When his fellow Republican candidates attacked Mitt Romney over his tenure at the private-equity firm Bain Capital, many Americans rushed to Romney's defense. There is nothing wrong, they pointed out, with firms like Bain taking over faltering companies and putting their resources to more profitable use. In fact, a dynamic economy requires that decision-makers have the freedom to shift capital and other assets from unprofitable to profitable enterprises. Bain Capital's line of work may not save every existing job, or even every company—but it creates lots of new companies with many new jobs.
I agree with this argument. My problem with Bain Capital is not really with Bain Capital; it's with U.S. government policies that artificially eliminate the risk on which true market-based profits are predicated. These policies are now deeply embedded in the operation of the federal government, and they are part of a network of regulations, mandates, guarantees, and incentives that together increasingly limit the honest operation of a market. There are still results that simulate the mechanisms of a market, but they reflect less about economic reality with each passing decade.
Read Full Article »