After New Hampshire primary: Will voters 'fire' Romney?
Mitt Romney's comment on firing people only helps open a debate about 'traditional' economics. Even economists are torn – after being humbled by the Great Recession. Can politics fill the void?
Does Mitt Romney really enjoy “firing people”?
Probably not if he doesn’t need to. Few people would relish hurting others. Still, his poor choice of words during the New Hampshire GOP primary was insensitive, especially at a time of high unemployment.
In context, however, the former venture capitalist was stating a basic point of standard economics: People must have the freedom to drop a service, such as health insurance, if it doesn’t measure up. Personal choices drive markets, either up or down. Layoffs are often necessary. An economy can’t remain static.
Not so fast, say Mr. Romney’s opponents, including a few Republican presidential candidates. Closing a company and laying off its workers while also making a profit from the transaction is unethical, they say.
“If somebody comes in, takes all the money out of your company, and then leaves you bankrupt while they go off with millions, that’s not traditional capitalism,” Newt Gingrich said.
Romney’s former private-equity firm, Bain Capital, is indeed a master at investing in companies, even if nearly a quarter of the firms during Romney’s time there filed for bankruptcy or closed their doors, according to a Wall Street Journal probe. Overall, Bain ended up creating jobs by pushing efficiency and results, claims both the company and Romney.
The 2012 presidential race may hinge on which candidate is viewed as the best “job creator.” But even economists are divided over how to nurture a sluggish economy back to health and what is “traditional” capitalism.
Economists were humbled after the 2008 financial crash. Their mathematical models for assessing risk only pushed financial firms to make false assumptions – especially about the value of home mortgages. Few economists predicted the Wall Street meltdown and the Great Recession.
The “dismal science” is focused mainly on the study of markets, although many economists also offer policy advice. This week, the profession offered up its first ethical code, calling on members whose articles are published by the American Economic Association to disclose potential conflicts of interest.
The AEA, which sees its profession as merely fact based, has avoided an ethical code up to now. Still, a group of some 375 economists sought the new ethical code while also pushing the profession to go further and press for reducing inequality.
The “Occupy” movement, too, has made demands on “traditional” economics, or the idea that self-interest is the root of all market behavior. Last fall, 70 students walked out of a Harvard professor’s class because he was teaches free-market fundamentals.
After Romney’s comment on firing people, the GOP primaries will likely join the debate over whether economic policy can make markets more “fair” and create rapid job growth. About half of Americans have a favorable view of capitalism, while 40 percent do not, according to polls. Either way, capitalism continues to evolve, which is why it won out over communism and socialism.
Even its supporters want to ensure that markets reward people by merit, that earners pay taxes, that credit isn’t recklessly dispensed, and that risks are born by those taking them, not taxpayers or consumers. Those flaws were fully exposed by the Great Recession.
Humbled as they might be now, most economists still prefer that politics generally decide questions of policy rather than having their profession adopt ethical standards to their “science.” The flaws of economists themselves in either causing or not predicting the financial crisis emphasizes just how much human behavior can’t be pinned down by statistics and models.
Romney’s mistake may not be that his comment was insensitive but in his certainty of knowing how to direct the broad currents of human society. Overconfidence by economists can misdirect an economy. At best, they can say what theories haven’t worked in the past. But the future? Like a free market, voters must choose the candidates whose policy positions best fit their own understanding of what an economy should be.
And they can also fire politicians with failing policies – although just don’t say one enjoys doing so.