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 鈥� after being humbled by the Great Recession. Can politics fill the void?
In this 1998 photo, Thomas Monaghan, founder and chairman of Domino's Pizza, Inc., (l.) and Mitt Romney, managing director of Bain Capital, Inc., sign an agreement for Monaghan to sell a 'significant portion' of his stake in the company to Bain Capital. With Romney at the helm, Bain Capital helped launch or reshape hundreds of companies, including Staples and Domino's Pizza.
Scott Gries/Domino's Pizza/AP/File
Does Mitt Romney really enjoy 鈥渇iring people鈥�?
Probably not if he doesn鈥檛 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鈥檛 measure up. Personal choices drive markets, either up or down. Layoffs are often necessary. An economy can鈥檛 remain static.
Not so fast, say Mr. Romney鈥檚 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.聽
鈥淚f somebody comes in, takes all the money out of your company, and then leaves you bankrupt while they go off with millions, that鈥檚 not traditional capitalism,鈥� Newt Gingrich said.
Romney鈥檚 former private-equity firm, Bain Capital, is indeed a master at investing in companies, even if nearly a quarter of the firms during Romney鈥檚 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 鈥渏ob creator.鈥� But even economists are divided over how to nurture a sluggish economy back to health and what is 鈥渢raditional鈥� capitalism.
Economists were humbled after the 2008 financial crash. Their mathematical models for assessing risk only pushed financial firms to make false assumptions 鈥� especially about the value of home mortgages. Few economists predicted the Wall Street meltdown and the Great Recession.
The 鈥渄ismal science鈥� 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 鈥淥ccupy鈥� movement, too, has made demands on 鈥渢raditional鈥� economics, or the idea that self-interest is the root of all market behavior. Last fall, 70 students walked out of a Harvard professor鈥檚 class because he was teaches free-market fundamentals.
After Romney鈥檚 comment on firing people, the GOP primaries will likely join the debate over whether economic policy can make markets more 鈥渇air鈥� 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鈥檛 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 鈥渟cience.鈥� The flaws of economists themselves in either causing or not predicting the financial crisis emphasizes just how much human behavior can鈥檛 be pinned down by statistics and models.
Romney鈥檚 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鈥檛 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 鈥� although just don鈥檛 say one enjoys doing so.