Capitalism - does Obama understand it?

The economic recovery, or the lack thereof, is the central topic for the election. Liberals like my colleague E.J. Dionne posit that this is “a distinction between the capitalist we typically honor who comes up with a good product and hires people to make and market it; and another kind who takes over a company, pulls out all the cash he can, and then abandons it to die?” But this is a straw man worthy of President Obama.


As I and many, many others have written, the Newt Gingrich-David Axelrod cartoon bears no resemblance to the particulars of Bain or the private equity markets more generally. It is simplistic and ultimately misleading to suggest that someone comes up with a good product and hires people without any need for investors and ready access to capital.


E.J. argues:


This leads naturally to the question of how creative the destruction wrought by our current brand of capitalism actually is. Since the dawn of the leveraged buyout era three decades ago, many friends of capitalism have questioned whether loading companies with debt as part of these deals is good for companies and for the economy as a whole.
Does this approach cause unnecessary suffering among the employees of the companies in question and the communities that often lose plants and jobs as a result? Sucking pension and health funds dry to aggrandize investors seems less like a creative act than a betrayal of workers who made bargains with their employers in good faith.
But this “brand” of capitalism is capitalism, and in its undiluted state does create hardship, but nothing in comparison to the amount of suffering inherent in other, less successful economic models. Two points should be kept in mind. First, we don’t have undiluted capitalism precisely because, while capitalism is the greatest wealth-creator the world has ever known (I think Obama even said this), we don’t as a compassionate society want undue suffering in the short term. Hence, we have unemployment insurance and an array of social safety-net programs.


Second, capitalism is unmatched in its ability to lift and keep people out of poverty. (On this topic I would heartily recommend “Wealth and Justice: The Morality of Democratic Capitalism” by Peter Wehner and Arthur Brooks, as well as Brooks’s new book, “The Road to Freedom: How to Win the Fight for Free Enterprise.”) 


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