Posted by: mutantpoodle | January 25, 2012

Department of Missing the Point Department

Sullivan brings us these thoughts from Will Wilkinson about how making a lot of money isn’t more immoral than making less money.

Wilkinson begins by quoting Michael Kinsley, who notes that he has “…a friend, a banker, who voted for Obama in 2008 but senses that he is being picked on unfairly. Which he is.”

Well, unless he’s Bernie Madoff, he’s not being picked on in any meaningful way at all, except that the President has (rightly) noted that the peculiar incentives of Wall Street, combined with a lack of regulation and, um, morality (my word) led to the collapse of the global financial system, and lots of people had to bail Wall Street out.  Kinsley’s friend may not have caused the crisis, but neither did I, and yet Republicans in this country seem to be saying that the only people who SHOULDN’T have to chip in to knock down the deficits that came out of that collapse, two wars that were bought on credit, a Medicare benefit that was charged as well, and tax cuts that disproportionately benefitted the top tier of earners in this country is…that same top tier.

Quite frankly, I fucking feel picked on when Paul Ryan suggests that there be no Medicare for me, because I’m 3 years too young to get the system that actually covers something (and yes, I know it’s got problems, but vouchers that don’t keep up with costs? Please), and  people who are subsisting on poverty level wages might be angry when they’re told they don’t pay enough taxes.

And then there’s this:

…most complaints about the American 1% are not grounded on the view that the global political economy is a comprehensive web of exploitation. It’s based on the supposition that the domestic 1% is guilty of something or other the domestic 10 or 30 or 50% isn’t, and therefore deserves to be a target of scorn in a way the 10 or 30 or 50% does not. But, however you slice it, it’s going to be true that a lot of people in the top 1% got there in pretty much the same way a lot of people in the top 30 or 50% got there.

Except…No, dammit. That’s not it.

In short, Mr. and Mrs. 1%, when the President of the United States says that you should pay more taxes, he’s not doing it because he doesn’t like you (although, if your name rhymes with Flit Promney, he might not like you that much), or you’re somehow a crook: he’s saying it because everyone else in this country is being asked to pony up, and why not you, too?

So: the notion that asking the rich to pay more taxes is the same as attacking them is, shall we say, false. If you’re rich, and you want to know when people are attacking you, keep an eye pealed for the torches and pitchforks.

That’s not to say there isn’t a moral scale to wages. I think we can say that robbing banks is less moral than, say, digging ditches, and robbing old ladies on the street is less moral than that.  And there are legal ways in which people acquire wealth that seems…less moral.

I’d argue that the Private Equity model is less moral than Venture Capital.  Venture Capital takes risks to build something pretty much from scratch, and if they’re successful, they make a lot of money, and if they’re not, they don’t.

Private Equity enters into an existing company, collects significant management fees, takes actions that may or may not benefit the company in the long term in order to make it more attractive to sell, and then sells.  Private equity makes money off the gain on the sale and the fees it gets, which means that they can fail at the task of strengthening a business (keeping in mind that making a business stronger is not their charge), watch it go under, and make money, leading to layoffs for hundreds of people whose only sin was working for a company acquired by private equity.

Too many people conflate private equity with venture capital. They are not the same thing.

I’d suggest that a system that allows rich people to profit from their failure in a way not available to everyone else is unfair, and I think Mitt Romney ought to have to answer questions about that for as long as he’s running for President.

And one more thing: the Bain Staples investment looks a lot more like a venture capital deal to me than a traditional private equity deal. Funny how that’s Romney’s favorite job-creation example.

P.S. See also this Krugman post, which has this nugget:

[Larry] Summers and [Andrei] Shleifer argued back in 1988 that buyouts are often aimed at “value redistribution” rather than “value creation”; specifically, a lot of the gains to the buyout specialists come from breaking implicit contracts with “workers, suppliers, and other corporate stakeholders.”

They make one especially keen point: if it were really about adding efficiency, why do the same people lead takeovers in many industries, instead of people with specific expertise in each industry doing the job? Their answer is that these specialists are specialists in deal-breaking, not value creation.

Amen.

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Responses

  1. You left out that in these Bain type deals, very little capital, as in money, is involved. Most of these are leveraged buyouts. And who gets the debt? The company that’s been bought. So a company that may not be doing well but isn’t in debt suddenly is deeply in debt. And generally the wrecking crew departs but its leavings remain.


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