Conservative Republicans and Mitt Romney Are Destroying Capitalism and Democracy

Conservative Republicans and Mitt Romney Are Destroying Capitalism and Democracy

Let’s start by laying down the baseline premise: inequality in America has been widening for dec­ades. We’re all aware of the fact. Yes, there are some on the right who deny this reality, but serious analysts across the political spectrum take it for granted. I won’t run through all the evidence here, except to say that the gap between the 1 percent and the 99 percent is vast when looked at in terms of annual income, and even vaster when looked at in terms of wealth—that is, in terms of accumulated capital and other assets. Consider the Walton family: the six heirs to the Walmart empire possess a combined wealth of some $90 billion, which is equivalent to the wealth of the entire bottom 30 percent of U.S. society. (Many at the bottom have zero or negative net worth, especially after the housing debacle.) Warren Buffett put the matter correctly when he said, “There’s been class warfare going on for the last 20 years and my class has won.”

....The “Rent Seeking” Problem

Here I need to resort to a bit of economic jargon. The word “rent” was originally used, and still is, to describe what someone received for the use of a piece of his land—it’s the return obtained by virtue of ownership, and not because of anything one actually does or produces. This stands in contrast to “wages,” for example, which connotes compensation for the labor that workers provide. The term “rent” was eventually extended to include monopoly profits—the income that one receives simply from the control of a monopoly. In time, the meaning was expanded still further to include the returns on other kinds of ownership claims. If the government gave a company the exclusive right to import a certain amount of a certain good, such as sugar, then the extra return was called a “quota rent.” The acquisition of rights to mine or drill produces a form of rent. So does preferential tax treatment for special interests. In a broad sense, “rent seeking” defines many of the ways by which our current political process helps the rich at the expense of everyone else, including transfers and subsidies from the government, laws that make the marketplace less competitive, laws that allow C.E.O.’s to take a disproportionate share of corporate revenue (though Dodd-Frank has made matters better by requiring a non-binding shareholder vote on compensation at least once every three years), and laws that permit corporations to make profits as they degrade the environment.

The magnitude of “rent seeking” in our economy, while hard to quantify, is clearly enormous. Individuals and corporations that excel at rent seeking are handsomely rewarded. The financial industry, which now largely functions as a market in speculation rather than a tool for promoting true economic productivity, is the rent-seeking sector par excellence. Rent seeking goes beyond speculation. The financial sector also gets rents out of its domination of the means of payment—the exorbitant credit- and debit-card fees and also the less well-known fees charged to merchants and passed on, eventually, to consumers. The money it siphons from poor and middle-class Americans through predatory lending practices can be thought of as rents. In recent years, the financial sector has accounted for some 40 percent of all corporate profits. This does not mean that its social contribution sneaks into the plus column, or comes even close. The crisis showed how it could wreak havoc on the economy. In a rent-seeking economy such as ours has become, private returns and social returns are badly out of whack.

In their simplest form, rents are nothing more than re-distributions from one part of society to the rent seekers. Much of the inequality in our economy has been the result of rent seeking, because, to a significant degree, rent seeking re-distributes money from those at the bottom to those at the top.

But there is a broader economic consequence: the fight to acquire rents is at best a zero-sum activity. Rent seeking makes nothing grow. Efforts are directed toward getting a larger share of the pie rather than increasing the size of the pie. But it’s worse than that: rent seeking distorts resource allocations and makes the economy weaker. It is a centripetal force: the rewards of rent seeking become so outsize that more and more energy is directed toward it, at the expense of everything else. Countries rich in natural resources are infamous for rent-seeking activities. It’s far easier to get rich in these places by getting access to resources at favorable terms than by producing goods or services that benefit people and increase productivity. That’s why these economies have done so badly, in spite of their seeming wealth. It’s easy to scoff and say: We’re not Nigeria, we’re not Congo. But the rent-seeking dynamic is the same.

The Fairness Problem

People are not machines. They have to be motivated to work hard. If they feel that they are being treated unfairly, it can be difficult to motivate them. This is one of the central tenets of modern labor economics, encapsulated in the so-called efficiency-wage theory, which argues that how firms treat their workers—including how much they pay them—affects productivity. It was, in fact, a theory elaborated nearly a century ago by the great economist Alfred Marshall, who observed that “highly paid labour is generally efficient and therefore not dear labour.” In truth, it’s wrong to think of this proposition as just a theory: it has been borne out by countless economic experiments.

While people will always disagree over the precise meaning of what constitutes “fair,” there is a growing sense in America that the current disparity in income, and the way wealth is allocated in general, is profoundly unfair. There’s no begrudging the wealth accrued by those who have transformed our economy—the inventors of the computer, the pioneers of biotechnology. But, for the most part, these are not the people at the top of our economic pyramid. Rather, to a too large extent, it’s people who have excelled at rent seeking in one form or another. And, to most Americans, that seems unfair.

It is important to understand that Mitt Romney and people like him have never done an honest days work. They have never had a great idea for a product. They have never invented a new technology. They have never made a new discovery in medical research. They have never created a great product or provided a useful service for the masses of people. What I have just described are the basic components of capitalism. products and labor. Labor creates value by producing the product for other workers to buy. All Romney and his very wealthy friends have done is act like vultures, swopping down to pick up the capital created by the labor of others ( labor is not just sweat work. Programmers, nurses, janitors, dentists, etc all do labor). This is a good example of what Romney does and what Republicans call "capitalism" and "success":

Thanks to leverage, 10 of roughly 67 major deals by Bain Capital during Romney’s watch produced about 70 percent of the firm’s profits. Four of those 10 deals, as well as others, later wound up in bankruptcy. It’s worth examining some of them to understand Romney’s investment style at Bain Capital.

In 1986, in one of its earliest deals, Bain Capital acquired Accuride Corp., a manufacturer of aluminum truck wheels. The purchase was 97.5 percent financed by debt, a high level of leverage under any circumstances. It was especially burdensome for a company that was exposed to aluminum-price volatility and cyclical automotive production.
Casino Capitalism

Forty-to-one leverage is casino capitalism that hugely magnifies gains and losses. Bain Capital wisely chose to flip the company fast: After 18 months, it sold Accuride, converting its $2.6 million sliver of equity into a $61 million capital gain. That deal, which yielded a 1,123 percent annualized return, was critical to Bain Capital’s early success and led the firm to keep maximizing the use of leverage.

In 1992, Bain Capital bought American Pad & Paper by financing 87 percent of the purchase price. In the next three years, Ampad borrowed to make acquisitions, repay existing debt and pay Bain Capital and its investors $60 million in dividends.

As a result, the company’s debt swelled from $11 million in 1993 to $444 million by 1995. The $14 million in annual interest expense on this debt dwarfed the company’s $4.7 million operating cash flow. The proceeds of an initial public offering in July 1996 were used to pay Bain Capital $48 million for part of its stake and to reduce the company’s debt to $270 million.

The people who do this are not capitalists. They are lazy sleazy plutocrats, they are leaches who live off average Americans. Romney and radical conservatives say this is an election about capitlist versus what Obama stands for. The problem with that is Romney is trying to convince the public that his cronyism, his deep moral corruption, his greed, his elitism, his total disconnection with the real lives of real Americans, is not capitalism. Like capitalism? Think it can be a good, if imperfect system in the right hands? Than no American in good conscience can vote for Romney or any Republican in 2012. A vote for conservatism is a vote against democracy and capitalism, simple as that.

If you cash a paycheck. If you do actual work for a living. Conservative have nothing but contempt for you.