Framing the Wrong Argument

I like David Brooks. I even agree with a significant part of what he writes. But his column in yesterday’s New York Times not only missed the boat, it swam in the wrong ocean.

Brooks characterized the Obama ads attacking Romney’s performance at Bain as an attack on capitalism, and essentially framed the current Presidential race as a contest between “big government” and “capitalism.” This is wrong on so many counts, it’s hard to know where to begin.

I am an ardent believer in capitalism and free markets.  In my opinion, Mitt Romney is the poster boy for a destructive and distorted vision of market economics that is giving capitalism its current bad name.

The sort of capitalism that works, the capitalism that originally made this country the most productive in the world, is characterized by transparency and a level playing field. Transparency means marketplaces with willing buyers and willing sellers who both possess the information relevant to their transaction. There are obviously areas–like healthcare–where that sort of information symmetry is impossible; in such areas, markets cannot work. Markets work extremely well, however, when buyers and sellers both have access to sufficient information on which to base their economic behavior.

The metaphor of a level playing field goes well beyond parity of information, however. A level playing field requires rules against cheating–and authorities willing and able to enforce those rules. Crony capitalism is the antithesis of a level playing field. Gaming the system by sending your lobbyists to Washington to buy influence, obtain favorable tax treatment, gut regulations and subsidize your endeavors are hallmarks of oligarchy. Such behaviors bear no relationship to a true market economy.

The notion that Mitt Romney represents true capitalism is delusional. So, for that matter, is the charge that Obama represents “big government.” As even the Wall Street Journal has conceded, growth in government spending under the Obama administration has been the lowest since the Eisenhower administration. The charge of “big government” rests on two aspects of Obama’s presidency: the Affordable Care Act (aka “Obamacare”) and his continuation of George W. Bush’s policies on surveillance and national security.

I agree with critics of Obama’s national security policies. Those policies infringed civil liberties when Bush inaugurated them, and they are no less ill-conceived and dangerous simply because the President pursuing them can pronounce “nuclear.” But the widespread belief that the ACA is anti-capitalist and pro “big government” rests on the same fundamental misapprehension as Brooks’ column: that anything done by the private sector is by definition “capitalism.”

The basic question to be answered when constructing a government is: what is its role? What tasks must we do collectively,through this governing mechanism we have created, and what tasks should be left to individuals, businesses and/or nonprofit organizations?

In areas where markets work, we should let them. But there are areas where markets don’t work, or work only with substantial assistance. Think public safety, national defense, infrastructure provision. Healthcare is an area where markets demonstrably do not work and have not worked. Every other western industrialized nation has come to that conclusion. The cost of ignoring that reality is draining our treasury and increasing the inequities that are splintering our polity.

Recognition of reality is sanity, not preference for “big government.”

If we really need to frame the electoral choice we face, I’d suggest “a contest between ‘I’ve got mine’ and the common good.”

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Absence of Strategy

Eugene Robinson makes a point that many political junkies are pondering:

Romney has spent the better part of a decade running for president. Did it never occur to him that if he ever won the Republican nomination, surely there would come a time when he was under pressure to release multiple years’ worth of tax returns? Did he think everyone would forget that it was his own father, George Romney, who set the modern standard for financial disclosure? Did he not recall that when he was being considered for the vice presidential nod four years ago, he furnished tax returns spanning more than two decades to the John McCain campaign?

There are two parts to this puzzle. One, of course, is the tantalizing question of what is in those tax returns? The general conclusion at this point is that it must be something really damaging, else why would Romney prefer being criticized for lack of transparency rather than incur whatever criticisms would follow disclosure.

The second part of the puzzle is actually more damaging. As Robinson notes, Romney has been running for President for what seems like forever–surely he and his campaign staff knew he’d be asked to provide tax information that has become a routine and expected part of candidate disclosures. In the decade he’s been running, he surely could have tailored his taxes so as to avoid major issues when they were ultimately made public. This lack of foresight is ultimately more troubling than whatever tax avoidance or other issue might emerge from disclosure of his tax returns.

Among the qualifications for the nation’s highest office, an ability to think strategically–to see the likely long-term consequences of a course of action, and plan accordingly–is vitally important.

If a candidate can’t even think ahead sufficiently to act in his own self-interest, how can we trust him to steer a course for the country?

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I Think We’re Onto Something….

Usually, when I am hot and bothered about something, other people aren’t. (Something about me has always been out of step…) I’m used to people shrugging and yawning–and occasionally suggesting therapy. So this article in yesterday’s Fort Wayne Journal Gazette was a very pleasant surprise.

In the interests of shameless self-promotion, I am yielding todays blog post to the Journal Gazette, and encouraging you to read the whole thing!

On a different note, we’ve been having internet connectivity problems at my house. This periodic lack of access throws me into  panic and depression. I guess addiction isn’t limited to drugs….Anyway, posting will be iffy until it’s fixed, which we hope will be today.

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Ownership

We talk a lot about ownership in America: George W. Bush promoted an “ownership society;” people trying to change institutional systems are urged to help those involved to “own” the changes.

The disconnect comes when we consider corporate ownership–which, increasingly, doesn’t exist in any meaningful way.

Think about the origins of the business corporation. A Henry Ford, an Eli Lilly, a J. Randolph Hearst would begin an enterprise that continued to reflect upon its founder whether or not that founder retained majority ownership (which most did). Other shareholders profited or not, participated in the election of the board or not, attended annual meetings or not, but it was understood that they weren’t owners in the way we understand that word.

A business school colleague once described today’s shareholders and bondholders as two different kinds of lenders. The guy who purchases corporate bonds wants priority and a secure rate of return. They guy who buys shares is gambling, in a sense: he’s willing to risk a greater downside in hopes of a bigger return. Neither of them is really interested in the company or its business, except to the extent necessary to make an investment decision.

Meanwhile, the company is managed by hired guns who rarely have any sort of emotional connection to the corporation, and whose own “ownership” is limited to stock options and other incentives–incentives that tend to reward quarterly rather than long-term performance.

Real ownership is so different.

Last week, the Indianapolis Public Library hosted a small reception for the Lacy family, one of the increasingly rare exceptions to the picture I’ve just painted. The impetus for the reception was the family’s donation of a book–a history of the company–to the Indiana collection. The book traced the company from its origins manufacturing corrugated cardboard boxes to its current incarnation as LDI–Lacy Diversified Industries. During the brief talks, someone made the point that multi-generational family ownership like LDIs currently represents perhaps 3% of American businesses.

If you are thinking, “so what?” think about the contributions made to this community by family-owned companies like LDI or MacAllister Machinery. These are enterprises still run by their founders, or the children and/or grandchildren of their founders. Such businesses are connected to this community in multiple ways that the more impersonal, shareholder-owned companies and their managers are not. They are also far more likely to make business decisions based upon the long-term interests of the enterprise, rather than on the next quarterly or annual report. As a result, they are more likely to be corporate good citizens.

Mitt Romney to the contrary, corporations are not “people, my friend.” But a dwindling number are owned by identifiable people. And that kind of ownership is infinitely preferable to the lottery-ticket shareholder mentality that has largely replaced it.

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How Stimulating…

When the Great Recession hit, liberals and conservatives disagreed on the appropriate role of government. (“Yes,” I can hear you saying, “and the sun rose in the east…”). One of the bones of contention was the stimulus. While virtually all economists supported a stimulus, there were lots of arguments about its proper size, with Nobel Laureates like Paul Krugman and Joseph Stiglitz pressing for a larger amount than the Republicans in Congress would authorize.

As we have begun the slow and decidedly unsteady climb out of the economic abyss, there have been even more vociferous arguments about the stimulus’ effect. Economists of all ideological persuasions agree that things would have been much worse without it, but conservatives have continued to pooh-pooh its importance to the economic recovery.

If the stimulus’ effect really was less robust than predicted, I now have one theory about why.

Bear with me.

Yesterday’s post was about the substantial “reversion” of money from the Department of Children’s Services at a time when the agency was underfunded, understaffed and ultimately unable to save the lives of 26 abused children.  Reversions are budgeted but unspent amounts that an agency sends back to the state’s general fund. A friend who works on policy issues for a major nonprofit shared the full list of reversions for fiscal year 2011-12. The total was a staggering $670,931,548.98.

Some of the amounts unspent seemed reasonable–after all, budget figures are “guestimates.” Others were eyebrow-raising: juvenile justice and violent crime administration returned half a million. The Department of Health and its various programs returned six and a half million dollars that weren’t spent making Hoosiers healthier.

FSSA–the agency charged with responsibility for our most vulnerable populations–returned a whopping $47,643,955 to the general fund. The Department of Environmental Management was close behind, at $38,860,038. (What’s a little environmental degradation among friends??) After those two, Education’s reversion looked positively skimpy at $7, 302,510.

What do these reversions have to do with the stimulus, you ask?

According to friends with knowledge of the arcana of state fiscal matters, the Administration used portions of its stimulus funds to replace state monies budgeted for service delivery. This was illegal, but people I trust, knowledgable people with no reason to lie, assure me it happened. The agencies then “reverted” the replaced monies back to the state, allowing the Governor to brag about his budgetary prowess and return that all-important $100 each to Indiana taxpayers.

The reason such shenanigans are illegal should be obvious–if stimulus funds are used to replace dollars that are going to be spent anyway, they aren’t going to “stimulate” anything. Given the complexity and lack of transparency of state budgetary processes, my informants say, the likelihood of being caught was remote. The political reward was worth the risk.

Caveat here: I am not a budget wonk–I am admittedly incapable of the sort of analysis needed to confirm these charges. It is certainly possible my sources are wrong.

If they are wrong, however, we are left with an explanation that is even worse.

Either the administration misused stimulus funds and reduced their effectiveness, delaying the recovery and keeping many Hoosiers unemployed, or it deliberately refused to spend money that had been budgeted for education, health and the environment, piling up surpluses while failing to meet the needs of children and our most vulnerable citizens.

No matter which explanation is right, what we are left with is very, very wrong.

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