When Mitt Romney talks about his nongovernmental experience, he tends to reduce it to a simple declaration: "I understand how the economy works." He probably says this to one audience or another a dozen times a day. What he doesn't do is go into any detail about what kinds of insights this deep understanding has brought him to. After all, what he proposes on the economy is the same menu as every other Republican—lower taxes on the wealthy and investors, fewer regulations on business. If his experience in private equity has given him some profound economic wisdom, it's hard to tell what it consists of.
The new focus on Romney's time at Bain Capital is giving us an opportunity to ask some well-needed questions not only about him but also about the nature of capitalism and the relationship of business and government. The candidate who claims, "I'm a businessman, not a politician" is a long-standing pet peeve of mine, since it implies that what we really need in government is people who know nothing about government. If you had leaky pipes, and someone said to you, "I'm not a plumber—I'm an electrician. But you should hire me to fix your pipes, because plumbers got you into this mess," you'd think he was nuts.
A while back I examined in greater detail the claims CEO-politicians make and found them all utterly bogus. One is worth mentioning: the idea that someone who has been successful in business "knows how to create jobs" and will therefore, if elected, help increase employment across the economy. Someone who built a successful widget company knows how to create jobs selling widgets. What Mitt Romney knows, it's becoming clear, is not so much how to create jobs but how to produce large profits in the private-equity business. And that has almost nothing to do with the things a president can do to create jobs. That involves very different issues, like dealing with a troublesome Congress, manipulating the narrow range of economic levers at his disposal in the federal budget and tax policy, appointing certain kinds of people to the Federal Reserve Board, and so on.
It's possible that a person with business experience can be successful in government, but they usually aren't. In fact, apart from New York Mayor Michael Bloomberg, it's hard to come up with a single businessperson who took their private-sector experience and used it to produce great results in government (certainly not at the federal level) that were starkly different from what a career politician would have done. In his column today, Paul Krugman wisely agrees with me:
But there’s a deeper problem in the whole notion that what this nation needs is a successful businessman as president: America is not, in fact, a corporation. Making good economic policy isn’t at all like maximizing corporate profits. And businessmen—even great businessmen — do not, in general, have any special insights into what it takes to achieve economic recovery.
Why isn’t a national economy like a corporation? For one thing, there’s no simple bottom line. For another, the economy is vastly more complex than even the largest private company.
Most relevant for our current situation, however, is the point that even giant corporations sell the great bulk of what they produce to other people, not to their own employees — whereas even small countries sell most of what they produce to themselves, and big countries like America are overwhelmingly their own main customers...
Consider what happens when a business engages in ruthless cost-cutting. From the point of view of the firm’s owners (though not its workers), the more costs that are cut, the better. Any dollars taken off the cost side of the balance sheet are added to the bottom line.
But the story is very different when a government slashes spending in the face of a depressed economy. Look at Greece, Spain, and Ireland, all of which have adopted harsh austerity policies. In each case, unemployment soared, because cuts in government spending mainly hit domestic producers. And, in each case, the reduction in budget deficits was much less than expected, because tax receipts fell as output and employment collapsed.
You should read the whole column, but there are two points to take away. First, Mitt Romney has no one to blame but himself for the fact that this discussion is gaining steam. If you're going to say that the reason you ought to be elected president is what you did in your business career, people are going to take a good, hard look at what you did in your business career. Second, though some people have suggested that it will be good for Romney to get this discussion out of the way now before he's the nominee, it's not going anywhere. We're going to be talking about Bain all the way until November. As well we should.