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Thursday, January 12, 2012

Prostitutes, Pundits, and Capitalism

When Newt Gingrich criticized Mitt Romney's performance at Bain Capital the conservative establishment responded like a pack of hyenas tearing apart a carcass. Newt was denounced as making leftist criticisms and attacking capitalism. Jeffrey Kuhner claimed dynamic capitalism was a virtue. The reaction is an example of the shallow thinking that keeps conservatives from being effective. 
Capitalism, dynamic or otherwise, is not a virtue. It is an amoral economic system. A virtue is, according Webster, conformity to a standard of right or a particular moral excellence. Free market capitalism makes no moral judgement. Free market capitalism allows for prostitution, drug dealing, and pornography. Socialism, communism, and fascism also allow for these things to occur. In whatever economic system is adopted, these actions are permitted or outlawed because of moral judgments that have nothing to do with the underlying system. If one opposes prostitution it is no more an attack on capitalism than it is an attack on socialism.
Newt Gingrich's attack on Romney's record at Bain Capital is not an attack on free market capitalism. It is not an attack from the left and quickly resorting to these shibboleths prevents the GOP from developing the ideas that can lead, not only to a victory in the presidential election, but the popular support that can lead to real change.

When conservatives think of free market capitalism they envision a Steve Jobs working in his garage to build one of the first personal computers. An entrepreneur investing his time, money and energy into building a business that brings something new and better to the market, something that makes an improvement. The creative destruction that Schumpeter wrote about was the car replacing the horse and buggy, the computer replacing the typewriter. This is the value of the free market that conservatives support. There is not necessarily anything in common with that vision and Mitt Romney's record at Bain Capital.

Mitt Romney may have a positive story to tell but if he is going to sell it he needs to stop making claims about his job creation record that pass muster only so long as you don't look too close. The financial success of Staples is touted as perhaps Romney's biggest success that resulted in the creation of 90,000 jobs. There may be that many people working at Staples but it is dishonest to claim those as net new jobs. Staples is just a classic roll up of a fragmented industry sector. A group of people with access to huge amounts of capital rapidly expand to dominate the category. Along the way, while hiring their 90,000 employees, Staples destroyed thousands of jobs in the small, independent office supply companies they put out of business. There may not have been any net new jobs created. There certainly was a transfer of wealth from the thousands of business owners who closed up shop to the few founders of Staples.

It is worth discussing whether the story of Staples, and the other Bain Capital investments, are a net plus for the country. Newt did the GOP, and the country, a favor by kicking off the discussion. While we are at it, we might discuss whether the many laws affecting the formation and access to capital which made Bain Capital and Staples possible, produce the results we want. Such laws have nothing to do with free market capitalism. Rather, they have to do with cronyism and influence peddling that outrage both the Tea Party and the Occupy crowd. The laws that created IRA and 401(k) accounts effectively force you to place your retirement savings with northeast financiers, who make it available to companies like Bain Capital who use it to make billions. The laws don't allow you to pay off your mortgage with your retirement money.

If the GOP and conservative establishments shut down honest discussion of these issues they will wake up in November wondering how they lost to Obama. Or, if by some miracle Romney defeats Obama, they will be wondering why nothing really changed. Or maybe that is the real goal.

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