To get your ideas across
use small words,
big ideas,
and short sentences.
John Henry Patterson
Sunday Talk Soup: The Spin of Robert Gibbs Part 2
Well, look, the biggest idea that we're running on is to continue moving in the right direction of fixing this economy. Look, the last six months of the Bush administration we lost 3.5 million jobs. And we know this about Mitt Romney. He's not a job creator. When he was governor of Massachusetts they were 47th out of 50 in job creation.
His experience is in downsizing and outsourcing jobs and bankrupting companies and walking away with a lot of money for himself. His economic ideas are the failed economic ideas that we tried for eight years. Tax cuts for millionaires and billionaires and letting Wall Street going back to writing the rules all over again. That is the policies that got us into this mess.
This president wants to build on 25 consecutive months of private sector job growth, 4.1 million jobs. And to really institute some strong values of fairness and responsibility. Build an economy that lasts. Invest in our children and in their college education. Make this country strong. Make this economy vibrant. And continue on the path to adding jobs in it.
Yesterday's part 1 focused on the last statement of Gibbs' first paragraph, regarding state job creation under Romney. The statement of and by itself is a half-truth (as evaluated by a prominent news fact checker): the first aspect, that job growth in Massachusetts had been slow during Romney's tenure (2003-2007) is easy enough to verify (1.6% from the beginning to end of Romney's term using BLS). However, the intent is clearly to impeach Romney's claim as a job creator: less than a handful of states did worse than Massachusetts in job gains? After all, didn't all the states suffer the same economic shocks of the 2000-2002 stock market and 9/11?
The answer is that governors have limited control over the state economy. Massachusetts lost more jobs than any other state in the country, including California some five or more times larger. As Politifact noted (or implied) California has its own top ranked universities (Stanford, Berkeley, Cal Tech, etc.) and high tech hub (Silicon Valley): so the argument is, well, Massachusetts should have done as well as California in terms of job growth. However, I don't think that's a credible argument: California has a significantly structurally different economy; for example, its ports are obvious destinations for the high-growth Asian exporters, its warmer southern climate and fertile soil make it a breadbasket for the nation, it serves as the hub for the entertainment industry, etc.
(I have mentioned the Chicago area also was very hard hit by white-collar jobs lost in the early 2000's, a main reason I relocated to the Baltimore/DC area in 2004; I'm not going to analyze the high tech market in detail here, but among other things, the industry misread demand of redundant orders by customers anxious to fulfill their infrastructure requirements, in many cases, sales during the last years of the Clinton Administration were borrowed from anticipated purchases planned during the Bush Administration. Compounding the issue were bankruptcies, flooding channels with barely-used products at bargain basement prices. In the aftermath of "profits don't matter, we're in a new economy" Nasdaq bubble burst and the corporate scandals (Enron, Tyco, etc.), business managers were focused on cost cutting and productivity efficiency. High personnel costs were an obvious target.)
The reason I mention this is that companies are reluctant to take on new costs until they see signs of a more robust, sustained demand in the economy, and just like it's taking the housing industry years to work off an oversupply in home inventories, the earlier asset bubble had similar considerations.
Romney had few tools to work with; the state government's revenues are a fraction of the federal government's per capita. What he needed to do was to lower the burden of state government (i.e., by lowering taxes, reducing the costs associated with government regulations and mandates), and to make the state more attractive for business startups or existing businesses to invest or expand in Massachusetts (e.g., through bureaucratic and regulatory reform)
However, Romney inherited a state legislature nearly 85% Democrats--determined, just like the 111th Congress, to soak the rich to cover their spending and to restore program cuts made under Romney's predecessors. The problem is that unlike the state of Massachusetts, the federal government can spend money it doesn't have. Further, nearly 40% or so of the budget was untouchable from a constitutional standpoint
Romney didn't get his coveted general income tax decrease from 5.3% to 5%, but he finally got a small capital gains tax cut and various other tax cuts/holidays and managed to get to balanced budgets and a rainy day fund without tax increases, and job growth was on the upswing by the time he let office. I go into more depth on these issues in yesterday's post.
But the important thing to realize, from a jobs perspective is that the Massachusetts jobs hemorrhage--nearly 5% of jobs in the state--had stopped and the state job growth picked up momentum better than a number of states by the time Romney left office in early 2007. Of course, a new recession would start by late 2007, and successor Gov. Patrick would soon find himself in a jobs deficit.
An argument can be made that Romney largely escaped the two major recessions of the decade, but I guarantee the numbers would have been worse under a Democratic governor: the only way you could have taxed-and-spent the way the Dems wanted to would have been to go after the wealthy/high-income individuals and/or businesses. In the former case, the wealthy can take up residence outside of Massachusetts and/or engage in tax avoidance behavior which does not include investing in the economy and jobs. New taxes on businesses not only would have made Massachusetts less competitive, but could have led some companies to move to a more business-friendly state, like Texas.
Let me briefly deal with other parts of Gibbs' nonsense (Romney can speak for himself, but I haven't seen his campaign address this garbage to my satisfaction):
- "This president wants to build on 25 consecutive months of private sector job growth, 4.1 million jobs." Let's point out that Bush had 47 consecutive months of private sector job growth (starting in July 2003), 7.25 million jobs, and Obama has operated under Bush's tax cuts. Without trillion dollar debts or massive stimulus bills or adding even more to unsustainable unfunded entitlement liabilities. More importantly, the official unemployment was much lower under Bush. Bush had comparable job numbers over 2-year recovery periods; I thought the standard was "8 years of failed policies". So Obama has built on Bush's record and policies of tepid job growth and federal budget deficits? The fact is that the President has very little leverage over a $15T economy--but he can promote economic growth by minimizing uncertainty and government-related business costs (including taxes, regulations/mandates), not competing with the private sector for investor dollars, by setting more globally competitive business taxes, and by eliminating trade barriers
- "Well, look, the biggest idea that we're running on is to continue moving in the right direction of fixing this economy. Look, the last six months of the Bush administration we lost 3.5 million jobs." Quoting Tina Turner, "we don't need another hero". The Invisible Hand works just fine on its own. The idea that Bush was responsible for the economic tsunami is sheer nonsense. It was not the Bush Administration that exposed the federal government to nearly half of the sharply correcting real estate market through the GSE duopoly; it was not free market policies that subordinated mortgage risk factors to affirmative action or other relevant criteria--money exacerbating the unsustainable housing bubble; it was not the Bush Administration that propped up massive asset bubbles with loose monetary policies.
- "And we know this about Mitt Romney. He's not a job creator. His experience is in downsizing and outsourcing jobs and bankrupting companies and walking away with a lot of money for himself. His economic ideas are the failed economic ideas that we tried for eight years. Tax cuts for millionaires and billionaires and letting Wall Street going back to writing the rules all over again. That is the policies that got us into this mess."
First of all, Robert Gibbs doesn't really understand conceptually what a private equity company does. In the case of Bain Capital, only part of the business worked with leveraged buyouts. His discussion of tactics used to make a business model more sustainable is polemical: outsourcing and divesting non-core operations are tactics used by business in general, not just private equity firms.
For example, an entertainment company is not necessarily good at running information technology operations; it may well decide to partner with an IT services company to manage its IT operations: even though IT services companies make profits, they are more efficient and effective at what they are doing and allow entertainment companies focus on what they do best versus ineptly waste resources on reinventing the wheel of IT operations. A partner can and does help pay for itself through efficiencies.
"Private equity provides working capital to a target company to nurture expansion, new product development, or restructuring of the company’s operations, management, or ownership. Among the most common investment strategies in private equity are: leveraged buyouts, venture capital, growth capital, distressed investments and mezzanine capital."
"Since inception [Bain Capital] has invested in or acquired hundreds of companies including such notable companies as AMC Entertainment, Aspen Education Group, Brookstone, Burger King, Burlington Coat Factory, Clear Channel Communications, Domino's Pizza, DoubleClick, Dunkin' Donuts, D&M Holdings, Guitar Center, Hospital Corporation of America (HCA), Sealy, The Sports Authority, Staples, Toys "R" Us, Warner Music Group and The Weather Channel." Bain Capital has hardly looted these partners, as Gibbs' over-the-top rhetoric would have you believe; from a seed investment of a few million, today's Bain Capital manages over $60B in assets.
It is true that Romney made millions for himself, his company and Bain Capital investors--and companies they invested in, in a win-win proposition. He had a very high internal rate of return overall. His distinctive approach is well-known in the private equity business and has since been adapted as a de facto business standard by other private equity firms.
Let me take one example that Romney CRITICS have been citing: Ampad. According to Wikipedia:
Known as the Ampad Holding Corporation, the company was purchased in 1986 by the Mead Corporation. In 1992, the newly formed holding company American Pad & Paper and Bain Capital purchased the subsidiary from Mead. The company continued to enjoy 53 percent compound annual growth in net sales, which increased from $8.8 million in 1992 to $200.5 million in 1996, when the company became publicly traded. On January 8, 1999, unable to sustain profitability, the company [was delisted and filed for bankruptcy].
For those who are not investors, a compounded annual growth in sales of 53% is phenomenal. The controversy involved a strike against a money-losing paper plant (Marion) acquired by Ampad from Smith-Corona. [Ann Coulter wrote a column on this matter; basically, for Marion to continue operating in a thin-margin business, they needed compensation givebacks; the union, in a state of denial, refused, eventually resulting in Ampad closing the factory. Romney had taken a leave of absence to run against Kennedy for the Senate in 1994 and was not involved.] I have not read the full case history of what happened after the company went public, other than the fact that they made additional acquisitions. Coulter suggests that Bain was trying to help Ampad achieve economies of scale as the paper business faced brutal price competition and an erosion of demand for paper in an increasingly digitized economy. Obama, of course, has to pay lip service to his crony unionist support and thus demonstrates profound ignorance as usual on all business and economic matters. There are a number of things that can go wrong, e.g., you don't have the orders to achieve economies of scale, you run into production problems (say, a union strike) and lose your customers, the competition starts a price war to gain market share or introduces products to compete against your higher-margin business, you've got acquisition loans to pay off, etc. But the idea that Bain built up a business to see it fail is a pure smear. Did Bain profit when they helped increase sales from $8.8M to $200M in 4 years? Probably, and they deserved to. Sometimes businesses just fail, despite one's best efforts.
In other cases, you're not buying a healthy company. Bain Capital thought that companies using its methodology could be more successful. Sometimes that requires shedding workers at the start when the company in question doesn't have a sustainable business model. It becomes more of an issue of whether the company has to go out of business or whether it can continue to operate if, say, it slashes personnel costs by half. No doubt the laid off workers aren't happy. Does Bain want to make a profit? Of course. But there are easier ways to make money than invest in a company that looks like it may go bankrupt.
Finally, Gibbs totally ignores the part of Bain Capital involved in startups, e.g., highly successful Staples. The startups, of course, resulted in plenty of jobs. But a leveraged buyout play, once the company is restored to a sustainable business model, can also expand, creating jobs in the long run.
- Now what intellectually vapid person came up with the preposterous sound bite "his economic ideas are the failed economic ideas that we tried for eight years"?
We are not talking about exotic economics here: we are talking about concepts like marginal utility, the law of supply and demand. The Invisible Hand works: there's a need for a product or service, and people meet it. When tax cuts have been cut in major percentages (after WWI, during the JFK/LBJ administration and of course under Reagan), the result was not only robust economic growth, but higher income at a lower rate made up for lower income at a higher rate. The FACT of the matter is we achieved the HIGHEST tax revenues in history and the HIGHEST GDP after Bush's tax cuts, and higher income people paid a greater portion of income tax revenue.
- "Tax cuts for millionaires and billionaires and letting Wall Street going back to writing the rules all over again. That is the policies that got us into this mess."
EXISTING tax rates for millionaires and billionaires are HIGHER than they were under Reagan/Bush (28%). What absolutely doesn't make sense? Raising costs of investment for the economically successful in a struggling economy. Talented people who are already set for life don't need to create more wealth. Steve Jobs didn't. It's for all of our benefit that they do. Tax rates ARE NOT THE SAME THING as tax revenue. (But who expects Obama and Gibbs to know that?) You raise the price of something--you get less of it. Got it? WalMart does not make money by raising prices on its popular items; it makes money on volume.
Letting Wall Street write all the rules? What movie are you watching? Banking is one of the most highly regulated industries ever. What failed during the economic tsunami were not conglomerates of investment and traditional banks. If you look at where TARP money went, it went to AIG, the car companies, and the GSE's, not Wall Street. (It's true that the Administrations intimidated banks into accepting TARP money--which most banks never wanted from the get-go.)
No, the real issues, among other things, are the government making guarantees they shouldn't be making because it raises moral hazard and shifts risk from the banks to the taxpayers, and regulators in over the heads from the get-go. The real failure in 2008 was that of government. If businesses take on undue risk, including AIG or the car companies or an investment bank, I don't have a problem with them failing.
52 Straight Months of Job Growth Under Bush? Not Quite
This is the professor in me speaking up (plus as someone with two math degrees, I have a natural interest in numbers). Progressives seem agitated by the claim; I examined one of them to see the argument made, but it's not even a direct refutation: he simply rants about how weak the job growth was.
What bothers me is in maybe two dozen links I queried on this claim, nobody identifies the beginning and end of the month, the specific employment statistic being used, etc. Silly me--I decided to extract the data myself (below). I believe that the starting point is August 2003 through January 2008, a period is 53 months. In fact, I think there was a slim drop in jobs from September to October 2006: 9000. And I think there were also modest drops in July and August 2007. However, during that overall period, over 8.2M jobs were created, roughly 6.4%
In contrast, since the recession ended in June 2009, some 2.3M jobs have been added, roughly 1.8%. Notice that Obama is still some 700K jobs away from breakeven--and that's not counting an increase of 100,000 needed every month to accommodate new young entrants.
Am I saying Bush was great in job growth? No, notice that he gave up roughly 4.5M jobs his last year, and given the decrease for the recession and 9/11 at the beginning of his first time, ended up with something like 1M net jobs, all of which were from the public sector.
NB: It's possible, like Obama, the claim is about private sector job growth (see the second chart). You can start with July 2003, but jobs still drop from June to July 2007, short of 4 years (and, of course, 52 months).
Employment, Hours, and Earnings from the Current Employment Statistics survey (National)
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 130591 | 130445 | 130421 | 130337 | 130328 | 130375 | 130275 | 130264 | 130209 | 130330 | 130338 | 130175 | |
| 2003 | 130270 | 130111 | 129898 | 129849 | 129840 | 129840 | 129865 | 129820 | 129929 | 130126 | 130140 | 130259 | |
| 2004 | 130421 | 130465 | 130802 | 131051 | 131361 | 131442 | 131488 | 131610 | 131771 | 132119 | 132182 | 132316 | |
| 2005 | 132453 | 132693 | 132834 | 133194 | 133364 | 133607 | 133981 | 134174 | 134240 | 134320 | 134654 | 134814 | |
| 2006 | 135097 | 135413 | 135696 | 135877 | 135891 | 135967 | 136176 | 136359 | 136516 | 136507 | 136711 | 136882 | |
| 2007 | 137118 | 137211 | 137401 | 137473 | 137612 | 137687 | 137647 | 137629 | 137702 | 137781 | 137893 | 137982 | |
| 2008 | 138023 | 137939 | 137844 | 137636 | 137446 | 137248 | 137038 | 136764 | 136332 | 135843 | 135040 | 134379 | |
| 2009 | 133561 | 132837 | 132038 | 131346 | 130985 | 130503 | 130164 | 129933 | 129734 | 129532 | 129490 | 129319 | |
| 2010 | 129279 | 129244 | 129433 | 129672 | 130188 | 130021 | 129963 | 129912 | 129885 | 130105 | 130226 | 130346 | |
| 2011 | 130456 | 130676 | 130922 | 131173 | 131227 | 131311 | 131407 | 131492 | 131694 | 131806 | 131963 | 132186 | |
| 2012 | 132461 | 132701(P) | 132821(P) | ||||||||||
| P : preliminary | |||||||||||||
Employment, Hours, and Earnings from the Current Employment Statistics survey (National)
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2002 | 109214 | 109055 | 108990 | 108894 | 108814 | 108826 | 108731 | 108675 | 108663 | 108771 | 108757 | 108587 | |
| 2003 | 108644 | 108487 | 108288 | 108254 | 108273 | 108234 | 108232 | 108264 | 108425 | 108568 | 108605 | 108713 | |
| 2004 | 108883 | 108915 | 109214 | 109437 | 109747 | 109841 | 109882 | 109984 | 110136 | 110463 | 110490 | 110623 | |
| 2005 | 110718 | 110949 | 111094 | 111440 | 111583 | 111844 | 112124 | 112311 | 112395 | 112491 | 112795 | 112935 | |
| 2006 | 113250 | 113535 | 113793 | 113958 | 113965 | 114045 | 114203 | 114348 | 114434 | 114439 | 114628 | 114794 | |
| 2007 | 115023 | 115080 | 115252 | 115298 | 115419 | 115480 | 115476 | 115403 | 115423 | 115484 | 115559 | 115606 | |
| 2008 | 115647 | 115511 | 115399 | 115184 | 114968 | 114737 | 114478 | 114184 | 113759 | 113279 | 112482 | 111824 | |
| 2009 | 110985 | 110260 | 109473 | 108671 | 108359 | 107933 | 107637 | 107418 | 107234 | 107002 | 106960 | 106840 | |
| 2010 | 106800 | 106773 | 106914 | 107107 | 107191 | 107283 | 107375 | 107503 | 107618 | 107814 | 107948 | 108088 | |
| 2011 | 108207 | 108464 | 108725 | 108989 | 109097 | 109199 | 109374 | 109426 | 109642 | 109781 | 109959 | 110193 | |
| 2012 | 110470 | 110703(P) | 110824(P) | ||||||||||
| P : preliminary | |||||||||||||
Labor Force Statistics from the Current Population Survey
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Annual |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2001 | 4.2 | 4.2 | 4.3 | 4.4 | 4.3 | 4.5 | 4.6 | 4.9 | 5.0 | 5.3 | 5.5 | 5.7 | |
| 2002 | 5.7 | 5.7 | 5.7 | 5.9 | 5.8 | 5.8 | 5.8 | 5.7 | 5.7 | 5.7 | 5.9 | 6.0 | |
| 2003 | 5.8 | 5.9 | 5.9 | 6.0 | 6.1 | 6.3 | 6.2 | 6.1 | 6.1 | 6.0 | 5.8 | 5.7 | |
| 2004 | 5.7 | 5.6 | 5.8 | 5.6 | 5.6 | 5.6 | 5.5 | 5.4 | 5.4 | 5.5 | 5.4 | 5.4 | |
| 2005 | 5.3 | 5.4 | 5.2 | 5.2 | 5.1 | 5.0 | 5.0 | 4.9 | 5.0 | 5.0 | 5.0 | 4.9 | |
| 2006 | 4.7 | 4.8 | 4.7 | 4.7 | 4.6 | 4.6 | 4.7 | 4.7 | 4.5 | 4.4 | 4.5 | 4.4 | |
| 2007 | 4.6 | 4.5 | 4.4 | 4.5 | 4.4 | 4.6 | 4.7 | 4.6 | 4.7 | 4.7 | 4.7 | 5.0 | |
| 2008 | 5.0 | 4.9 | 5.1 | 5.0 | 5.4 | 5.6 | 5.8 | 6.1 | 6.1 | 6.5 | 6.8 | 7.3 | |
| 2009 | 7.8 | 8.3 | 8.7 | 8.9 | 9.4 | 9.5 | 9.5 | 9.6 | 9.8 | 10.0 | 9.9 | 9.9 | |
| 2010 | 9.7 | 9.8 | 9.8 | 9.9 | 9.6 | 9.4 | 9.5 | 9.6 | 9.5 | 9.5 | 9.8 | 9.4 | |
| 2011 | 9.1 | 9.0 | 8.9 | 9.0 | 9.0 | 9.1 | 9.1 | 9.1 | 9.0 | 8.9 | 8.7 | 8.5 | |
| 2012 | 8.3 | 8.3 | 8.2 |
Political Humor
"German authorities report they have discovered digital files hidden in a porn movie that outline al-Qaida's plans for more terrorist attacks. I believe this is the first time that a porn film has ever contained a plot." - Jay Leno
[It seems that all that time government employees spent watching porn on the taxpayer dime finally paid off...]
"The Secret Service announced that agents will now be assigned chaperones on certain trips. What is that? I thought the Secret Service WAS the chaperone." - Jay Leno
[Ask Hillary Clinton how that worked out with Monica Lewinsky... It'll be in that upcoming book from the fired Secret Service agent: "All I Really Needed to Know I Learned in the Clinton White House".]
"Today Mitt Romney visited a firehouse here in New York City. Of course, he was disappointed when he learned that the firehouse is not where you get to fire people." - Jimmy Fallon
[And to think, some people were questioning whether Mitt Romney had the fire in his belly to be President...]
Musical Interlude: My Favorite Groups
The Rolling Stones, "Dandelion"
