If You Want to Know Why Senator Romney Isn't President....

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It was comically bad. Mitt Romney was running for president against Barack Obama. President Obama was presiding over an economy still hobbled by the errant Bush bailouts of 2008, along with Obama’s own confusion about how economies grow.

That Obama was an enemy of Obama was a consequence of his desire to do things once in office. He’s a politician, after all. About the need to act, his chief of staff said something along the lines of “never let a crisis go to waste.” Obama surely didn’t, to the detriment of his presidency.  

Had he just played golf every day he might be known today as one of the more successful economic presidents. Indeed, the answer to recession is inaction. While painful, and often humiliating for the individuals who comprise what we call an “economy,” untouched recessions signal a boom on the way. They signal realization of errors, and the fixing of errors, unless they’re touched. Obama’s human. So is Congress full of humans. So they touched with great gusto. More intervention in 2009 added to the economic asphyxiation of the interventions from 2008. The government meddling in what was healthy slowed the cleansing nature of recession, thus elongating the pain.

But this piece is not about Obama, or George W. Bush, or Congress. It’s not really even about Obama’s 2012 opponent for the White House in Romney. Readers may remember that Romney’s cringe-inducing response to the Obama economy was a 58 point plan to allegedly right the ship. You can’t make this up. You also don’t need to. Romney had Oren Cass advising him, and Cass rarely comes across a problem that he doesn’t have a policy solution for. Call him the Elizabeth Warren of the right. Oh, for the days when Republicans actually believed in free markets…The main thing is that with Cass guiding Romney’s economic message all hope for a one-term Obama presidency was lost. It’s probably for the best. Intervention, and all sorts of economic plans and “points,” invariably adds to the economic suffocation. Freedom is the only fix for slow economic periods, but like Obama, Cass likes to do things. Somehow he got the ear of Romney.   

Cass’s bad advice came to mind yet again this week after the release of a column by him about our “James Harden Economy.” Cass believes that the U.S. economy increasingly resembles the NBA in which Harden stars; that it has, like the NBA, evolved in “ways unpredictable to the game’s creators and fundamentally inconsistent with the game’s structure and objectives.” From there Cass, as is his wont, promotes fallacy and falsehood, usually together. Some probably wonder why anyone would bother reading someone so thoroughly stalked by misinterpretation, and the answer will always be to remind myself why and how Romney managed to lose in 2012 despite running against a White House occupant who had so little to brag about. If readers want to know why Romney is a senator, they need only read his economic guru in Cass.

Cass writes that “the Houston Rockets have led a parallel revolution by focusing on three-point shots and free throws, which tend to offer the highest expected value.” But that also weaken the game if Cass is to be believed. Points over positive evolution. Hillary Clinton has long made a similar argument about “quarterly capitalism” practiced by U.S. businesses. Supposedly businesses pursue short-term earnings boosts over wise investment meant to bolster the long-term. The feverish experimentation that is the norm in U.S. corporations (Coca Cola rolls out a product per day, for instance), and that defines locales like Silicon Valley, Austin, and Route 128, seemingly doesn’t mean much to Clinton. Or Cass.

He sees American businesses as having put near-term profits above any kind of investment in people and processes. According to Cass, corporate profits and stock-market valuations have “surged for decades,” but at the expense of true progress. Basically “social goods” that corporations “are supposed to support” have suffered as corporate America has increasingly mimicked Harden’s step-back-three, albeit in the boardroom. Cass wants us to believe that while he hasn’t been tricked by the alleged fakery of corporations that supposedly no longer care about innovation and employees, investors have been tricked.

In making this most unimpressive of cases, Cass falls back on the laugh line about how in an era of surging corporate profits, “the incomes of typical workers have stagnated.” Oh yes, that’s why imports into the U.S. continue to surge to record levels and businesses around the world devote so much effort to cracking the U.S. market: they want to serve the stagnated. To read Cass is to feel fairly certain that he skipped the lesson about Say’s Law. In Cass’s model, and readers can rest assured this deepest of thinkers has endless “models,” consumption just happens. How else could it be that the world’s businesses would feverishly jockey to meet the needs of desperate workers whose incomes “have stagnated” for decades?

With Cass there’s very little introspection. That soaring imports for decades thoroughly reject his thesis about income stagnation doesn’t register. The anecdotal doesn’t register either. Goodness, just this past week Amazon announced $700 million in training funds to boost the skills of its workforce. While Starbucks used to offer its baristas health insurance, it now offers health insurance and college tuition. So does Uber. So do Wal-Mart, UPS, Fidelity and Publix. According to CNBC, student-loan repayment is “finding its way into the mainstream menu of workplace benefits.” Yesterday at a McDonald’s drive-thru window deep in the heart of South Dakota, this writer saw that the business most associated with entry-level pay is now offering college tuition assistance for employees who reach the 3-month mark at the fast food chain.

The anecdotal rates mention as a way of asking readers if Cass’s supposition of wage stagnation has anything to do with what’s actually happening inside U.S. businesses. How can it be that wages are stagnant when U.S. businesses are doing so much, and spending so much, to retain the best and brightest? Cass can’t be bothered to answer things like this. He’s too busy trying to paint a picture of the U.S. as a never-ending Aliquippa.

Funny here is that Cass aims to draw a likeness between the NBA and the U.S. economy; his likeness one of both the NBA and U.S. economy gradually sucking worse. The problem is that those stubborn things called market prices disagree with the scholar. We know this because the price of NBA franchises continues to rise, and with it NBA salaries. In Harden’s case, he has a contract of the $200 million variety. You see, surging team valuations logically correlate with surging NBA player salaries. Basic stuff, except that Cass wants readers to believe that corporate valuations away from sports could surge stateside, only for salaries to stay the same? Cass’s model says exactly that, and says it even though there’s quite a war for talent taking place right now in the U.S. See once again Starbucks, Walmart, Uber, Intel, Disney, UPS, Fidelity, Publix….

So while it’s very apparent that America’s businesses are rather aggressive investors in their employees in contrast to the exploitative picture painted by Cass, the self-serious thinker isn’t just criticizing wages. In Cass’s model profits can be had without investment, and as Cass sees it, “businesses are no longer the nation’s long-term investors.” Cass’s source is….Marco Rubio. No offense to Rubio, or Cass, but such a view isn’t serious. According to Andy Kessler, Apple, Alphabet, Amazon and Microsoft alone invest tens of billions each year. Amazon’s Bezos, like Microsoft’s Gates before him, doesn’t hide from the fact that he expends many billions on investments each year even though he knows most will fail. Investing is the only way to progress.

That it is ably explains why Cass’s assertion about businesses not investing is so divorced from reality. He doesn’t see that companies are never, ever valued based on the present. Valuations are always and everywhere a projection of the future. If American businesses were pursuing the business equivalent of the Harden three point shot, near-term points at the expense of long-term victory, then this would show up in falling valuations to reflect reduced prospects down the line. In an economy as dynamic as the one in the U.S., businesses that stand in place don’t last very long. Cass can’t seem to wrap his mind around these basic truths. Instead, he criticizes U.S. commerce more. He argues that:

‘“constant reinvestment” isn’t happening.” That the “data show instead a ‘“financialization”’ of the economy” such that ‘“Nonfinancial companies’ balance sheets look increasingly like financial institutions’ balance sheets: that is, they increasingly borrow and lend for profit.”’

Ok, but if companies are increasingly lending for profit, that means other companies are borrowing from them in order to invest in ways that enhance their profits. No one borrows just to stare lovingly at money. To borrow is to express a desire to invest in production enhancements that result in greater output. If we ignore that lending has long been that of corporations lending to corporations, what can Cass think corporations are doing other than borrowing in order to invest? Naturally Cass doesn’t have an answer, and he doesn’t because his op-ed amounts to the invention of a non-problem in search of yet another solution from the scholar who is long on policy solutions a la Warren, but short on the common sense that would alert him to the genius of simply doing nothing.

Doing nothing is the last thing Cass would consider. Instead, he contends that “we should reconsider and modify some of the current rules that govern the market economy, which, in too many cases, is no longer serving its broader purpose of contributing to the improvement of society.” To Cass, intervention by Cass in the natural workings of the market is bliss.

Of course, the joke’s on him. Cass asks “those who make the rules” to “govern with creativity and adaptability.” Translated, Cass wants the businesses at the top to change to his liking, and has policy ideas meant to force the change. The latter is a joke simply because the businesses at the top of the heap well know that they most certainly don’t make the rules. That’s why they so relentlessly invest in new ideas. They recognize that their days on top are numbered.

If Cass doubts this, he might pull up a list of the most valuable U.S. companies when the 21st century began, or even when he was mis-advising Mitt Romney in 2012, and compare each to the present. He would then see why U.S. corporations, contrary to what he imagines, invest with great gusto. It’s about survival.

John Tamny is editor of RealClearMarkets, Director of the Center for Economic Freedom at FreedomWorks, and a senior economic adviser to Toreador Research and Trading (www.trtadvisors.com). His new book is titled They're Both Wrong: A Policy Guide for America's Frustrated Independent Thinkers. Other books by Tamny include The End of Work, about the exciting growth of jobs more and more of us love, Who Needs the Fed? and Popular Economics. He can be reached at jtamny@realclearmarkets.com.  

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