The two candidates to the American presidency, the incumbent
Barack Obama and the challenger Mitt Romney, had the first of three
face-to-face debates last night, October 3, 2012. What came out loudly and
clearly from that encounter was that Romney does not understand how an economy
works. This had been the suspicion about him since he started saying he knew
how to rescue the American economy because he was in business in a previous
life where he did well; the proof being that he accumulated a great deal of
wealth.
Despite the suspicion of some people, others gave Romney the
benefit of the doubt in the hope that he will unveil his economic plan during
the debates that were to happen just before the election. Well, the first
debate was about the economy, and all that Romney was able to give the audience
were the same old arguments. With this, he revealed that he may know how to
accumulate money once the wealth has been created by someone but he does not
know how to create that wealth himself. And this means that he may have the
knowledge to run a private equity fund successfully but he lacks the skill to
run the economy of a nation, let alone the economy of a superpower.
What he was able to demonstrate during the debate was that
he could memorize a little of the language of business and a few simple ideas
about the subject. In fact, he did not have to be in business to accumulate
this kind of knowledge because reading the pages of the business section in a
newspaper for a year would have been sufficient to give him that much of a
background. Many people do just that, and manage to lead the good life running
a small business requiring little or no acumen.
Based on the presentation that Romney made, his economic
philosophy came to the fore and proved to stand entirely on the principle that
if you cut taxes, you will grow the economy enough so that you could reward
everyone and keep everybody happy. No matter what question he was asked, and no
matter the angle from which he articulated his points, the message that came
out concerning his position was to the effect that cutting taxes was going to
fix all things.
But the fact is that the remedy he described – while being a
legitimate remedy – is not one that works everywhere. This is because each
ailing economy requires a remedy that is specific to it. If there existed a
single remedy that worked for every economy, it would be applied everywhere,
and there would never be an ailing economy in the world. But the truth is that
economies go through cycles that weaken them at times due to the possible
combination of a number of circumstances. Thus, to fix an ailing economy, one
must begin by understanding what afflicts it, then prescribe the correct
remedy.
What can be said about the American economy today is that
cutting taxes to leave more money in the hands of those who “create jobs” –
which is what Romney advocates – is not the right kind of remedy because
massive amounts of money are now in the hands of these people; whomever they
may be. Simply put, the system is flush with money, and pumping into it more
money will not do the trick. Something else needs to be done, and Romney has
shown he has no clue what that is.
The reality is that there have been extensive and well
thought-out discussions on the ailing American economy, and the possible remedy
to it. You would think that Romney had caught wind of that, and had fashioned a
stance of his own to run on. But this is not what he did, and it is obvious
why. It is that the discussions were above his head because running a private
equity fund did not equip him to understand those discussions. He remained deaf
to them and clung to the superficial language that may sound substantive to a
financial engineer but says little to those who maintain a wider view of the
economy.
Another point that kept cropping in the Romney presentation
was that competition was going to make the economy work better. This too is one
of those simple concepts you need not be proficient in business to know about. But
you need to have been in business to understand that an economy can suffer in
such a way as to force merchants in a given line of business avoid competition
between them. They form pools, associations or cartels that help them stay in
business till conditions change. That is, they cease to compete against each
other.
And this is what happened in the health care business in America ,
especially the insurance part of it. Had Mitt Romney understood this reality,
he would have made a more enlightened presentation of his health plan, thus
avoided attacking Obamacare as he did.
So far, Romney has shown he can get into the rink with a
bunch of like minded financiers, fund managers and gamblers where he would land
a punch or two on someone's nose – maybe even the referee – but he is no
material that is ready to run an economy the size of America's.