Jonathan at Chicago Boyz writes:
Part of what’s happening is that the economy is recovering, to some degree because the Fed is signaling that it’s going to keep suppressing short rates and buying up long-term govt debt for the foreseeable future. This is an insane policy that funnels money to Obama’s Wall Street cronies while killing low-risk investment opportunities for middle-class retirees. It seems likely to lead eventually to significant inflation. Romney, as the likely Republican nominee, should be hammering the Fed for ineptitude and corruption, for running an unsustainable monetary policy and trying to goose the markets into the election. He should be hammering Obama for trying to reinflate the credit markets to buy votes. (The residential real estate market seems to be picking up, perhaps to some degree in response to Obama’s mortgage-subsidy vote-buying scheme. But it may also be that people see inflation coming and want to exchange cash, especially borrowed cash, for real assets.)
Obama has been very bad for the country. His high tax, high regulation, high cronyism, high uncertainty policies suppress productive investment and throw vast amounts of private capital down politically favored sinkholes. Conservative and moderate/uncommitted voters alike yearn for a Republican candidate who forthrightly defends free enterprise and the opportunity society against Obama’s decadent, stratified socialist ineptocracy. Romney, the great businessman, the man who has been running for president for six or seven years, is tongue tied.
I disagree with Jonathan and the popular view of Romney’s business career. The short version is that Romney evolved into a a vulture capitalist, using debt to buy earnings and cashing out before the debt wiped out the earnings of the companies Bain Capital targeted.
Romney does not appear to understand the problem of debt and leverage. For all his talk about balancing the Federal budget, his economic plan sets that as a distant goal. At the macroeconomic level, considering the entire national economy, Romney does not see debt as an existential threat.
At the level of the firm—microeconomics—Romney understands that borrowing comes with costs that should be minimized. Except when the firm’s market value needs a boost. So Mitt has a conflicted view of debt. His management training tells him to minimize it, which he did during his first stint with Bain as a venture capitalist. But all the deals Bain made during the 1990s were funded by debt. Leverage was the key to profit.
At another level, Romney’s eager use of leverage ties him to the worst elements of Wall Street. Commenter Bill Waddell writes:
Do you actually believe that anyone is more deeply embedded in Wall Street cronyism than Mitt Romney?
What in Mitt Romney’s background would give you cause to believe that Romney cares one whit about “middle class retirees”? What in Romney’s background would lead you to believe that he would radically downsize government and get spending under control? He views government as a tool to manipulate the economy every bit as much as Obama does, not as an impediment to economic groth that must be eliminated.
While Gingrich and Santorum are weak candidates the critical battle going on is not between Obama and the Republicans – the ‘any Republican is better than Obama’ mentality. The crucial battle for the long haul is for the core of the Republican Party – whether Romney – a Bush 1 and Bush 2 economic clone – deep in bed with Wall Street interests and Ivy League economic thinking – is going to prevail, or whether a true conservative, government downsizer is going to lead the party.
The Keynesian model of economics does not include debt. And that’s the model prevailing at Harvard, on Wall Street, and throughout the Western world. Romney is a Harvard guy. He has an Ivy League conception of economic activity.
Romney can’t hammer Obama on unsustainable monetary policy and inflating credit bubbles because he was taught from the same textbooks. The finance guys in the Obama administration have the same Ivy League conception. Some even worked for Bain. And they’re all part of the same faction that runs the Federal Reserve and the banking system.
I suppose Romney could go after corruption and remain safely within the debt-ignorant model of economic policy. But that might jeopardize his campaign—and cripple his potential Presidency—since the people who committed financial fraud are Romney’s largest donors.