should receive from taxpayers?
Well, according to the federal government, these income levels are considered to be the poverty line:
2015 U.S. POVERTY GUIDELINES:
Persons in family/household Poverty guideline
1 — $11,770
2 — $15,930
3 — $20,090
4 — $24,250
5 — $28,410
6 — $32,570
So if the federal government simply wrote checks to people at this level, we could eliminate probably 75 of the 79 federal anti-poverty programs.
Since we are now spending $22,727 on every man, woman, child, and baby in poverty, simply writing checks to poor people in the above amounts would easily cut the cost of welfare to the taxpayer by 60 percent or more.
Remember, the first person in a household is considered in poverty if that person is bringing in $11,770 or less per year. Each additional person per household is thought to require a bit more than $4,100 per year to not be considered below the poverty line.
Also, low income Americans are getting Medicaid. So their basic health care needs are covered, as has been the case since 1965.
Medicaid costs taxpayer about $265 BILLION per year. That’s considered a means-tested poverty program. So when this is factored in, the cost of means-tested welfare to the American people, could easily be cut by 35-40 percent if we simply turned welfare into a check-writing operation without all those government bureaucrats and “community organizing” non-profits siphoning off the money.
The poor also have free education in the form of the public schools.
So they get a minimum income, as outlined above. They also receive Medicaid (free health care) and free education.
But wouldn’t a guaranteed income encourage laziness and fraud?
Yes, it would — which is why able-bodied working-age adults on means-tested welfare should be required to work.
There are lot of jobs that need doing. Help rebuild the roads and decaying infrastructure. Pick up trash along the roads. Help take care of the elderly and the sick. Clean up the parks.
What would not be permitted is any able-bodied working-age adult getting paid by taxpayers to sit on the couch watching TV.
Once a child is age 5 and eligible for school, the mom would have to work also — do something, until the kids get home from school.
There are a lot of jobs that need doing in America.
Plus, all the evidence shows that when work is required to receive welfare, most people quickly get off welfare.
If they must work anyway, they start looking for better jobs.
Yes, this would require some administrative bureaucracy to enforce this. We would still need case workers and social workers. But that’s another function government is pretty good at: law enforcement.
But isn’t a guaranteed minimum income conservative heresy?
Conservatives certainly believe in a social safety net.
William F. Buckley, Jr, Ronald Reagan, Russell Kirk — all serious conservative thinkers and leaders have believed in a social safety net.
Ronald Reagan never advocated getting rid of the social safety net.
The debate is: What should this social safety net look like? How do we create a social safety net that provides for the truly needy, but also that incentivises the able-bodied to get off it. Conservatives believe a safety net should not become a hammock.
This is big part of what differentiates conservatives from libertarians.
Conservatives do not agree with Ayn Rand’s survival-of-the-fittest, dog-eat-dog society.
Conservatives believe in the civil humane society. Conservatives are empiricists.
We want what works best. We have done this over time through trial and error — producing what we call Civilization.
We realize that some people simply cannot take care of themselves. As Jesus said: “The poor will always be with us.”
That’s just a fact.
We don’t want people starving on the streets. We don’t want to throw grandma out into the snow. The American people would never put up with this anyway.
What conservatives want is a safety net that works and makes sense.
Mitt Romney’s Misunderstanding of What a Conservative Is
Mitt Romney lost the election in 2012 in large part because of his misunderstanding of conservatism.
He thought he had to campaign as a hardcore conservative to win the Republican nomination. So he comically described himself in a speech as a “severe conservative.”
What the heck is that?
There’s no such thing as a “severe conservative.”
Conservatives are for conserving what works.
In America, that means defending the Constitution, the American idea, and free-market capitalism . . . because capitalism has worked so well, has created more wealth and prosperity and lifted more people out of poverty than any other system.
There’s nothing “severe” about that.
What conservatives want to do is maximize freedom, prosperity, and the general well-being of the county — what the Constitution called the “general welfare.”
By “general welfare,” the framers meant the “good of the whole” or the “good of the nation.”
Most people would say that it’s in the national interest not to have 14 percent of the population starving on the streets. It would not make America look good to have that. We would not be the “Shining City on the Hill” for the entire world to follow, as Reagan put it, if that were to happen.
Romney gave the impression to America that he opposed the social safety net in principle. He even attacked the so-called 47 percent — defined as anyone receiving some kind of check or subsidy from the government — including military veterans, police officers, fire fighters, Social Security and Medicare recipients, students, etc.
Tough to win elections when you write off the 47 percent.
But isn’t a “minimum income” basically the same as socialism?
A key tenet of socialism is to redistribute wealth to create wealth equality.
The goal here is not to punish the productive and the successful, not to prevent people from earning as much money as they can.
This is not the class warfare of Barack Obama, Elizabeth Warren, and the modern Democrat party — which has become Marxist in its rhetoric and orientation.
There should be no cap on achievement in America.
The corporate tax-rate should be cut to from a top rate of 39 percent to 10 percent. America should be a place that attracts capital. America should be the easiest place in the world to do business because the best anti-poverty program is a growing economy.
As U2’s Bono said in speech at Georgetown University:
Aid is just a stop-gap. Commerce [and] entrepreneurial capitalism takes more people out of poverty than aid . . . In dealing with poverty here and around the world, welfare and foreign aid are a Band-Aid. Free enterprise is a cure.”
The wealth doesn’t end up being redistributed anyway because poor people need to buy food and pay for the necessities of life. So the modest income they receive from taxpayers ends up back in the bank accounts of businesses that provide the necessities of life. The money is then reinvested by these businesses and circulated through the economy.
Even Friedrich Hayek, the great free-market Nobel Prize winning economist said: “I have always said that I am in favor of a minimum
income for every person in the country.” SOURCE: Hayek on Hayek (Chicago: University of Chicago Press, 1994)
Hayek is a hero to most libertarians. Ronald Reagan awarded Hayek the Medal of Freedom for his work in economics and defense of capitalism. Hayek’s great book The Road To Serfdom had a big impact on my thinking, as it has many libertarians and conservatives. His book was an attack on socialism and a defense of free-market capitalism.
Milton Friedman also supported the idea of a minimum income. Friedman was, of course, another great free-market advocate, a Nobel Prize
winning economist, and hero to most libertarians.
Friedman’s book Free To Choose is the free-market Bible for many of us.
Friedman called his proposal a negative income tax. Instead of the byzantine sprawl of federal welfare programs, he proposed a simple cash transfer from the I.R.S. of, say, $6,000 for every citizen. So a family of four with no income would thus receive an annual payment from the I.R.S. of $24,000. Indexed for inflation, the amount would be more now than when Friedman was writing, probably closer to the current federal poverty guidelines outlined above.
For each dollar the family then earned, this payment might be reduced by 50 cents, or some fraction (so as not to disincentivise finding work in the market economy).
So if this principle passes muster with Friedrich Hayek and Milton Friedman, that’s good enough for me.
Thomas Paine, one of the intellectual leaders of the American Revolution with his book Common Sense, was also an advocate of a minimum income, which he called a “citizen’s dividend.” You should be entitled to a minimum standard of living simply by being a citizen, in Paine’s view.
Paine proposed that this Basic Income be financed with a 10% death duty from estates. His logic came from John Locke who argued that the world in its natural state belonged equally to everyone. But the development of private property rights allowed people to increase the value of the land through their own hard work and innovation. Nevertheless, a certain percentage of this (Paine thought a 10% death tax from estates) should go back to the people — most specifically to those living in poverty to pay for their Basic Income.
SIDEBAR: Thomas Jefferson’s argument in America’s Declaration of Independence also came from John Locke, so no socialist he. Locke believed all people have an “unalienable right to life, liberty, and property.” Jefferson changed Locke’s “property” to “the pursuit of happiness.”
You can read about “Thomas Paine’s Two Arguments for Basic Income” here >>> .
So this is hardly a new idea. Why do we need 79 different federal welfare programs to achieve this?
A minimum Basic Income was also proposed by conservative/libertarian hero Montesquieu (1689-1755) whose writings also heavily influenced the thinking of America’s founders. Montesquieu is often quoted by Mark Levin in his books in defense of liberty and limited government.
So this is certainly a conservative, pro-freedom idea . . . and does not lead to socialism.
In fact, socialism (or worse) is far more likely to come if there is no social safety net. When people are desperate, they take desperate measures. They end up following Pied Pipers like Hitler, Mao, Lenin, Pol Pot.
The social safety net is a key pillar of a prosperous civil humane society.
It helps keep the peace.
There is nothing the least bit contradictory about being both in favor of a social safety net that works (not the dysfunctional one we have now) while also being a pedal-to-the-metal, full-throated, unapologetic free-market capitalist.
Obviously, that’s a gross distortion of what we mean when we say “America is exceptional” in world history.
We are not saying the American people are inherently better than people anywhere else. We are saying the American system — of government bound by law — is exceptional, and allowed liberty and the spirit of enterprise to flourish, thus allowing America to quickly become the richest nation in world history.
Of course, Obama has also often mocked the idea of “American Exceptionalism” — for example, famously saying this shocker at a NATO Summit in Strasbourg, France, in 2009:
I believe in American exceptionalism, just as I suspect that the Brits believe in British exceptionalism and the Greeks believe in Greek exceptionalism.
No doubt, America is rapidly losing the distinction of being exceptional in today’s world – thanks to Obama and the Left in Congress not understanding what made America so exceptional.
So other countries are passing us by. The United States has fallen from #1 to #10 on the Heritage Foundation’s world index of Economic Freedom — now behind even Socialistic Canada and Denmark.
But America is exceptional in world history because America was the first nation to be “conceived in liberty.”
America is exceptional because of its Constitution.
America is exceptional because it’s the first country in world history to establish a government, the sole purpose of which is to “secure the blessings of liberty.”
America is exceptional because it was the first nation in human history to put such strict limits on the power of the central government.
America is exceptional because it is the first (and is still the only) nation in human history to be founded on this proposition:
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness.”
Our rights to “life, liberty, and the pursuit of happiness” are “unalienable” because they are granted by God Himself. And it’s the responsibility of government to protect and secure these rights.
That proposition, this purpose of government — to secure the blessings of liberty — is what makes America exceptional in world history.
As a result of all the limitations on government power imposed by the Constitution, Americans were free to build businesses and profit from their efforts. This allowed America to become the richest nation in world history in a very short period of time.
To the extent other countries are now enjoying liberty and prosperity, it’s because they followed the American example.
If America is no longer exceptional, it’s because our government has mostly ignored the Constitution for the past 90 years or so — since the Presidency of Calvin Coolidge (the last President who actually cut federal spending in real dollars). He really was a great President.
Calvin Coolidge loved to read through the entire federal budget — line by line . . . so he could cross items out of the budget. He often said nothing gave him more pleasure than saving taxpayers money.
Mostly what our elected leaders do (Democrats and Republicans) is look for ways to get around the Constitution — if they pay any attention at all to the Constitution.
Our political leaders in Washington, DC (not just Obama) respect few limits on government power.
Our political class today treats the Constitution as a set of guidelines, at best — not as law.
I believe America is still exceptional because we at least still have the Constitution — which is still supposed to be the supreme law of the land. We just need to get back to following the Constitution.
America also has an exceptional history that gave us advantages that other counties have not had.
America was settled by courageous people who had a pioneering spirit.
It takes a certain type of person to leave their family, friends, and familiar lives behind and travel to a new land, a wilderness, in search of freedom and opportunity.
The tens of millions of settlers and immigrants who followed them here did not expect anything from the government — certainly were not looking for handouts and free health care. All they wanted was freedom to build a new life.
That takes courage. America was built by risk-takers.
By the time of the American Revolution in 1776, Americans had already become the world’s richest people — because of their entrepreneurial spirit.
America’s thriving shipbuilding, tea, tobacco, and rum businesses were out-competing those of the British Empire — which was what led to Britain’s crackdown on American industry (i.e. the heavy tax on tea that triggered the Boston Tea Party, the Stamp Tax, and other taxes).
America is exceptional because we actually fought a war against the British Empire (the largest empire in world history) over excessive taxation.
How many people have done that? What would have America’s founders thought of ObamaCare?
No doubt, they would have seen ObamaCare as a abomination — an all-out assault on liberty, exponentially worse than the tax on tea that lit the fuse of the American Revolution.
America is exceptional because we used to zealously guard our liberties. For the Americans of that day, no attack on liberty was too slight to overlook. ”Give me liberty, or give me death!” declared Patrick Henry.
That was the American mindset in 1776.
If America is losing its distinction as exceptional in the world, it’s because most Americans today don’t seem all that concerned about liberty anymore. Most Americans pay little attention to politics. Internet page-view data reveals Americans to be 12 times more interested in Miley Cyrus‘ “Twerking” display than war with Syria or what our government is doing to us.
The problem is not so much Putin not thinking America is exceptional. We would not expect the former Soviet KGB thug to value liberty.
The problem is we now have an American President who agrees with Putin — that America is not exceptional.
President Obama has made it clear throughout his political career that he has little respect for our Constitution — or even the rule of law.
When Bret Baier of FOX News asked President Obama about the subversion of the legislative process President Obama and the Democrats engaged in to pass ObamaCare into law by one vote in the U.S. Senate, President Obama said: “I don’t spend a lot of time worrying about what the procedural rules are.”
Obama doesn’t seem to understand that what makes America so exceptional is that we are a nation governed by laws, not men. We are a nation of rules, not rulers — and that these laws (rules) are supposed to apply equally to everyone.
No one — not even Obama — is supposed to be above the law. All Americans — including Obama — are supposed to follow the rules.
Obama is not so keen on this.
When in the state legislature in Illinois, Obama openly expressed his hostility to our Constitution in a radio interview when he called our Constitution “flawed.”
He went on to say:
“I think we can say that the Constitution reflected an enormous blind spot in this culture that carries on until this day, and that the Framers had that same blind spot . . . It also reflected the fundamental flaw of this country that continues to this day.”
In another radio interview, Obama said this:
“As radical as I think people try to characterize the Warren Court, it wasn’t that radical. It didn’t break free from the essential constraints that were placed by the founding fathers in the Constitution.”
So President Obama has made it clear that he considers the Constitution to be a flawed charter for government. He says he wants to “break free” from the restraints the Constitution places on government power.
To Obama and most on the Left, the Constitution is an inconvenient obstacle they try to get around.
Obama does not believe in liberty or limited Constitutional government. And he has shown himself to be no fan of the American Dream.
He’s certainly no fan of capitalism — which is the most powerful force in world history to create wealth and lift people out of poverty.
President Obama is the first President in America’s history who does not believe in “American Exceptionalism.”
He promised in 2008 that he would “fundamentally transform” America.
In his mind, America’s heritage of liberty and limited government is not worth conserving.
Instead, Obama wants to “fundamentally transform” America into his vision of a European-Bloomberg-style socialistic Nanny State (or worse) — far removed from the pioneering “spirit of enterprise” that made America so rich, so free, and so successful.
By the way, can you really love something that you want to “fundamentally transform“?
If I told my wife I’m out to “fundamentally transform” her, I doubt she would take that as a compliment. We’d probably be headed for divorce court.
So if our own President Obama doesn’t think America’s heritage of liberty is exceptional and worth protecting, why would we expect better from the shirtless KGB thug Putin?
The GOP has received a majority of the popular vote in a national election just once since 1988.
Barack Obama won re-election convincingly by campaigning on higher taxes, more spending, and a bigger Welfare Entitlement State.
It’s clear that’s what America wants, at least for now.
And with changing demographics, it looks like America will continue its current slide toward European-style Socialism, or worse.
Also, the gender gap is widening dramatically. Mitt Romney got just 41 percent of the female vote. Ouch!
More women than men vote in elections, so that pretty well spells doom for the GOP, if this continues.
The Democrat Presidential candidate is now getting 93-95 percent of the black vote, 73 percent of the Hispanic vote, and 72 percent of the Asian vote.
Whites are voting GOP, but whites are a shrinking share of the electorate — soon won’t even be half the electorate.
88 percent of Romney’s voters were white. So not much room for growth there.
The GOP has become the party of white males.
That’s not a formula for political success.
The question is: Can we prevent America from becoming Greece, or worse?
Can America be saved at all?
Can capitalism and the spirit of enterprise ever again be revived in America?
I would argue yes, but not by the Republican Party.
The GOP brand is dead. It can’t be fixed with minority voters and most women.
But economic conditions in America will likely have to get a whole lot worse before we can see a rebirth of capitalism and the American spirit of enterprise, or even a rebirth of a desire for freedom.
This brings me to my big point. . ..
Perhaps we are making a mistake by fighting Obama and the Democrats.
Perhaps we should just let them do whatever they want to do . . . and really see how their ideas work out.
Perhaps the Republican Party should pull a John Galt and just quit, go away.
It’s not as if the GOP in Congress is putting up much resistance anyway.
It’s the “frog in boiling water” argument.
If you put a frog in tepid water and turn up the heat slowly, the frog will just sit there, not notice the rising heat, and eventually cook to death.
That’s what’s happening to America now. We’re inching toward Socialism a few degrees at a time, but Americans aren’t really noticing what’s happening.
But if you throw the frog in hot water, he’ll notice he’s in big trouble and jump out.
If we allow Obama and the Democrats to just do whatever it is they want to do, one of two things will likely happen:
POSSIBILITY #1: America will go full-blown Socialism. Americans will experience the boiling water, and want to jump out of that pot . . . or not. But at least we’ll know the answer one way or the other, quickly.
I suspect that once Americans really experience full-blown Socialism, they’ll want out.
This has happened throughout the Communist world.
Communist China is now more capitalist than we are. As a result, China’s GDP is growing at a 10 percent rate every year, compared to America’s pathetic two percent per year.
Even hardcore Communist Cuba is slashing its public sector work force and trying to spur private sector growth. Private sector jobs in Cuba have doubled during the past two years.
Fidel Castro has been complaining in his speeches that Cuba has become a place where too many people live off the dole. I especially love this statement issued by the Cuban government with its announcement that it was cutting its government work force as a way to push people into the private sector:
Our state cannot and should not continue maintaining companies, productive entities, services and budgeted sectors with bloated payrolls (and) losses that hurt the economy, are counterproductive, and form bad work habits.”
Sounds like something Milton Friedman would say. So even Fidel Castro can learn from failure.
But while the Communist world is trying to revive the “Goose that Lays the Golden Eggs” (Capitalism), America is moving in the opposite direction, toward Socialism.
So it’s quite possible Americans will need to find out what Socialism is really like before they reject it, like what’s happening in Cuba.
Or . . . POSSIBILITY #2: The Democrats will have to become a responsible governing party.
My guess is POSSIBILITY #2 is the more likely scenario of what would occur if the GOP just quit and went away — John Galt-style.
The Democrats would be forced by economic and fiscal reality to become a responsible party — instead of just the party that says “no” to everything the GOP proposes.
It’s the “Nixon goes to China” argument.
George McGovern, if he had been President instead of Nixon , could not have undertaken the diplomatic opening with Maoist China. It would have been seen as appeasement, or even as taking America down the road toward Communism.
It required the anti-Communist Richard Nixon to hold out a olive branch to China, to even create a quasi-alliance with China against the Soviet Union — thus helping to accelerate China’s split with the Soviet Union that contributed ultimately to the collapse of the Soviet Empire.
Something like this is needed if we’re to have any hope of bringing any kind of fiscal sanity to the welfare and Entitlement State.
Democrats will have to be the ones to tame the Entitlement State.
Democrats will have to be the ones who raise the retirement age to 70 for receiving Social Security and Medicare, and then indexing the retirement age to life expectancy.
Everyone seems to know and think that’s needed. But it won’t happen if Republicans propose it.
The Democrats have, very effectively, made a living scaring seniors about Republicans wanting to cut their Social Security and Medicare benefits.
Republicans then respond by increasing spending even more than what the Democrats are proposing, to show how compassionate we are (i.e. George W. Bush who added an enormous new entitlement with Medicare Part D).
So let’s make the out-of-control entitlements and $16.4 TRILLION national debt the Democrats’ problem to deal with.
The GOP brand is ruined anyway. I don’t think the GOP brand can be fixed with minorities.
How can today’s GOP move from getting 5 percent of the black vote to something closer to 40 percent?
ANSWER: It can’t.
The same is true with Hispanics.
How does the GOP move from getting 27 percent of the Hispanic vote to 40 percent?
ANSWER: Very difficult, probably impossible.
The GOP can’t even win the Asian vote — the most industrious conservative pro-family, pro-free enterprise voting bloc in America.
If anyone should be voting GOP, it should be Asians. But Romney was only able to get 28 percent of the Asian vote.
As someone who makes his living as a marketing consultant, I know how difficult it is to change a brand.
Actually, it’s impossible. It’s one of those iron laws of marketing.
A brand is the image people have in their minds of a product or company.
Coca-Cola makes many different drinks and products. But there is only one drink you think of when you think of Coca-Cola.
And even if you could somehow change the brand of the GOP as the white male party, it would still be very difficult to change people’s voting (buying) habits — anther iron law of marketing.
I’ve used Crest tooth paste all my life. I’m sure there are many other good tooth pastes out there. But I’m used to Crest. I’d have to be given a very good reason to change tooth pastes.
So it will be very difficult (almost impossible) to change the brand of the GOP (as the white male party) and people’s voting habits.
That’s a project that would take at least 20 or 30 years, if it can be done at all.
Are voters rejecting the message or the messenger?
I suspect it’s more the messenger — the GOP.
But I’m really not sure.
It’s certainly possible Americans no longer value freedom, the Constitution, opportunity, or the old American Dream.
It’s quite possible Americans just want to be taken care of by an enormous Nanny State — really don’t want opportunity at all, instead want to be told what to do by government bureaucrats and love the ominpresent surveilance state.
It’s possible that Americans don’t care if they saddle their children and grandchildren with trillions of dollars of debt that can never be paid off. It’s possible what Americans really want is economic collapse.
It’s quite possible that what Americans really want is to be more like France, Spain, or Greece (where the unemployment rate is 26 percent).
The GOP needs to go away so we can find out if that’s the future America really wants.
Instead, what we might need are two Democrat parties — responsible JFK-style Democrats (we can come up with a name for this new party) vs the Obama-style full-blown Socialists.
My father (a former Nixon and Reagan speechwriter and senior editor for William F. Buckley, Jr’s NATIONAL REVIEW magazine) voted for JFK in 1960 over Nixon because he thought JFK was more hardline anti-Communist and conservative than Nixon.
It’s possible conservatives are making a strategic mistake trying to take over the Republican Party — which minorities see as the
party of Thurston Howell, III.
Perhaps we should instead try to take over the Democratic Party — split the Democratic Party, create two Democratic Parties — a sane Democratic Party vs the insane San Francisco Democrats..
This might be easier than starting a new political party – perhaps called the Declaration of Independence Party.
That document does a great job of describing what we stand for. All the arguments we were making against the British government in 1776 pretty well apply to our federal government today.
Come to think of it . . .
There’s nothing in the Constitution that requires two major political parties — or political parties at all.
Why not just have one big primary in each state and then a run-off election between the top two vote getters?
This is how Louisiana conducts its elections.
There’s a lot to be said for not having official political parties, with favored treatment in the law.
Of course, we must face the possibility that America really is over and the spirit of capitalism and free-enterprise that made America the most prosperous nation in history will never return.
If so, let’s find out now rather than later.
We can call that POSSIBILITY #3.
Under all these scenarios and possibilities, one thing appears to be clear.
The GOP should disband and disappear — go the way of the Whigs. Then let’s see what happens.
Because, whatever the answer is, it’s clear the GOP is not it.
Does Mitt have the right kind of business experience to take on Obama? And what the heck is “private equity”?
I’m no fan of Newt’s attack on Mitt Romney’s Bain Capital experience when there is so much to attack on Mitt’s liberal record in politics. Newt’s attack on Bain Capital can too easily be confused with an attack on capitalism itself. The “King of Bain” documentary Newt’s been airing in South Carolina is so full of distortions that the Washington Post gave the film four Pinnochios.
But let’s look at the substance of the potential problem for Mitt.
When most people think of capitalism they think of Sam Walton, who turned a small-town hardware store in Arkansas into Wal-Mart, or Bill Gates and Steve Jobs who started computer companies in their garage. These men ultimately created enormous companies that created hundreds of thousands of jobs — millions of jobs when you count the ripple effect these companies have throughout the economy.
Almost everyone likes that kind of capitalism.
But what is a “private equity” firm?
That’s a little tougher for the average citizen to follow.
“Private equity” refers to groups of investors.
The mission of a “private equity” firm is to look for companies to buy for the purpose of bringing big returns to its investors.
One category of business they sometime buy is the distressed company. The company might be in a good business, but the company is just poorly managed — can’t execute. Kind of like the football team that’s has the ball on the other team’s one-yard line, but just can’t find a way to get into the end zone.
The private equity firm buys the business, reorganizes it, cuts costs, perhaps sells off parts of it, and injects in it some much-needed capital so that the business can get back to profitability, or become more profitable than it was.
The private equity firm then usually sells the company it bought for (hopefully) a hefty profit.
That’s the goal. Nothing at all wrong with that.
One of the best known private equity firms is the Blackstone Group.
Private equity helped Dunkin Donuts and Baskin Robbins get back on their feet. Mitt Romney points to Staples, Sports Authority, and Domino’s Pizza as three of his big successes at Bain.
Mitt says his work helped create more than 100,000 new jobs. This figure is disputed. We’ll probably never know the real number.
The political problem for Mitt is that, at Bain, he was not in the business of starting and building new enterprises the old fashioned way — ala Henry Ford, Sam Walton, Bill Gates, and Steve Jobs.
If the private equity firm buys a distressed company, what often happens is it brings new management in, reorganizes the business, finds efficiencies, sometimes lays off employees — because if it did not reorganize the business, the business would fail. What Bain was doing was forcing a struggling company to take one step back so it could hopefully take two steps forward later.
A private equity firm serves an essential role in our economy by providing not just capital, but strict analytics, and management expertise.
Unlike government, investors demand results. And that can be brutal. But it also puts the heat on the business to become more efficient and competitive.
But here’s as big part of what Mitt was doing.
His specialty was turning around distressed companies.
A business that is teetering on the brink of bankruptcy is not likely to be able to secure loans from risk-averse banks. The only other source of capital is investors. Some companies raise capital by going public — that is, by selling shares on the public stock markets.
But that approach is not likely to work for a company teetering near bankruptcy. Your average Joe Citizen investor is not likely to buy stock in a business that, essentially, has failed.
So another option for this business is ”private equity” — finding a small group of sophisticated investors who will see that this business can be profitable with some tweaking here at there.
But these sophisticated “private equity” investors want big returns on their investment — 20 percent a year, or more.
It’s that, or bankruptcy.
A negative portrait of this can certainly be painted very easily: “He loaded up the company with debt to pay investors. Romney and Bain’s investors made lots of money, while lots of workers lost their jobs in the process” (in some cases).
That’s what a “leveraged buyout” can do to a business — load a business up with a lot of debt. This debt is sometimes paid for by selling off assets and laying off workers — scaling back operations, hopefully temporarily. The leveraged buyout is one of the tools these sophisticated “private equity” investors use to buy a company.
A leveraged buyout (LBO) occurs when an investor acquires a controlling interest in a company’s equity and where much of the purchase is financed through leveraged borrowing. The assets of the acquired company are used as collateral for the borrowed capital, usually along with assets of the acquiring company.
Typically, a leveraged buyout uses a combination of debt instruments from banks and debt capital markets. The bonds or other paper issued for leveraged buyouts are commonly considered not to be investment grade because of the risk involved. If the company subsequently defaults on its debts, the LBO transaction will often be challenged by creditors or a bankruptcy trustee under a theory of fraudulent transfer.
This is Mitt’s political problem — which Newt, Perry, and Obama are now exploiting.
But it gets more complicated than this for Mitt.
The way a private equity firm itself makes money for itself is to charge its investors a fee for its services — in addition, usually, to having a stake in the “portfolio of companies” its acquiring.
So Romney and Bain Capital would earn their fees regardless of whether their business acquisitions actually made money for their investors, or not — that is, regardless of whether the businesses they acquired succeeded or failed.
That’s how Mitt can still make tens of millions of dollars from failed investments — from companies he acquired for his investors that later went bankrupt . . . because of the fees he charged his “private equity” investors.
All this is perfectly legal and ethical.
But this method of making money is certainly a bit complicated to explain to voters in a 30 second sound bite — especially to those who no longer have jobs and who are struggling in this tough economy.
That’s Mitt’s big political problem.
It doesn’t help Mitt when he explains there are both successes and failures in what he does. This will strike many voters as more akin to casino gambling than building a real business Sam Walton-style
Now he has Republicans like Newt Gingrich and Rick Perry out there saying they are for “venture capitalism,” not “vulture capitalism.”
This is also Obama’s line of attack.
Never mind that “private equity” is also largely responsible for the tech boom.
Private equity groups helped finance Google, eBay, Amazon and most other major new companies created in the past 25 years.
Remember Michael Milkin back in the 1980s?
Michael Milkin went to jail mostly because the judge in the case, Ms Kimba Wood, did not understand “junk bonds” (which he invented, in part by finding loopholes to exploit in the securities law). Judge Kimba Wood literally said she was putting Milkin in jail because he had “shown a pattern of skirting the law” and finding ways around the law. No one could really say what laws he had actually broken. Something just doesn’t look right here, was in essence what Judge Kimba Wood said.
Judge Kimba Wood even went so far as to say that what made Milken’s “junk bond” enterprise so especially heinous was that the laws he supposedly broke were “undetectable.”
Michael Milkin’s “junk bonds” invention accomplished a lot of good for the U.S. economy — allowed the creation of companies like Amazon, Yahoo, and built much of the high-tech sector that was so key to explosive economic growth for the U.S. economy in the 1980s and 90s.
George Gilder in his excellent book, Telecosm, wrote that
“Milken was a key source of the organizational changes that have impelled economic growth over the last twenty years. Most striking was the productivity surge in capital, as Milken . . . and others took the vast sums trapped in old-line businesses and put them back into the markets.”
Mitt Romney has a bit of the Michael Milkin problem here. Much of what he did at Bain is not so easy to explain . . . so that even an airhead like a Judge Kimba Wood can understand it.
Newt Gingrich and Rick Perry, instead of teaching their audience about capitalism, are now participating in spreading ignorance of how a modern economy works — apparently on purpose. Newt and Perry know better. But they are putting their political campaigns ahead of what they know is good for the country — ahead of what they know is sound economics.
Why attack Mitt on one of the few good things he’s done, one of the few conservative things? That being his tenure at Bain Capital, where he appears to have accomplished quite a lot of good.
Why not attack Mitt on his liberal record as Governor of Massachusetts?
That would seem to make much more sense in a Republican primary situation.
Does Newt really thing the primary purpose of a business is creating jobs?
Of course he doesn’t. He knows better — which makes his Obamaesque populist demagoguery on Bain Capital all the more disappointing.
The primary purpose of a business is not to create jobs; it’s to create a profit . . . because, without profit, there are no jobs. Without profit, there’s no money.
Jobs are a nice byproduct of profit. Workers exist to make more profits for the shareholders. When a worker ceases to be profitable, that worker is fired or laid off. Businesses are not charities.
Mitt needs to find a way to say this in a way that makes him sound more like Sam Walton and less like Gordon Gekko.
Obama Channels Karl Marx, Mao: Says limited government that protects free markets ‘doesn’t work, has never worked’
CNS NEWS: In a speech delivered at Osawatomie High School in Osawatomie, Kansas, on Tuesday, President Barack Obama argued that while a limited government that preserves free markets “speaks to our rugged individualism” as Americans, such a system “doesn’t work” and “has never worked” and that Americans must look to a more activist government that taxes more, spends more and regulates more if they want to preserve the middle class.
“‘[T]here is a certain crowd in Washington who, for the last few decades, have said, let’s respond to this economic challenge with the same old tune. ‘The market will take care of everything,’ they tell us,” said Obama. “If we just cut more regulations and cut more taxes–especially for the wealthy–our economy will grow stronger.
“Sure, they say, there will be winners and losers,” Obama continued. “But if the winners do really well, then jobs and prosperity will eventually trickle down to everybody else. And, they argue, even if prosperity doesn’t trickle down, well, that’s the price of liberty.
“Now, it’s a simple theory,” said Obama. “And we have to admit, it’s one that speaks to our rugged individualism and our healthy skepticism of too much government. That’s in America’s DNA. And that theory fits well on a bumper sticker. But here’s the problem: It doesn’t work. It has never worked.
“It didn’t work when it was tried in the decade before the Great Depression,” said Obama. “It’s not what led to the incredible postwar booms of the ‘50s and ‘60s. And it didn’t work when we tried it during the last decade. I mean, understand, it’s not as if we haven’t tried this theory.
“Remember in those years, in 2001 and 2003, Congress passed two of the most expensive tax cuts for the wealthy in history,” said Obama. “And what did it get us? The slowest job growth in half a century. Massive deficits that have made it much harder to pay for the investments that built this country and provided the basic security that helped millions of Americans reach and stay in the middle class==things like education and infrastructure, science and technology, Medicare and Social Security.
What? Huh? Yes, I agree with Alex Baldwin’s lecture to the Occupy Wall Street protesters about the merits of capitalism
Here’s Alex Baldwin actually making quite a bit of sense
CNS NEWS: While mingling with protestors at the Occupy Wall Street demonstration in lower Manhattan, actor and outspoken liberal Alec Baldwin explained the importance to consumers of entrepreneur Steve Jobs and added, “I think capitalism is worthwhile.”
At the event, Baldwin was approached by people with “Wearechange,” who asked him about abolishing the Federal Reserve. Baldwin said he did not know whether that would be a negative or a positive but said, “You have to have capital markets in this country.”
“You cannot not have strong capital markets in this country or the country is going to go down the tubes,” he said. “I think most people want change in this country but they don’t want the country to go down the tubes. They don’t want the country to become England.”
Baldwin then gave the example of Apple computer founder Steve Jobs, who studied the large IBM computers and decided to work on making a computer much smaller and that would fit on a person’s lap.
“I think that’s important,” said Baldwin. “I think capitalism is worthwhile. And capitalism demands the flow of money. So, I think we need to have that. … I do not want capital markets dismantled.”
JOHN STEELE GORDON-WASHINGTON POST: This past week, President Obama tried to sell his new “millionaires’ tax” to the Rust Belt. “What’s great about this country is our belief that anyone can make it,” he said in Cincinnati on Thursday, praising “the idea that any one of us can open a business or have an idea that could make us millionaires.” But who are the millionaires Obama is talking about? And will a tax on them help the economy? Let’s examine a few presumptions about the man with the monocle on the Monopoly board.
1. Millionaires are rich.
Being rich has gotten more expensive. A $1 million fortune was unusual in the early 19th century. The word “millionaire” wasn’t even coined until 1827 by novelist (and future British prime minister) Benjamin Disraeli. In 1845, Moses Y. Beach, editor of the New York Sun, published a small pamphlet called “Wealth and Biography of the Wealthy Citizens of New York City.” The price of admission to Beach’s list, which was wildly popular, was a mere $100,000.
By the time the first Forbes 400 list of the richest people in America was published in 1982, the smallest fortune featured was $75 million. There has been so much wealth creation in the past 30 years — much of it thanks to the microprocessor behind modern-day fortunes such as Dell, Microsoft and Bloomberg — that only billionaires are on the list. Today, $1 million in the bank generates only about $50,000 per year in interest. That isn’t chump change, but it’s roughly equal to the 2010 median household income.
POLITICO: Texas Gov. Rick Perry may have forgotten a thing or two about the Al Gore presidential campaign he helped lead in 1988.
In an interview with an Iowa radio station on Monday, the Republican presidential contender explained his role as the Gore campaign’s Texas chairman by saying that “this was Al Gore before he invented the Internet and got to be Mr. Global Warming.”
But in fact, global warming was already a significant theme for Gore in 1987 and 1988 — long before his activism led to several books, a Nobel Prize and a part in an Academy Award-winning film. It was also well before the right gave him the “Mr. Ozone” nickname and talk radio heaped endless mockery on the future vice president.
Gore, then a young Tennessee senator trying to break out in a crowded Democratic field, mentioned the warming planet as one of his priorities for his presidential campaign in April 1987, according to news coverage at the time.