Wednesday, September 5, 2012

Mitt Romney's No Apology 5: The Economy

In my latest reading of Mitt Romney's No Apology: Believe in America, Romney focused on economics.  I have two items (and the second item has sub-items).

1.  One reason that I wanted to read this book was that Romney defends the idea of creative destruction in it, and I was curious about how he went about that.  Creative destruction has to do with companies becoming more efficient and productive, and jobs being lost as a result.  For example, when new technology is created, efficiency and production increase, but the technology replaces certain workers and thus puts them out of a job.  Romney's argument is that creative destruction may result in temporary setbacks, but increased efficiency and productivity are good things because they result in more jobs, cheaper goods, and a higher standard of living for Americans.  

I wish that Romney had done a better job of connecting the dots----of showing how more productivity creates jobs, which can employ those who lost their jobs due to creative destruction.  I'm somewhat of a beginner when it comes to economics, and so, while some principles may be self-evident to others, they need to be spelled out to me.  Hugh Hazlitt at least attempted to connect the dots in his book, Economics in One Lesson.  In my post here, I summarize Hazlitt's argument:

"Hazlitt believes that full employment can contribute to production, but he doesn’t like efforts to stifle production in the name of 'full employment'. As far as he’s concerned, efficiency can create jobs. If a machine makes shirts, for example, the owner of a shirt-store may lay off those who sewed the shirts together, since a machine now does their work. But jobs are created to make the machines. The owner can expand his business and hire more workers. And, as more shirts get produced, the price of shirts comes down, and consumers can spend their money on other things, which helps the economy. Jobs are lost due to technology, but jobs are also regained."

I hope that it works that way.  Unfortunately, what comes to my mind is something my high school sociology teacher said after we watched Michael Moore's Roger and Me, which was about General Motors leaving Flint Michigan and the devastation that resulted: "Good jobs were leaving, and new Taco Bells are not going to cut it!"

One point that I appreciated that Romney made was that society should help people to find employment.  He mentions employment centers and language programs for people who don't know English that well.  But Romney also states on page 130:

"...I favor programs that incentivize employers to hire and train people who have been out of work for an extended period of time, who have disabilities, or who have been affected by the failure of a company or industry.  As governor, I was able to establish a program that paid employers $2,000 toward the cost of training anyone they hired who had been out of work for more than a year."

As someone with Asperger's, I appreciate what Romney says here.  But I hope he's serious and proactive about this----that, were he to enter office, he wouldn't forget about the need for such programs and leave people on their own.

2.  On page 149, Romney states: "For us to confidently grow our economy, we must grow our own pool of capital and make it available at a reasonable cost.  To do that, we must preserve the value of the dollar by defending against inflation, rein in government's excessive deficits, simplify taxation, and reduce taxes on enterprise and investment."

Romney makes a variety of points that deserve consideration:

----He says that inflation discourages investment because people are reluctant to invest when they won't get much of a return, due to the value of the dollar going down.  This brought to my mind my reading of Ron Paul's End the Fed, which made me think about the positives and negatives of a tight monetary policy.  See my posts here.

----Romney promotes savings because that enables there to be money for investment.  That reminded me of Hazlitt's argument that tax cuts encourage saving and thus allow for the banks to have more money to lend out for businesses to be created, as well as Ron Paul's argument that people should save and then invest rather than relying on credit.  Romney says, however, that saving does not occur enough in America, and so there is a lot of capital in the U.S. that has been provided to us by foreign companies.  That's why Romney does not support alienating other countries through protectionism----they're the source for a lot of our capital----but he does want for the U.S. to stand up to unfair and inappropriate trade practices.

----Romney states that taxes on corporations can backfire, for corporations, rather than buckling under and paying the taxes, could end up looking for a country where the tax burden is lower.  Moreover, Romney does not think that profits are a bad thing, for he notes that there are companies that use their profits to build the companies, which can result in more jobs.

----While detractors have claimed that Romney's tax plan will raise taxes on the middle-class, Romney in the book appears to oppose any tax plan that will do so.  (Of course, whether his plan will do so or not is another question!)  He favors eliminating the capital gains tax and taxes on dividends and interest for the middle-class----and he states that this "wouldn't cost the government a great deal because most of this tax today is paid by high-income individuals" (pages 143-144).  He also expresses concern that the fair tax could result in "a windfall for the very rich and the extra burden...would fall on the middle class", and he hopes that the fair tax----were it to be pursued----would be structured to avoid that problem (page 145).

----Romney states that the deficit is problematic because it reduces the amount of capital that can be used to start businesses, increases interest rates, and discourages foreign investors, who look at America's national debt in deciding whether or not to invest in the U.S.  I talk some about the national debt here and here.  At the same time, Romney quotes Michael Porter's statement that "controlling government deficits that are not being used to finance productivity-enhancing investments in the economy is perhaps the most direct way in which government can influence the pool of investable capital" (Porter's words on page 148).  While Romney most likely disagrees with President Obama's stimulus, the idea behind it is that it is a deficit that is designed to increase productivity and to invest in the economy.

----Romney says that the government employs the services of the private sector (i.e., through defense contracts) because the private sector is more efficient than the government.  That may be true, in a number of areas, but I think that there are some disadvantages to such a policy.  Private companies can end up getting a lot of money from the government, as did Haliburton and Sallie Mae.  Sometimes, it's cheaper for the government to do the job itself.

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