A Philosopher's Blog

Is Private Equity Bad?

Posted in Business, Ethics, Law, Philosophy, Politics by Michael LaBossiere on May 25, 2012
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As the 2012 United States presidential election approaches, the candidates, their minions and the “unaffiliated” super PACs have been laying out the lines of battle. Obama’s people have decided to make Romney’s time with Bain Capital a skirmish point and this has already generated considerable controversy.

One obvious point of moral concern is whether or not it is acceptable for Obama to make this an issue. After all, even one of Obama’s supporters, Cory Booker, called the attacks on Romney regarding Bain as “nauseating” and made an analogy between these attacks and the attacks on Obama for his association with Reverend Wright. Not surprisingly, when Romney’s people seized on this, Booker had to engage in a a step well known by most politicians, namely the back peddle. While this political dance is interesting, my main concern is with the ethics of the matter.

On one hand it can be argued that the attack on Romney (and on Obama) is actually a mere guilt by association fallacy. After all, the mere fact that Obama had some association with Wright or the fact that Romney worked at Bain does not automatically entail that the men are burdened with any of the views or misdeeds of those they associated with.

On the other hand, it does seem reasonable to consider a candidates past associations and past actions when engaged in assessing the candidates. Naturally, the past associations should be considered in the light of what has happened between then and now, but these associations can still be relevant. Provided, of course, that the connection is more than mere association but is actually a substantial connection.

Both Obama’s association with Wright and Romney’s association with Bain are in the past. After all, Obama broke with Wright and repudiated Wright’s controversial views. Romney no longer works for Bain. As such, it might be concluded that going after Romney in regards to Bain would be on par with going after Obama (again) in regards to Wright (which apparently was being planned).

However, there is a rather important difference. Obama is not pointing to Wright and claiming that his association with Wright is evidence of what sort of president he will be in his second term (although some opposed to Obama have tried to make that claim). Romney, however, has been claiming to be a job creator and a businessman and has pointed to his time at Bain as evidence for his claims. As such, Romney has explicitly defined his association with Bain and this would certainly seem to morally justify assessing his record at and association with Bain. To use an obvious analogy, if I claim to be qualified to be a professor because of my association with Ohio State (that is, getting my doctorate there), then it would reasonable for people to look into that association if they had doubts about my credentials and qualifications.  As such, it seems acceptable for Obama, his minions and his allies to bring up Bain.

One interesting turn in the struggle to define this skirmish has been an attempt to cast criticism of Bain as an attack on private equity in general, as opposed to specific criticism of Bain. This is, obviously enough, a smart rhetorical move. After all, if Obama can be cast as attacking private equity, he would lose this skirmish since private equity is generally seen as good in the United States. As such, Obama’s side is endeavoring to clarify that the criticism is being directed at the alleged “vulture” or “vampire” capital approaches of Bain (and Romney) and not an attack on private equity.

This general approach is reasonable in that it is clearly possible to be critical of a specific practitioner of something without being critical of the practice. To use an analogy, my being critical of a person who uses force to get the sex he wants does not entail that I am against sex. Likewise, being critical of the practices of a specific private equity firm does not entail that someone is against private equity. The person could be for private equity but against the (allegedly) harmful acts of a company. As such, Obama and his fellows can attack Bain and Romney without attacking private equity, just as they can be critical of Romney without being critical of all Mormons or all males. Obama and his allies can, and surely will, avail themselves of the wealth of soundbites created by Newt Gingrich to attack Romney’s Bain connection during his own ill-fated campaign. Newt, of course, has taken a somewhat modified stance on the matter since becoming a Romney ally.

Obviously enough, Obama and his allies will struggle to resist the Republican’s attempts to cast his criticism of Bain as an attack on private equity. This is because, as noted above, private equity is taken as an unquestioned (and perhaps unquestionable) good in the United States. Of course, this does not entail that it is, in fact, good.

Naturally, a reasonably good tale can be told in favor of private equity. After all, creating and expanding businesses is so expensive that people who want to “grow the economy” and become “job creators” (or expand their creation) need to turn to those with money to get things going. As such, private equity enables the funding of businesses and this has a variety of good consequences such as employment and the creation of goods and services. Private equity also enables certain people to enjoy rich financial rewards. For example, as Mitt Romney has pointed out, he is unemployed but still brings in about $57,000 per day thanks, in part, to his time at Bain. That said, it is obviously not all flowers and cake.

One obvious concern about the private equity system in the United States is that it is one of the cogs in an economic machine that has concentrated the wealth into a tiny fraction of the population and has resulted in considerable economic harms (unemployment, foreclosures, destruction of companies and so on). The obvious reply is that this is but one cog among many and, as supporters of private equity might note, it is hard to assign blame to one cog. It is also fair to note that private equity could be, like a gun or any other tool, morally neutral and its goodness or badness could simply be a matter of how it is used.

While it would certainly be interesting to see the candidates seriously debating the ethics of the mechanisms of the economic machinery it seems unlikely that this will happen. After all, as noted above, the debate is not whether private equity is good or not but whether or not Romney’s time at Bain grounds Romney’s narrative or Obama’s.

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27 Responses

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  1. ajmacdonaldjr said, on May 25, 2012 at 2:32 pm

    Your point regarding the neutrality of technology is somewhat incorrect. For example, both a handgun and a nuclear missile are specifically designed to kill people, whereas a hammer, though it can be used to kill, is not specifically designed for this purpose. Private property, which private equity is, is a good, not an evil; therefore private capital is good, although, like any property, it can be misused for evil purposes. Past associations do make a difference. Romney chose to work at Bain (and all that when with Bain) and Obama chose to join Wright’s church (and all that went with doing so), so they are certainly responsible for, at one time in their lives, endorsing the teaching and practices of both, until they decided to leave.Obama is basically a socialist, or no private property guy, whereas Romney is a capitalist who has a high regard for private property. In this Romney is more right than Obama. Private property is inviolable. As is my individual right to live. And the second depends upon the first. America is all about liberty and freedom, not about having all things in common. If we want to live in a society werein everyone shares everything equally there are many small groups one can join in order to do this, which is, I think, a great thing to do. But to expect a nation the size of America to jettison the notion of private property is ridiculous. It’s like Obama Care: if they can make you buy health insurance they can also make you eat your broccoli. I prefer the freedom to succeed OR fail. I have no desire to be bailed-out by the Feds if I run into hard times. “Leave me alone” or “don’t tread on me” sound very American, whereas: “From each according to his ability to each according to his need” does not.

    • Michael LaBossiere said, on May 26, 2012 at 11:13 am

      Obama seems to be very much for private property and pro-business. While he does endorse some limits on business behavior, this no more makes him a socialist than believing that people should have some limits on what they can do makes a person an authoritarian.

      One unfortunate thing about the political debate in the US is that much of it suffers from conceptual derangement. People have pushed phrases and terms like “class warfare” and “socialism” without any respect for the actual meanings of the terms. While language is flexible, it is also like the traffic rules-people should not just insist on using words the way they please anymore than they should just decide to do as they will while driving.

      Being a philosopher, I am rather concerned with this conceptual derangement since it has a significant role in poor reasoning. After all, if people are thinking in concepts that are inaccurate, then their thinking will be flawed.

      I think that there are plenty of legitimate grounds for criticizing both Obama and Romney without resorting to misusing terms. To be rational and reasonable, we should address the actual issues as objectively as possible and endeavor to use neutral language. Otherwise we are debating in a world of make believe.

      • ajmacdonaldjr said, on May 26, 2012 at 10:47 pm

        Obama leans toward socialism then, whereas Romney doesn’t. As for rules and language, I’m sure you’re aware of the many literary theories that pretty much do away with the rules (e.g., reader response theory). As for conceptualizations, people’s perception of the world (or worldview) is influenced by what they think (or believe) the world is, and we have many different perceptions of the world in America today. Does this mean all perceptions and beliefs about the world are true? No. Can we admit that some (or one) particular worldviews are better than others? or are all worldviews equal? As they say, in some cultures people love their neighbors and in other cultures they eat them. Who’s to say which is right and which is wrong? America is known for producing one, and only one, philosophy: pragmatism. Whichever worldview has the most workable legal, moral, and political philosophy for ALL Americans wins (which is America’s original legal and political philosophy: natural law, which had been the cornerstone of western jurisprudence since Roman times up until about 50 years ago. Roe v Wade in particular was a bold public repudiation of natural law but he quiet replacement of natural law with legal positivism had begun much earlier than 1973.

      • T. J. Babson said, on May 27, 2012 at 11:45 am

        François Hollande is clearly a socialist and I don’t think even he would fit your approved definition, Mike.

        • T. J. Babson said, on May 28, 2012 at 11:24 am

          Exactly:

          One such pundit on the democrat side (who and where I forget) referred to “crazies” who call Obama a “socialist.” Such statements are beyond the pale, he declared in disgust. They are on a par with the “birther” claims.

          Despite such dismissals, there is strong and legitimate interest in whether President Obama is a socialist. My Forbes piece Is President Obama Truly a Socialist continues to attract many readers three months after it was posted. It showed the remarkable overlap between Obama’s electoral platform and the Party of European Socialists, which represents leftist and socialist parties in the European parliament. My French Socialists Test Drive Obama’s Electoral Platform showed that French socialist Francois Hollande’s and Obama’s platforms are virtual carbon copies, and Hollande is quite open about and proud of being a socialist.

          http://www.forbes.com/sites/paulroderickgregory/2012/05/27/is-it-within-bounds-to-ask-is-obama-a-socialist/

          • magus71 said, on May 28, 2012 at 2:01 pm

            Everyone should read the book, Democracy in America.

            “Democracy and socialism have nothing in common but one word, equality. But notice the difference: while democracy seeks equality in liberty, socialism seeks equality in restraint and servitude.”~ French historian and political theorist Alexis de Tocqueville

          • Michael LaBossiere said, on May 28, 2012 at 5:29 pm

            It is not crazy to call him a socialist, nor is it crazy to call him a capitalist. Like pretty much all modern Western politicians, he has some socialism in his capitalism. But he is no Chavez and to lump them together is an error.

            Rather than slap labels on Obama, it seems far more reasonable to engage with the actual issues-that is, present a rational and developed case in which his errors and flaws are made manifest. Naturally, this would have very little rhetorical value-so I doubt we’ll see that sort of rational and grounded criticism in the campaigns. From either side.

  2. T. J. Babson said, on May 25, 2012 at 4:43 pm

    Bain is fair game, as is Obama’s association with Wright, especially given the allegations that have recently emerged that Obama paid Wright $150K simply to keep his mouth shut.

    Also on the table is that Obama played the same game as Bain with companies like GM (thousands were laid off, dealerships closed), but Obama did it with taxpayer dollars.

    For more details, see: http://www.washingtonpost.com/opinions/forget-bain-obamas-public-equity-record-is-the-real-scandal/2012/05/24/gJQAXnXCnU_story.html

  3. T. J. Babson said, on May 25, 2012 at 5:32 pm

    We are finally getting some details about the 15-25 year old Obama. Finally!

    http://www.buzzfeed.com/gavon/a-users-guide-to-smoking-pot-with-barack-obama

    • T. J. Babson said, on May 25, 2012 at 5:36 pm

      This actually makes Obama more human, IMHO.

    • T. J. Babson said, on May 25, 2012 at 7:41 pm

      This is fair game, too:

    • Michael LaBossiere said, on May 26, 2012 at 11:16 am

      A young college kid who smoked pot? Stop the presses! :)

      • T. J. Babson said, on May 26, 2012 at 11:23 am

        So why is Obama such a drug warrior today? As Penn Gillette observes, if Obama had been caught and thrown in jail for smoking dope, it is unlikely his life would have turned out the way it did.

  4. [...] Is Private Equity Bad? (aphilosopher.wordpress.com) [...]

  5. T. J. Babson said, on May 25, 2012 at 9:54 pm

    Exactly.

    Peter Wehner:

    This past week, the president and the vice president have made some rather curious arguments on their behalf.

    “If your main argument for how to grow the economy is ‘I knew how to make a lot of money for investors,’ then you’re missing what this job is about,” Obama said. “It doesn’t mean you weren’t good at private equity, but that’s not what my job is as president. My job is to take into account everybody, not just some. My job is to make sure that the country is growing not just now, but ten years from now and 20 years from now,” he said.

    Vice President Biden, meanwhile, offered up this argument. “Your job as president is to promote the common good. That doesn’t mean the private-equity guys are bad guys. They’re not,” Biden said at New Hampshire’s Keene State College. “But that no more qualifies you to be president than being a plumber. And, by the way, there’re an awful lot of smart plumbers. All kidding aside, it’s not the same job requirement.”

    I suppose one could say that being a plumber makes you more qualified to be president than being a community organizer, but set that aside for the moment.

    The case both Obama and Biden are making is that Obama (a) understands what the job of president entails and (b) is promoting the common good. And based on his record, it’s not clear Obama understands or is doing either one.

    To sharpen the point a bit: How exactly is the common good being advanced when during the Obama presidency the number of people in the U.S. who are in poverty has seen a record increase, with the ranks of working-age poor approaching 1960s levels that led to the national war on poverty. In addition, the budget deficit and federal debt have reached their highest percentage since World War II. The same is true when it comes to federal spending as a percentage of GDP. During the post-recession period from June 2009 to June 2011, the median annual household income fell by 6.7 percent– a more substantial decline than occurred during the Great Recession. The Christian Science Monitor points out , “The standard of living for Americans has fallen longer and more steeply over the past three years than at any time since the U.S. government began recording it five decades ago.” The housing crisis is worse than the Great Depression. Home values worth one-third less than they were five years ago. The home ownership rate is the lowest since 1965. And government dependency, defined as the percentage of persons receiving one or more federal benefit payments, is the highest in American history.”

    There’s more, but you get the point.

    For Obama and Biden to lecture Romney on the qualifications for being president is like John Edwards and Bill Clinton lecturing us on the importance of fidelity in marriage. Their case is undermined by their record, their actions, and their failures.

    I cannot imagine a greater in-kind gift to the Romney campaign than for the president and the vice president to run on their stewardship. But that is what they’ve decided to do, at least this week.

    http://www.commentarymagazine.com/2012/05/25/obamas-gift-to-romney/

    • magus71 said, on May 25, 2012 at 10:04 pm

      A rather frightening resume indeed.

    • Michael LaBossiere said, on May 26, 2012 at 11:30 am

      As far as experience goes, Obama has 4 years as president. That surely counts. Romney did have experience at Bain, but a business works rather differently than a democratic state. Also, the things that a president can do are rather different from what a business man can do. There are also the normative aspects. A business person’s main function is to make money. The president’s function is to lead the nation for the general welfare, common defense, and so on. While business experience can help with being president, so would a lot of other things. For example, training in ethics and value would be useful. So would knowledge of other countries. As would military experience. And so on.

      Romney did, of course, have executive experience as the governor of Massachusetts. You’ll recall that the other Republicans tried to beat him like a Pinata in regards to his moderate governing style and Romneycare. It is interesting that so much of what Obama is being bashed for is comparable to what Governor Romney actually did.

      I do think that Romney would be “okay” as president. He’d help out those in his economic class, but he’d also probably be a moderate on most things. Romney seems to be a fiscal guy rather than a devout social conservative. That said, he’d probably be pressured to swing right and he does seem to lack conviction. As his Republican fellows argued over and over, Mitt seems to always take whatever view he thinks will work for him at the time. While Obama does shift a bit, a careful review of Mitt’s positions seems to show that the etch-a-sketch charge will stick to him. Of course, if he had stuck with his Massachusetts’ moderate values, then he might not have made it as the candidate. There are limits, after all, to what wealth can do.

      At this point, America’s best choice is obviously me. “LaBossiere 2012: I can’t possibly do as much damage as the other guys.”

      • T. J. Babson said, on May 26, 2012 at 12:16 pm

        The best way to redistribute wealth is through jobs.

        • Michael LaBossiere said, on May 26, 2012 at 4:33 pm

          However, the pay needs to be proportional to the value of the work done. There is incredible disparity in job pay and compensation. This has helped create an economic situation in which wealth is hyper concentrated. For example, I’d have to work well over a hundred years to make as much as the average CEO makes in a single year. While a CEO no doubt works harder than me, it is not clear that the value s/he produces is equal to the disproportion in pay.

          It might, of course, be claimed that companies can pay people whatever they want. That is, of course currently perfectly legal. However, the hyper concentration of wealth tends to lead to serious social ills, such as revolution and collapse. But perhaps that is a small price to pay so that some folks can be incredibly wealthy.

          • T. J. Babson said, on May 26, 2012 at 9:17 pm

            The implicit trade-off in capitalism is that by allowing income inequality we are all wealthier than we would be otherwise.

            • Michael LaBossiere said, on May 28, 2012 at 4:47 pm

              I’m all for competition. However, I am also for ethical limitations on behavior.

          • magus71 said, on May 27, 2012 at 8:55 am

            Mike, the only true arbiters of value are individuals, not governments. The CEOs are paid that much because they’re making someone else money. You’re only real argument is that the companies paying the CEOs have misjudged the value of the CEO. Perhaps the company could do better by paying them less. I’m not sure but I think the company knows more about it than I do. While the CEO has some say in how much he gets paid, many other people do, too. With your argument, you not only have to force the CEO to accept lower pay, you have to force the company to pay them less. And if you do that, the cash is still concentrated somewhere else. As a matter of fact, cash redistribution to workers is a major reason for economic decline in Maine, where guys sweeping floors were making $30 an hour at paper mills. The unions wouldn’t have it any other way. I’m not anti-union–I was a member while a cop, but there are great paying jobs with no unions, like Fed Ex, for example.

            Pro-athletes and actors and singers don’t make a lot of money because they have more intrinsic value than a plumber. They make more money because they bring in more money for their bosses. Any other measure of value is unscientific.

            My instincts kept telling me that this “growing inequality” bit was a myth, that things are pretty much as they’ve been. The one thing being different is that fewer people are employed now than 3 years ago.

            So I did some research.

            http://blogs.wsj.com/wealth/2011/11/11/the-myth-of-record-high-inequality/

            and…

            http://blog.american.com/2011/11/the-one-chart-that-explodes-the-myth-of-us-income-inequality/

            • Michael LaBossiere said, on May 28, 2012 at 4:56 pm

              I’ll assume that you are just talking about economic value, not ethics, etc. While I do agree with the obvious fact that the value people place on things is largely a matter of their valuing, the state does have a legitimate role in arbitrating value. For example, it seems reasonable for the state to outlaw valuing humans as mere commodities as opposed to people. It seems just to not leave that to the individual. Also, the state would seem to have a role in legitimately preventing price gouging during disasters. In fact, good arguments can be made for the state having a legitimate role here. Having at least a minimum wage also seems reasonable, so as to prevent people from being horrifically exploited by people who happen to have more economic power.

              As for the research, the refutation seems to be right in the comments: “My criticism isn’t of the use of Ginni Coefficients, per se. My criticism is of choice of dataset used to compute those Ginni coefficients.

              In the Census Bureau dataset, everyone earning $100,000 or more is treated as if they each earned only $100,000. If you use that dataset, then the Ginni coefficients that you calculate are totally insensitive</strong (ie, do not change at all, in response) to an increasing concentration of share of national income in a subgroup which earns (a lot) more than $100,000.

              Since that (the concentration of income in the top 1% of earners) is the subject of discussion, the Ginni coefficients computed from the Census Bureau dataset are completely irrelevant. They never gave an accurate picture of the level of income inequality, and they are incapable of detecting a change in the level of income inequality."

            • magus71 said, on May 28, 2012 at 5:36 pm

              I agree that the value of the necessities of life can become distorted in times of emergency. Since putting a value on a person’s life is difficult if not impossible, a person is likely to go to great extents to pay for food, water etc.

              But I do wonder why companies couldn’t simply charge exorbitant prices for food at any time. Since people always need food, in time of crisis or no.

              There are several examples in history where government price controls made crisis worse, such as the oil crisis of the 1970s.

              “America’s experience with oil regulations from the 1930s through the 1970s has been much studied, and an academic consensus is that those regulations had large negative effects on both oil producers and consumers.2 Congress has typically responded to petroleum-market problems with inappropriate legislation that has damaged markets and prompted further rounds of legislation and regulatory action.”

              http://www.downsizinggovernment.org/energy/regulations


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