Saturday, July 14, 2012

Romney and Bain

If the Democrats were to ask me how to counter Mitt Romney's claim that his background in business gives him a better ability to manage the US economy, I'd suggest something along the following lines.

Bain's MO was to use its investors' money to buy a company, and then load the company up with debt to pay back the investors.  Then Bain set about cutting costs at the purchased company by, among other things, reducing the workforce - putting people out of work.  Some companies struggled through the debt load and survived, some did not.  The debt load was an unproductive use of credit: all it did was benefit Bain and its investors.

Compare that to a productive use of credit:  taking on debt to invest in growing the company - installing new equipment and hiring more people to expand the company's capabilities and output, and then using part of the additional profits to pay off the debt.

Romney intends to bring the first (Bain) model to the US economy if elected.  He is promising he will add to the US debt burden by cutting taxes on the wealthy - so paying off his "investors" - with no benefit to the US economy.  And he is also promising to "cut spending" - i.e. put people put of work.  [There are three ways the Federal government can cut spending:  lay off government employees; cut purchases of goods and services (meaning the suppliers of goods and services will lose business, and lay off workers); and cut transfer payments like food stamps and unemployment benefits (meaning less money being spent, businesses suffering, and workers being laid off]. So "cutting spending" translates into adding to the unemployed - at a time when we have over 20 million unemployed or underemployed.  And the newly unemployed would not be spending - further exacerbating the low demand that is the drag on the economy at the moment, and threatening to send us right back into recession.

Contrast that with the Obama suggestion:  cut (temporarily) taxes on lower income people who will actually go out and spend the little extra income in their pockets, hire back state and local employees who will have incomes to spend, so generating more demand so businesses can expand and hire more workers, and infrastructure products that will help keep the travel and communications needed in our future economy while putting people to work right now.

So, yes, both candidates suggest increasing our country's debt.  But Obama is suggesting a productive use of borrowed money to put people to work and invest in our future, while Romney is suggesting an unproductive use while at the same time diminishing our economic output.

You'd think that it would be a no-brainer for the Democrats to contrast the two approaches, and to show how Romney's "business" approach would be disastrous for our country.  But right now they're quibbling over when Romney left Bain - 1999 or 2002.   Urgghh!

Update 7/18

Well - the "quibble" does seem to be working for them.  Turns out the issue of when Romney left Bain is exposing Romney's propensity for falsehood.

Thursday, July 12, 2012

Kernen's Inability to Comprehend

I see that Joe Kernen is claiming that Paul Krugman called him or his colleagues a zombie, and that he thinks Krugman calls anyone who disagrees with him a zombie.  He is calling for an apology.

What Krugman was referring to were zombie ideas, that is, ideas that have been proven wrong over and over, so you would think would be dead by now, yet they keep coming back.  Zombie is a metaphor here, one that Krugman uses often, for ideas that should have been long since discredited, yet keep getting spread by the Joe Kernans of the world.  And yes, Mr. Kernan was spouting zombie ideas on this program, so the characterization was certainly apt.

That Mr. Kernan could not understand the simple concept of what the expression "zombie idea" means is indicative of Mr. Kernan's general inability to comprehend economic concepts.  And if anyone should apologize, it is Mr. Kernan for his failure to allow his guest on the program time to explain his ideas:  almost every time Mr. Krugman began an explanation, he was interrupted by hectoring from Mr. Kernan.

Mr. Kernan followed up with these tweets:

Krugman blogs "Zombies on CNBC" after interview. Dismissed every fact he didn't like as "myth".

Said 50 percent of GDP was the acceptable level of US government spending. Best economy in his words a "Free Market Welfare State"

So when Mr. Krugman correctly points out that one of Mr. Kernan's ideas is a myth, Mr. Kernan's reply on his tweet is that his idea is a "fact." A perfect illustration of clinging to a zombie idea.

And Mr. Krugman did not, as Mr. Kernans tweet suggests, say that 50% of GDP was THE acceptable level of government spending: he said that he would be concerned if it were to get above 50%, but Mr. Kernan did not give him a chance to explain what he thought an appropriate percentage would in fact be. I imagine Mr. Krugman would have pointed out that the percentage of government spending would depend on the business cycle: a lower percentage when the economy was expanding well, a higher percentage during depressions to stimulate the economy back to growth. Again, a simple concept that seems beyond the capability of Mr. Kernan to grasp.

Update:  for a model of how an interview should be conducted, see here and here.