REALITYCHEX » ROSS DOUTHAT

Springtime for Vultures – Ross Douthat on the Benefits of Creative Destruction

January 16, 2012   ·   1 Comments

Source: NYTX

By Marie Burns:

In his column Sunday, New York Times columnist Ross Douthat takes on the mantle of economic historian. His “explanation” of the last 70 years of economic history would get him a good grade only in a history department run by Newt Gingrich or an econ department run by, oh, Tom Friedman.

“In the decades after World War II, the United States economy was highly regulated, highly taxed and highly successful,” Douthat writes. What happened to all this success? “Like all golden ages it passed.” Ah, it just “passed.” It’s the “nature of things” for “golden ages” to expire. The nature of this particular expiration date, Douthat claims, was global competition along with “sclerotic… unionized industries,” a “stifling … regulatory system” and a “punitive … tax rates.” Let me just say right here all that is untrue. I’ll explain soon. Douthat writes that “it is a fantasy” to think that in an age of globalization the U.S. could have maintained the relative economic equality that we experienced in the ’50s and ’60s. Ironically, Douthat uses fiction – the film “Wall Street” – as evidence of that “fantasy.” The film is important to Douthat’s thesis. He sees as “necessary” the shenanigans of the greedy Gordon Gekko character – an antihero who today is often likened to the real-life Mitt Romney (presuming Romney is real, a presumption which those who liken Romney to a Ken doll or robot may not accept). Douthat actually lauds the “creative destruction” practiced by the fictional Gekko and the Bain Capital CEO Romney. “In the broadest sense…, the competitiveness revolution was good for the United States.” Actually, no. In the broadest sense, the corporate raider was a disaster for American business, for the American worker, for the economy – for everyone but the winners in Mitt Romney’s game.

In a recent column, I discussed the social compact that grew out of the Great Depression and World War II – a compact in which business and government agreed that to have a thriving market economy, the nation needed to have a thriving class of workers to manufacture and purchase American products. Douthat associates “globalization” – and the nation’s failure to adapt to it – with the end of those “golden years,” and by extension, the end of any justification for the social compact. Paul Krugman has labelled this theory “globaloney.” (I rely here largely on Krugman’s analyses. Krugman received his Nobel Prize for his work on – globalization.) Globalization has had very little effect on the overall wealth of the nation, though it has had a negative effect on one group: blue collar workers. This international effect, by the way, is no different from the intra-national effects of moving well-paying union jobs from Massachusetts to poorly-paying jobs in South Carolina. The productivity of both groups of workers is about the same, but the savings in labor costs of course is transferred to the corporation and its investors. Workers lose, corporations and their investors gain. Get the picture?

Productivity, Krugman says, is the key to a vibrant national economy:

… in spite of globalization, the rate of growth in the overall standard of living of any large country is roughly equal to its rate of productivity growth period, full stop, end of story…. The fact that a larger share of output is exported and a larger share of consumption imported than used to be the case matters hardly at all.

As Krugman wrote in Pop Internationalism (1996, paraphrased here in a review by Cosma Shalisi), international

trade is overwhelmingly between the rich countries – the average wage rate in America’s trading partners, adjusted for purchasing power, is about 90% of the US wage rate. Whatever happened to US manufacturing jobs, they were certainly not competed away by low-wage labor in Germany, Switzerland and Japan. (The most likely explanation … is that productivity in manufacturing continues to grow much faster than productivity in services, while demand for manufactured goods does not, so relatively fewer manufacturing workers are needed to supply that demand, and the surplus go into services; this accounts for why the same pattern is observed in the main US trading partners, as well.)

So globalization is not, as Douthat thinks, the cause of the growth in income inequality in the U.S. Rather, it would be more accurate to say that the trend toward globalization that began in the early 1970s was the excuse that allowed powerful business interests to claim, as Douthat does, that unions, regulations and taxes were straining the American economy. The powers that be have been telling this story ever since, and know-nothing writers like Douthat are in the business of aiding and abetting the deceivers. It is not, as Douthat writes, “a fantasy” to think that rising inequality could have been averted in an era of globalization. This was a choice that businesses and government made. Conservatives and business leaders made a conscious decision, beginning in the early 1970s, to break the social contract that had allowed the nation to thrive for decades after World War II. Nobody forced businesses and state governments to undermine labor unions. Nobody forced state and the federal government to relax or remove regulations. Nobody forced state and local governments to make the tax code much less progressive. In the most vibrant European economies, income distribution is much more equal than in the U.S. Here’s Paul Krugman again, speaking on NPR’s “Marketplace” in November 2007:

International trade is less important, for good or for evil, than most people suppose.

Let’s start with the idea that globalization makes it impossible for American workers to earn good wages. The facts say otherwise. All of the world’s advanced nations have to compete in the same global economy. Yet America’s combination, of soaring incomes at the top and stagnant wages for most workers, is unique.

We’re told that unions, once a key support for wages, have become obsolete in the modern world. Yet the collapse of the union movement in America hasn’t been matched elsewhere in the advanced world…. All the evidence says that you can be a full participant in the global economy while still paying good wages.

That is, other countries have maintained their social contracts, and they have not suffered for it. In fact, they have gained substantially on the U.S. Why? Because, by paying workers a decent wage, they have a domestic market for their domestic products.

The real reasons for most of the U.S.’s economic woes can be directly linked to the bad decisions state and the federal governments have made in the past 40 years – at the behest of business. Relaxing or eliminating government oversight led to the savings and loan crisis of the 1980s and most recently to the housing bubble and the 2008 financial meltdown. Stripping labor unions of their power eviscerated the domestic market for American products. Flattening the tax rate put more of the burden on middle-income Americans, which reduced their buying power, at the same time cutting taxes on the highest earners bloated the federal deficit, which – over time – led to decreased investment in business.

The result of that campaign to break the social contract, as almost everyone knows now – thanks largely to the Occupy movement which raised public awareness – has been a drastic redistribution of wealth. And we know which way that redistribution went: it went up – way up, to the top one percent, with an even larger share going to the top one-tenth of one percent. Among the major vehicles for that redistribution were Wall Street corporate raiders, venture capitalists and private equity firms.

Enter, laughing, Mitt Romney.

Romney and other deal-makers bought up companies, either via hostile takeovers or by invitation, and “streamlined” the companies, usually at the expense of workers and often at the expense of taxpayers and creditors. In the best of circumstances, the “work” of these venture capitalists was a win-win-win/lose-lose-lose situation. The winners were the deal-makers, the corporate honchos (those who got bought out left with a chunk o’ cash, and often, golden parachutes) and investors. The losers were ordinary workers, taxpayers (the deal-makers often use various forms of government subsidies to sweeten their deals) and – if the “restructuring” included a bankruptcy, as it often did, by design – the company’s creditors. This Wall Street Journal article, published last week, relates some of the specifics of what Bain Capital did when Mitt Romney ran it from 1984 till early 1999. (The article does not say so, but Romney took about two years off in the early 1990s to work for another Bain entity.) It is not a pretty picture.

It is important to understand, as Douthat does not, that Mitt Romney is part of the problem – a big part of the problem – not part of the solution. His brand of what Rick Perry, accurately for once, calls “vulture capitalism” contributed little directly to the U.S. economy, and by increasing income inequality and thus constraining domestic consumption, it hurt the overall economy. Yes, the wealth Romney transferred from worker/consumers to himself and his investors remains in the country, but it resides in the pockets of people who don’t purchase as much as the aggregate of well-paid workers would have, and it resides in the pockets of people and corporations who today do not even contribute to the government (pay taxes) at the same rate as worker/consumers now do. Overall, Mitt Romney’s “business acumen” hurt the American economy much more than helped it. The “creative destruction” Douthat approves is, as the term suggests, an oxymoron. And it is not a good thing.

In addition, let’s understand that “the art of the deal” is not an art that transfers well to running the federal government. Robbing Peter to pay yourself is not a particular skill set required of presidents. And when I say “robbing,” I’m not kidding. William Cohan, who wrote for the New York Times until recently, and who now writes for Bloomberg/Business Week, contributed an op-ed to the Washington Post this weekend that tells us just what kind of deals Bain Capital cut. Cohan was a Wall Street deal advisor when Romney was running Bain. He says Bain did not play by the rules. Bain “consultants” had a pattern of giving themselves an advantaged position by bidding high; then when it was way too late for the company they had bid on to entertain other offers, Bain “found problems” that just “forced” them to slash their initial offer. Bain did this so often that Cohan refused to work with them. He writes, Bain’s

word [was] not worth the paper it [was] printed on…. This win-at-any-cost approach makes me wonder how a President Romneywould negotiate with Congress, or with China, or with anyone else — and what a promise, pledge or endorsement from him would actually mean…. When he was running Bain Capital, his word was not his bond.

Ross Douthat recognizes that Mitt Romney’s profiteering was a bit unseemly and that Romney’s dismissal of his critics as merely consumed by “bitter … envy” is not convincing. “No one, Douthat says, “who has profited so immensely [as has Romney] from an age of insecurity should ever appear to be lecturing the people who’ve lost out.” [Emphasis added.] That is, Romney must do a better job of selling himself. It isn’t about what he did; it’s about how he excuses what he did. It isn’t about substance; it’s about style. Douthat says Romney needs to come up with a better way to obfuscate his misdeeds. Republicans always have a bad product, so Republican politics is always about hiding, prevaricating, repackaging, snake-oil advertising. It is not about substance because the substance stinks. It is about “optics.”

In one of the most famous lines from the film “Wall Street,” Gordon Gekko says, “I create nothing. I own.” This is Mitt Romney in a nutshell. If Romney understood the damage he did, if he atoned for it – he might be of presidential timbre. Instead, Romney sees his greatest liability as an asset. Ross Douthat has figured out that Romney’s “asset” has a downside. As his closer, Douthat writes that Romney will have to “ defend his revolution,” and “show that he’s reckoned with its costs.” Douthat recognizes that Romney’s way of bleeding the economy was “revolutionary.” And he understands that the “revolution” cost the average American. What he does not understand or acknowledge is that the Romney revolution was insidious, counterproductive and wholly unnecessary. As long as the pundit class – and here I include Douthat’s fellow New York Times op-ed columnists David Brooks (“reform [cut] taxes, replace Obamacare, cut spending and reform [cut] entitlements”), Tom Friedman (The World Is Flat) and Frank Bruni (Romney should stick to “casual dress”) – does not understand how disastrous Romney’s brand of capitalism really is, American voters will not understand it either. Mitt Romney may be a dangerous character, but ill-informed columnists who misinform the public are the oil that grease the big wheel.

Marie Burns blogs at RealityChex.com

By marieburns

Readers Comments (1)

1. alphonsegaston says:

   Well, yes, Romney should stick to casual dress.

   “Globaloney”–I love it. Seriously though, something is seriously wrong with the NYT conservative pundits when I, with my elementary understanding of economic issues, can see through them. Where are all the conservative intellectuals? Have there ever been any?

   8:20 pm on January 16, 2012

    Reply

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