The Incredible Bain Jobs Machine (and why creative destruction that can destroy jobs and productivity drive growth)

  • Posted by a hidden member.
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    Jul 17, 2012 10:44 PM GMT
    http://online.wsj.com/article/SB10001424052702303740704577527200796292034.html?mod=hp_opinion

    In a competitive economy, $5,000 computers become $500 tablets. Consumers get to spend the difference elsewhere in the economy.

    Did Mitt Romney and Bain Capital help office-supply retailer Staples create 88,000 jobs? 43,000? 252? Actually, Staples probably destroyed 100,000 jobs while creating millions of new ones.

    Since 1986, Staples has opened 2,000 stores, eliminating the jobs of distributors and brokers who charged nasty markups for paper and office supplies. But it enabled hundreds of thousands of small (and not so small) businesses to stock themselves cheaply and conveniently and expand their operations.

    It's the same story elsewhere. Apple employs just 47,000 people, and Google under 25,000. Like Staples, they have destroyed many old jobs, like making paper maps and pink "While You Were Out" notepads. But by lowering the cost of doing business they've enabled innumerable entrepreneurs to start new businesses and employ hundreds of thousands, even millions, of workers world-wide—all while capital gets redeployed more effectively.

    This process happens during every business cycle and always, always creates jobs. Yet is ignored by policy mavens.

    It is now four years after the wheels fell off our financial system. The government has tried every gimmick to revive the economy: fiscal stimulus, monetary easing, loan write-downs, foreclosure modifications—all duds. It seems like no one remembers how an economy creates jobs anymore. The right answer, in fact the only answer, for jobs and better living standards, is productivity.

    Economists define productivity as output per worker hour. But ramping up the output of trolleys or 8-track tapes won't increase living standards. It is not just technical efficiency that matters, it is also effectiveness—that is, producing what the economy really needs and consumers will pay for.

    And so, in a broader sense, productivity is really about doing the right things the right way. Using modern construction equipment, we could build a pyramid on the National Mall in Washington with amazing efficiency, but it would not be effective.

    So how does productivity result in more employment?

    Three ways. First, some new technology comes along that allows something never before possible. Cash from an ATM, stock trading from an airplane's aisle seat, ads next to Google search results.

    The inventor or entrepreneur who uses the invention benefits from sales and wealth and hires people to produce the good or service. We don't hear about this. Instead we hear about the layoffs of bank tellers, stockbrokers and media salesmen. So productivity becomes the boogeyman for job losses. And many economic cranks would prefer that we just hire back the tellers and toll collectors.

    This is a big mistake because new, cheaper technology becomes a platform for others to create or expand businesses that never before made economic sense. Adobe software killed typesetters, but allowed millions cheaply to get into the publishing business. Millions of individuals and micro-size businesses now reach a national, not just local, retail market thanks to eBay. Amazon allows thousands upon thousands of new vendors to thrive and hire.

    Consider Uber, a 20-month-old start-up, whose smartphone app knows where you are and with a simple click arranges a private car pickup to take you where you want. It doesn't exist without iPhones or Androids. Taxi and limousine dispatchers lose. Customers win. We'll all be surprised by new tablet applications being dreamed up in garages and basements everywhere.

    The third way productivity results in more employment is by attracting capital to satisfy new consumer demands. In a competitive economy, productivity—doing more with less—always lowers the cost of products or services: $5,000 computers become $500 tablets. Consumers get to spend the difference elsewhere in the economy, and entrepreneurs will be happy to sell them what they want or create new things they never heard of, but will want. And those with capital will be eager to fund these entrepreneurs. Win, win.

    The mechanism to decide the most effective use for this capital is profits. The stock market bundles profits and is the divining rod of productivity, allocating capital in cycle after cycle toward the economy's most productive companies and best-compensated jobs. And it does so better than any elite economist or politician picking pork-barrel projects and relabeling them as "investments."

    The productive use of capital is not an automatic process, of course. It is all about constant experimentation. And it is never permanent: Railroads were once tremendously productive, so were steamships and even Kodachrome. It takes work, year in and year out—update, test, tweak, kill off. Staples is under fire from Amazon and other productive online retailers. Its stock has halved since its 2010 peak and is almost at a 10-year low. So be it.

    With all the iPads and Facebook and cloud-computing growth, why is unemployment still 8.2% and job creation stalled? My theory is that productivity is always happening but swims upstream against those that fight it. Unions, regulations and a bizarre tax code that locks in the status quo.
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    Jul 17, 2012 10:52 PM GMT
    Indicative of how the Administration approaches markets and the idea of value destruction and creation - ie it comes all down to government for the success of entrepreneurs - a view that's also held by Elizabeth Warren. Quoting Obama:

    http://www.washingtontimes.com/blog/watercooler/2012/jul/15/picketvideo-obama-if-youve-got-business-you-didnt-/

    There are a lot of wealthy, successful Americans who agree with me -- because they want to give something back. They know they didn’t -- look, if you’ve been successful, you didn’t get there on your own. You didn’t get there on your own. I’m always struck by people who think, well, it must be because I was just so smart. There are a lot of smart people out there. It must be because I worked harder than everybody else. Let me tell you something -- there are a whole bunch of hardworking people out there. (Applause.)

    If you were successful, somebody along the line gave you some help. There was a great teacher somewhere in your life. Somebody helped to create this unbelievable American system that we have that allowed you to thrive. Somebody invested in roads and bridges. If you’ve got a business -- you didn’t build that. Somebody else made that happen. The Internet didn’t get invented on its own. Government research created the Internet so that all the companies could make money off the Internet.

    The point is, is that when we succeed, we succeed because of our individual initiative, but also because we do things together. There are some things, just like fighting fires, we don’t do on our own. I mean, imagine if everybody had their own fire service. That would be a hard way to organize fighting fires.
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    Jul 18, 2012 1:12 AM GMT
    Romney punches back, twice as hard:

    "“President Obama attacks success and therefore under Obama we have less success, and I will change that. . . . I don’t think that anyone could have said what he said, who had actually started a business. . . . I find it extraordinary that a philosophy of that nature would be spoken by a President of the United States."

    http://www.powerlineblog.com/archives/2012/07/romney-knocks-it-out-of-the-park.php

  • KissTheSky

    Posts: 1980

    Jul 18, 2012 1:31 AM GMT
    Romney the Corporate Raider keeps throwing around his claim that he created 100,000 jobs, but strangely can offer no supporting evidence of this at all.
    Given his complicated relationship with the truth (such as repeatedly lying to the SEC in writing), I take all his self-promoting claims with a very large grain of salt.

    His latest badge of victim-hood is that supposedly Obama "attacks success."
    This would be a GREAT opportunity for Obama and whoever else to initiate a national conversation about what success is.

    Romney's version of "success" includes firing American workers and outsourcing their jobs to third-world nations in order to line his own pockets. Meanwhile he socks his money away in secret Swiss bank accounts and shell corporations in the Cayman Islands, to avoid paying his fair share of taxes. After all, "successful" people don't pay their fair share, they figure out how to shirk their responsibility onto the "little people," right? Let the middle class pick up the tab!
    The result is Romney the elitist multimillionaire, jetting around the globe to his many estates, hiring lobbyists for his houses and building elevators for his cars. (Was it all worth it, Mitt? Really?)

    Harming American families and damaging your country, so you can buy yet another estate and live a life of obscene luxury. Romney considers this a "success."
    Most people would call it a shameful FAILURE.
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    Jul 18, 2012 12:09 PM GMT
    KissTheSky saidRomney the Corporate Raider keeps throwing around his claim that he created 100,000 jobs, but strangely can offer no supporting evidence of this at all.
    Given his complicated relationship with the truth (such as repeatedly lying to the SEC in writing), I take all his self-promoting claims with a very large grain of salt.

    His latest badge of victim-hood is that supposedly Obama "attacks success."
    This would be a GREAT opportunity for Obama and whoever else to initiate a national conversation about what success is.

    Romney's version of "success" includes firing American workers and outsourcing their jobs to third-world nations in order to line his own pockets. Meanwhile he socks his money away in secret Swiss bank accounts and shell corporations in the Cayman Islands, to avoid paying his fair share of taxes. After all, "successful" people don't pay their fair share, they figure out how to shirk their responsibility onto the "little people," right? Let the middle class pick up the tab!
    The result is Romney the elitist multimillionaire, jetting around the globe to his many estates, hiring lobbyists for his houses and building elevators for his cars. (Was it all worth it, Mitt? Really?)

    Harming American families and damaging your country, so you can buy yet another estate and live a life of obscene luxury. Romney considers this a "success."
    Most people would call it a shameful FAILURE.


    This is a case in point of how you have misunderstood how the economy works. Creative destruction is a fundamental part of economic growth. Bad companies get killed off so that new ones can grow. Staples got turned around and has grown which is part of those numbers that have been documented. But they probably also killed off a lot of competitors but as a result consumers were able to get better value for office supplies and were able to spend those savings elsewhere.

    Don't you think it's a good thing most of our respective economies are not consumed by switchboard operators? Would you say that computers and switch boxes "killed" millions of jobs? This fundamentally ignores the millions of jobs that were created and sustainably elsewhere as a result. This zero sum game that many liberals think exist is simply wrong.
  • GQjock

    Posts: 11649

    Jul 18, 2012 12:17 PM GMT
    Ummm .... if it's such a job creating MACHINE then why is the Mittster twisting himself into knots in a vain attempt to make sure that he had no part of it for the last ten years?

    Why would he say he had no say ... when his SEC forms say otherwise ?
    If it was such a JOB CREATOR then he'd scream it from the rooftops.......
    Would he NOT?

    Seems queer to me icon_biggrin.gif
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    Jul 18, 2012 12:37 PM GMT
    The Obama comment about the business owners not having created the business but someone else did is getting most of the rebuttals. And rightly so because his true beliefs are shown when he gets off the teleprompter. His supporters will claim it was taken out of context and he only meant the infrastructure benefits us all.

    He made another comment that will be harder to claim it was taken out of context, the comment that business owners think they are so smart. His words and tone clearly demonstrate an antagonistic attitude towards those successful in the private sector. Obama's War on Success. Perhaps, just perhaps, sitting in Rev Wright's church for 20 years hearing him say "God damn America" really did have an impact.

    I came across this blog. Excellent from an independent thinking Black American.

    http://wakeupblackamerica.blogspot.com/