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How Will Mitt Fix the Economy?

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Mitt Romney is currently running on the notion that he would have done and can now do better than Obama in fixing the economy. He assumes that we assume that a businessmen can do better because they understand economics better than the rest of us. George W. Bush was our first MBA president and he didn't do so well at stewardship of the economy, so skepticism is justifiable.

Evaluation of Bain Capital's business as a political question is entirely valid. After all, Romney is running on his business experience and so the nature of his business experience bears on the credibility of his promotion of it as a qualification for the office of President of the United States of America.

Romney headed Bain Capital, nominally a financial services company that served mostly the private equity market. Bain's main focus was acquisition of income producing companies with low investment costs relative to the value of the company's cash flows and assets -- acquisition bargains. Bain employed the corporate raider model, but had sufficient cash to avoid the justly loathed Leveraged Buy Out (LBO) label in their acquisitions.

Corporate raiders acquire companies that are profitable but yet have little value on the exchanges. It's sort of counterintuitive for a profitable company to be next to worthless, but it happens as markets mature for products. Profit growth or potential growth determines share price. Profit stagnation will reduce share price to the book value of a company in very short order -- book value being the value of the assets of the company when liquidated. When that point is reached is when a raider strikes. The raider's target company is, for all practical purposes, liquidated by the raider for a profit.

No matter what raiders would have you believe, raiders do not rescue failing companies. They prey on companies that are successful in nearly everyone's estimation but Wall Street's estimation. The raiding practice is as simple as pie in concept. The only complexities are in corporate law, charters and bylaws. It's not hard to do if you have tons of money and Bain had tons of money.

Corporate raiding is not new, starting with J.P. Morgan's acquisition of Carnegie Steel Company in 1901. Private equity has a long and sordid history, contained by Glass-Steagall for 70 years until its GOP driven repeal, private equity now stalks us all like a money vampire.

So Mitt Romney's business experience amounts to identifying a takeover candidate from which profit can be extracted and using his and his partner's money to acquire it so they can extract the money. The only business Romney has built was the business of sucking the life blood out of businesses that made money the old fashioned way, by earning it.

Romney has worked in the most narrow band of business of all, that of corporate raider. There is nothing in his business that requires one to understand how economies work. In fact, even more diversified businesses don't really need to understand economies. They, and Mitt, only need to understand markets. Markets are not an economy.

A large cocktail party might be a useful metaphor for a free market economy. At a cocktail party the participants divide off into conversations of two or a few more. Each conversation is unique in a room filled with separate conversations. If asked what went on at the cocktail party, any individual participant would only know of an think that all that went on was his conversation.

A market is one conversation at a cocktail party. The sum of all conversations at the cocktail party is the economy. Personal, anecdotal experience in markets, a conversation, are only a narrow sample of some segment of what economies are. To understand an economy from anecdotal evidence, you must have participated in every conversation at the party. You can't. Romney can't any more than Bush -- with his MBA -- could.

As slovenly a science as economics is, it's still more comprehensive than anecdotal impressions. Math and statistics are economics' only tools. Statistics can sample some part of every conversation at the cocktail party analytically instead of anecdotally. Statistics don't lie. Only people lie. Anecdotes are useless as scientific evidence. In uncertified fact, science is the best of mankind's answer to eons of anecdotal cocktail party depictions of the universe. The Earth is flat, for instance.

When Bush 43 went to cut taxes in 2003, 450 or more economists decried the cuts in a full page ad in the NYT. Yet Romney would undertake the same deception on the American people that the party's predecessor in the office undertook, that deception being that making the rich richer will make everyone else, and the government, richer. Some eight decades worth of economic data show that conservative economic leadership is antagonistic to the economic health of the U.S. or any other country. Europe and the U.S. are now experiencing the effects of deficit reduction austerity dogma.

Economists, real ones instead of the paid shills of the rich folk's house game, have already calculated the consequences of this craven usurious austerity policy. The essential consequence is the decline of the country into economic irrelevance.

So Romney, based on his country club cocktail party life experience seems to think he understands economies. He understands the country club cocktail party market for politically acceptable thought, and that is all he understands. The real economy is out here, outside of the gated community where the conversations are beginning to turn to how dog food tastes.

Mitt needs to know that America is not a business whose assets can be sold off for profit in order to make profit for his investors. Americans are not employees that can be laid off and go elsewhere. There is no elsewhere. American states that are not growing their revenues can't be shut down to cut costs and so improve the bottom line. America is not a takeover candidate to have its valuable parts auctioned to China for private profit.

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