2012 is an ominous year. Does anyone else find it interesting that the Mayan calendar supposedly predicts the destruction of the world right after the possible reelection of Barrack Obama? While I don’t believe in the Mayan calendar I do believe an Obama second term is too real of an apocalyptic scenario that I find myself looking for signs of the end of Conservative hope. When the Jewish temple was destroyed by the Romans in 70AD, Josephus claimed that a cow gave birth to a lamb as a sign of the destruction that was to come (The Wars of the Jews 6.5.3). As shocking as this is, we have a similar phenomenon in this race. No, they didn’t give birth to anything odd or of another species (yet), but Republican candidates Newt Gingrich and Rick Perry have transformed themselves, almost overnight, from stalwarts of the conservative movement into class-warfare spouting, anti-capitalist Democrats. While this doesn’t foretell the end of the world, it does foretell the end of their campaigns and possibly heralds an Obama second term.
A couple days ago a Gingrich Super Pac came out attacking Romney because when his venture capital firm took over a company to transform it, many of the workers would be laid off. Gingrich could have distanced himself from the remarks, because by law a Super Pac can say what they want and raise as much money as they want, but it is illegal for them to coordinate with the candidate. However, instead of doing this Gingrich has come out in agreement with these anti-capitalistic charges. Never one to be outpaced in a race to the stupid-line, Rick Perry took the same course calling Romney a “Vulture Capitalist.”
Before going any further, let me assure you that I am no Romney supporter. I agree that Obama-care is simply Romney-care writ large, and I see him as too moderate to even imagine him as the conservative/libertarian firebrand this country needs. However, to have two supposed conservatives using such emotional charges to attack free market capitalism is appalling. I could hold my nose and cast my vote for Romney, Paul, Huntsman or Santorum (yes, it would take overlooking serious problems to vote for any of them). This would be a vote of “Anyone But Obama!” I might be able to hold my nose enough to vote for Gingrich, if he were to win the nomination—about as likely as the Colts making the Super Bowl. As for Perry, I have decided that I could not vote for him for dogcatcher.
When Perry first entered the race I had problems with his record, but was willing to overlook them. The biggest problem I had was the way he tried to force a new vaccination for HPV on the girls of Texas. I gave him the benefit of the doubt that his views on federalism would prevent him from trying such things on the national level. When voters are willing to overlook some things, it is helpful if the candidate doesn’t keep stacking on things to overlook. Pile crap high enough and it can no longer be overlooked, and much of what was coming from this campaign is pure crap. It is so bad, when a Perry ad comes on TV our houseplants get a fresh burst of life—as if they’ve been fertilized.
In a national debate, Perry, when questioned about his support for in-state tuition for children of illegal aliens, said that anyone who disagreed with him did not have a heart. I disagree with him and I have a heart—I keep it in a jar on my desk, so I can look at it. By doing this he alienated the whole other side of the argument. While many who disagreed may have figured that they could overlook his position, it is hard to overlook his stereotype of the opposition.
Perry soon found he was in trouble after this, and after he forgot his talking points in another debate (He couldn’t remember the departments he pledged to cut—it’s hard to trust you to keep your promises after the election if you can’t remember them during the election). To fix this he decided to pander to the basest feelings of the electorate. He came out with a promise to transform Congress into a part-time legislature. According to him, elect him as president and all Congressmen would have to return home to make a living between sessions. Their pay and benefits would be pared down to their new part-time status. While I agree our freedom is greatest when Congress is deadlocked or out of session, Perry forgot a little document called the Constitution. Congress makes its own rules, sets its own schedule and its own pay. He could recommend legislation along these lines, but who thinks a majority in both houses would support such a thing. This was the type of promise a politician loves—impossible to keep, so failure is not your fault.
As if these were not enough to give the finishing blow to the Perry campaign, he attacks Romney by smearing free-market capitalism. While many readers may agree with this assessment of venture capital and the process used in taking an unprofitable company and turning it around, you have to understand the reason such companies exist and why they do what they do.
Corporate revenues and resources can be broken down into outgoing and incoming. Incoming includes all revenue received from customers for product. Outgoing is everything needed to keep the doors open, the lights on and to produce the product that will bring in the revenue. A company is profitable when incoming is greater than outgoing—it must cost less to produce the product than is received through the sale of it. When failing to turn a profit a company can either cut its outgoing expenses or increase its incoming revenues. To increase income a company can develop (i) a new product line, (ii) a new customer base for its current products or (iii) raise prices. Note that the first two options will also increase the outgoing as new production lines must be opened and new employees hired, etc. The third is the easiest, but is only possible when the market will permit the new price. All three are tied to the market. If there is a market for a new line, one can be developed; if there is a greater market for the old line, it can be expanded; if the market will tolerate higher prices, they can be increased. The free market rules.
The other side of the corporate coin is outgoing expenses. These include facilities, equipment, materials, and wages. If unprofitable a company may move into smaller facilities to save on rent or mortgage. They may find more efficient equipment or a material supplier that is cheaper. Of course, these do not only go down. Over time they go up. Land, materials, equipment and wages are all inflationary, so a company’s profitability is affected, on both the outgoing and incoming side, by market forces. It is not uncommon to have a company pinched by falling prices for their products and rising prices for the materials to make the product. In time a free market balances these out if everything is left fluid to the demands of the market, but if even one area is unmovable then the market must take drastic action to set things right. This brings us to wages. Wages are usually contractual and while increases are easy to implement, cuts in wages are very difficult. Because of this wages tend to ratchet up.
In time the immovable nature of the wages may increase the cost of production beyond any hope of profitability. When this happens there are limited options. One, the company goes under and the employees are forced to take other jobs. These new jobs often involve a pay cut, which permits the price of wages to be adjusted back to market levels. The other company is for someone to take over who is not contractually obligated to the wage structure. This new management can offer to let employees keep their current jobs, if they accept cuts to pay or benefits. Those who will not accept are free to take their skills elsewhere. Either way, the market is balanced and wages settle back to where they should be according to the free market. The unchanging nature of wages in a company make these last two options necessary. We could do away with the corporate “takeover and turn around” if we set wages to fluctuate with the market, but this would not be popular—nor really even desirable.
Rick Perry should rethink his view of capitalism. While he and Newt Gingrich would be shocked to be accused of attacking capitalism, this is exactly what they have done. This type of pandering might work on the Democratic ticket of victimization and class warfare, but is out of place among Republicans. Republicans understand, in the words of Milton Friedman, “Capitalism is a necessary condition for political freedom.” Rick Perry and Newt Gingrich, in an attempt to undermine Mitt Romney, have each leveled their guns at freedom.