Jobs

The Advantages of Accidental Job Creation

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Writing in The New York Times, Steven Rattner, who oversaw the Obama administration's car industry bailout as a Treasury Department official, defends his former boss's attacks on Mitt Romney's record at Bain Capital. Rattner, who co-founded his own private equity firm, the Quadrangle Group, after working as an investment banker, is embarrassed about appearing in a Romney ad that shows him defending the presumptive Republican nominee's former line of work. To atone for that, he criticizes Romney's boasts about the value of that work, noting that the former Massachusetts governor wants to take credit for every job added at businesses in which Bain invested while he was there, even if the employees were hired years after he left Bain, yet disclaims responsibility for jobs shed at those companies if it did not happen when he was running Bain. More to the point, Rattner says, creating jobs was not Romney's job:

In fact, Bain Capital—like other private equity firms—was founded and managed for profit: ideally, huge amounts of gain earned legally and legitimately. Any job creation was a welcome but secondary byproduct.

The language in one prospectus seeking Bain Capital investors was clear: "The objective of the Fund is to achieve an annual rate of return on invested capital in excess of the returns generated" by other investments. Any job creation was accidental.

But that is true of every successful business. A company that sees job creation, as opposed to profit, as its goal will not stay in business long. It will keep hiring and employing people even when the cost is not justified by the return. While the goal of making a profit leads a company to minimize costs, the goal of creating jobs means maximizing costs: rejecting every labor-saving innovation, shunning organizational efficiencies, and hiring people just for the sake of putting them to work, even if the work is not worth the wage or not worth doing at all. A company operated that way eventually would employ no one.

Rattner knows all that, of course. Regarding Bain Capital's efforts to make companies more efficient (which often means employing fewer people), he says, "That's not wrong; it's part of capitalism. Whatever its flaws, private equity has made a material contribution to sharpening management." But Rattner echoes the Obama campaign by contrasting Romney's work at Bain with Obama's work at the White House. While creating jobs was not Romney's job, he implies, it is the president's job. Here is how Obama put it on Monday:

"If your main argument for how to grow the economy is, 'I knew how to make a lot of money for investors,' then you are missing what this job is about," Mr. Obama said, stressing the words "this job" in his answer.

"It doesn't mean you weren't good at private equity," Mr. Obama added. "But that's not what my job is as president. My job is to take into account everybody, not just some."

Mr. Obama said he views private equity firms like Bain Capital as a "healthy part of the free market" designed to "maximize profits." He said there are "folks who do good work" in that line of work.

But he made clear that he views those who work in private equity — and Mr. Romney in particular — as limited by a view of the economy that prioritizes profits above all else. The president said that view was too limited at a time of economic struggles in the country.

"Their priority is to maximize profits, and that's not always going to be good for businesses or communities or workers," he said.

Referencing the videos his campaign has released in the past two weeks that featured workers laid off by Bain companies, Mr. Obama said: "I've got to think about those workers in that video just as much as I'm thinking about folks who have been much more successful."

In other words, Romney's job as Bain's general partner was to wring inefficiencies out of the economy (one company at a time), while Obama's job as president is to put them back in. Obama's job fetish—as reflected in the way he measured the success of his stimulus package and in his embrace of the broken planet fallacy, which sees global warming as a boon to the economy—prizes waste. As far as Obama is concerned, the more people it takes to accomplish a given task, the better. Given his background, Romney probably is not used to thinking that way, but he already has conceded that boosting employment is one of the president's most important functions (one that nevertheless is mysteriously absent from the Constitution), arguing that voters should choose between him and Obama based on how many jobs they promise to create. Hence Romney is not well positioned to present an alternative view: that the government's job is not to create jobs but to create the conditions in which jobs are apt to be created—not by employment-maximizing central planners but by self-interested, profit-seeking individuals who create jobs by creating value.  

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  1. Jesus Christ this election is a sham.

    1. It’s like we’re living inside of “Atlas Shrugged,” I swear. How long until Chuck Schumer introduces the Anti-Dog-Eat-Dog bill?

  2. “Their priority is to maximize profits, and that’s not always going to be good for businesses or communities or workers,” he said.

    That statement is only true in Bizarro World.

    1. I once had a frustrating argument with an Obamatron, who kept demanding to know the source of profits. The answer he was trying to maneuver me into using a positively Tulpaesque attempt at Socratic questioning was the Marxian screwing the workers out of their share.

      The problem was that he literally couldn’t get the concept that consumers set prices by what they are willing to pay. The consumers were the victims of the evil producers setting prices too high. Full Stop.

      When I tied everything together with the Misesian explanations of time-preferences, the guy actually lost his temper accusing me of being evasive.

      I believe these guys have made an emotional decision, and assume that anyone who contradicts them must be either evil or stupid and are not worth listening to.

      1. I believe these guys have made an emotional decision, and assume that anyone who contradicts them must be either evil or stupid and are not worth listening to.

        Exactly. There is no arguing with a zealot; you just shoot them before they can activate their suicide vest.

      2. I don’t bother with deep philosophical arguments, the source of profits is that humans normally want something in return for doing something. This guy simply wants something in return for doing nothing, trying to mask it with big words and Marxist dialectics does not hide this blatant fact.

      3. The answer he was trying to maneuver me into using a positively Tulpaesque attempt at Socratic questioning was the Marxian screwing the workers out of their share.

        Having trouble figuring out what you mean here, but I’m assuming you’re tangentially insulting me.

        There’s nothing wrong with asking questions for which the answers seem obvious, just to get people to ferret out their unstated assumptions.

    2. short version: intentions are more important than outcomes.

  3. arguing that voters should choose between him and Obama based on how many jobs they promise to create.

    I promise to create eleventy billion jobs.

    I can has presidency now?

  4. self-interested, profit-seeking individuals who create jobs by creating value

    Lefties who believe it’s a zero sum game where a rich person represents wealth stolen from a bunch of poor people do not understand this.

    All they know is envy.

    1. but we know “it” cant be zero-sum since teh gummint can keep printing moar free monies for all !

  5. There are really enforcing some serious message discipline now. Circle the motherfucking wagons or else!

    1. TEAM RUE is good at that.

      1. I love that. Consider it stolen.

        1. BLED is better.

  6. I have come across a fair share of people who claim that companies should not be about profit but jobs/common good/happiness, when I ask them why don’t they start a company and help their fellow man, I don’t normally get much feedback.

    1. That’s the same delusion that MNG always exhibited, that the purpose of businesses was to provide “good” jobs and profits were a result of not paying workers enough.

    2. I ask these people how a company can stay in business without contributing to the common good and to peoples’ happiness.
      After all, people must voluntarily exchange money for the company’s goods and services, right?
      Why would people do this if not because they believed it did them some good and/or provided them with happiness?

      That’s why this whole notion of “giving back to the community” bugs the hell out of me.
      Giving back implies something was taken.
      Nothing was taken. Every dollar that business received was in exchange for giving a good or service to individual members of the community.
      What to they have to give back?

      1. I think the problem with this argument these days is that so many companies choose to forego the “voluntary commerce” approach in favor of the “I’ll buy a law making my product mandatory” option.

        Which, obviously the ethical solution is to take away the ability of government to pick such winners and losers, but for people who are already inclined to see corporations as evil, businesses have already lost a lot of moral high ground by climbing into bed with government.

      2. This is an easy one… if there were better restrictions on advertising, the evil corporations wouldn’t be able to brainwash consumers into buying underpriced Chinese merchandise. If we allowed the proper type of advertising, the consumers would be persuaded into buying rightpriced union manufactured, artisan products.

        1. Funny how the people who make the “correct” decisions as to what to purchase do so amidst the same advertising environment as those who buy the “wrong” stuff.

          1. That is because they are more enlightened, and their preferences are the correct ones. They can see through the lies that the evil corporations are telling them. They’re really just looking out for your best interest. Really, they’re just that compassionate that they wish to treat all of mankind the same way they would treat their children (if they wished to have any).

            1. Ah, yes. The neighbor who, miffed that her unwanted advice gets routinely ignored, runs for political office she can force people to follow her advice or face consequences of breaking the law.

  7. “It doesn’t mean you weren’t good at private equity,” Mr. Obama added. “But that’s not what my job is as president. My job is to take into account everybody, not just some.”

    Obama really does think that he’s some kind of god.

    1. that’s capital G to you bub…ObamaGod

      1. God Almighty is to be worshipped, but He does not compel it. I don’t think Obama will show such restraint.

  8. Romney’s like a sleezy salesman that will say anything to get the deal.

    Obama appears to be a true believer that will say anything to advance his agenda.

    They’re both liars, but Obama is clearly a much more dangerous one.

    1. Obama is a much more dangerous liar only because people believe his shit (or believe that he’s lying to everyone else, but secretly agrees with them.)

      Romney is less dangerous only because his pandering is so transparent. He’s less good at lying.

  9. In other words, Romney’s job as Bain’s general partner was to wring inefficiencies out of the economy (one company at a time), while Obama’s job as president is to put them back in.

    That’s actually not true at all. His job was to generate a return for his fund, full stop. If the side effect is a leaner more efficient company … great. If that meant that a company loaded up with debt from an LBO went out of business … fine, as long as there’s a good return. GST Steel was a success for Bain, despite the company going out of business, because they got a return of about 100% due to the issuance of large dividends. There are ways to extract and transfer value without creating it.

    Let’s also not forget that LBO shops take advantage of the disparate treatment of equity and debt financing, so are able to financially engineer returns without creating value.

    1. You miss the point if you think a “full stop” at the profit motive implies nothing about efficiency. A profitable company is an efficient allocation of resources.

  10. “Their priority is to maximize profits, and that’s not always going to be good for businesses or communities or workers,” he said.

    This obsessive belief that people put their profits in Scrooge McDuck style money bins is ridiculous. Those profits go back into the economy, you dolts.

  11. I think the basic issue that never gets discussed is that direct govt job creation can only happen when someone else in the economy is producing profits that can be taxed.

    You can’t build a functioning economy based on govt job creation; it’s simply not self-sustaining in the way market-based job creation is. Without those awful profit-grubbers out there, the govt couldn’t do shit.

  12. reasonable people such as yourselves out as much faith into the market as you accuse Obama of putting into … socialist ideals? Marxism? His own view of himself as a God? … and then deride anyone supportive of him as being emotionally unstable and/or deluded.

    What i see, however, is a similar devotion to an ideal – pure market forces – that is just as unreachable as Marx’s worker’s paradise. And for several reasons:

    humans are the core of this market based system and they behave according to unreasonable, illogical and contradictory maxims. Such as, but not limited to, help my buddies out instead of allocating X resource to the the most efficient Y.

    your no-government, let the market do it philosophy leads to rampant corruption and abuse. It always does. As does big government little market (a la China). A balance is necessary and THAT i believe, is what Obama refers to when he says he takes into account everyone.

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