PLCY 704
Course PLCY 704 Week 6 is charged to discuss the following topics:
Compare Mitt Romney’s economic ideas with those of President Obama.
Examine President Obama’s economic policies, including and especially via that
of the Fed but also including support of green energy, and how those policies
might have contributed to economic statism, crony capitalism, and speculative
financing.
Evaluate the above in light of a biblical model of statesmanship.
Introduction
Mitt Romney, a U.S. politician, businessman and founder of Bain Capital, a multi-billion
private alternative investment firm founded in 1988, was at the center of financial controversy.
Romney’s controversial secret deal over campaign money in 2012 (McVicker, 2011) and tax
return issues as incumbent Governor of Utah (Kaufman, 2012) are some of the criticisms that
cast shadows to his decades of tenure as a public official. Fischer (n. d.) recognizes the positive
of role of party ideology in curbing the business of speculation by blocking policies that are not
aligned to the party's priorities. For instance, spending on the military that Republicans proposed,
in favor of homeland social welfare policy. Republican leaders ought to also demonstrate fiscal
restraint to minimize the opportunity of economic speculation, but often an arbitrary exercise
based on political expediency. President Bush had among the biggest military spending due to
the invasion of Iraq and Afghanistan (Bush, 2006).
Companies generating windfall profits from speculative leveraging of the financial
market Newsweek (2012). Newsweek (2012) takes a stab at Bain Capital, an investment
company co-owned by Former Senator Mitt Romney for making a massive profit by
manipulating its books to raise its operating income and thereafter use it to leverage the financial
market. Deregulated financial policies make it possible for corporations and businesses to
circumvent financial policies unchecked.
Scholars have not fully understood Romney’s politics and business skills. Borchers, &
Miller (2014) suggests the way to understand the Utah State Senator is through his leadership of
Bain, suggesting that Romney’s conservative views reflect his economic policies. His moderate
and independent stand on critical Republican issues such as gay and birth-abortion rights have
become a divisive issue within the Grand Old Party (Roarty & Reinhard, 2011), earning him the
name “flip-flopper” (Borchers, & Miller, 2014).
Economic ideas and policies
When it comes to business, commentators describe Mitt Romney as a “A story of greed,
playing the system for a quick buck. A group of corporate raiders led by Mitt Romney, more
ruthless than Wall Street. For tens of thousands of Americans, the suffering began when Mitt
Romney came to town” (Zorn, 2012). Despite the criticisms, Romney enjoys his constituent’s
trust as a public servant and his Bain Capital (at https://www.baincapital.com) now stands at
$140 billion operating in 23 countries.
President Barack Obama's election to the highest office exemplified the dynamism of
American democracy and society and a model success to the advocacy of race and diversity in
America's modern society (Henry, Allen, & Chrisman, Eds., 2011). While not new to U.S.
politics, Obama’s policies on the environment and economy would be tested against those
promoted established by his predecessor. Scholars Yohannan (2008) and Lewis-Beck & Nadeau
(2009) account for Obama’s success in the 2008 election as a vindication of Bush’s bad policies
that swept the country into a recession.
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Stockman’s Great Deformation Chapters 27-32 presents a different venue of speculation,
cronyism, and participation, directly and indirectly by Mitt Romney. Mitt Romney, is a man of
contradiction, a staunch economic conservative who outwardly confess that bailout is
counterproductive to the free market, but inwardly supported GW Bush finance policy that bailed
out the rich corporations, make the poor rich through welfare, increase economic regulations, and
less caring about deficits (Stockman, 2013, 551-558). 2008 election was Romney’s test of
conviction when he would foreshadow adversary over bailing out the auto industry to the
electorate. Due to fear of losing electors in Ohio, he went on to do otherwise (Stockman, 2013,
551).
David A. Stockman explains the phenomenology of the “bubble finance” of various
economic periods in U.S.’s history. In Part I and Part IV of his book, Stockman elaborates on
speculative finance and its effect in creating the finance bubble. Chapter 14 of his book traces the
“bubble finance” to the massive government-induced speculation and the manipulation of the
cash economy by cronies of the political leaders and GSEs.
Stockman’s account of Romney and Obama’s economic ideas are set in the background
of the Great Recession of 2007-2008 that witnessed one of the most unprecedented government
economic expansions in U.S.’s modern history (Stockman, 2013, 551-576). Yet it was not just the
government’s acts to save the ailing economy but expansion of big government due to increased
military spending to fund the continuing engagement in the war on terror (Bush, 2006,
Napoleoni, 2011). The impact of economic disruption was a grand scale speculative financing
and crony capitalism that dominated the Bush’s free enterprise era challenged the progressive’s
Obama policy.
Obama’s entry into the White House 2009 put on hold ongoing and planned fiscal
decisions of Bush’s pending review. While Obama’s action was logical as for any incoming
administration, the brief pause soon followed by a massive $800 million stimulus and tax cut
plan equivalent to nearly 6% of GDP (Stockman, 2013; 558). Based on Stockman (2013, 589)
analysis, Obama’s massive tax cut and stimulus package would have rewarded Romney’s
speculation business, since prices of construction and manufacturing goods soared following the
stimulus and the construction industry were given tax refunds for their economic activities
during the bubble years, even if their businesses stood to gain from the recession. Note that
Romney’s diverse business also included flipping-then-selling houses and companies, home
mortgages, and asset equity investments.
Obama’s egregious $800 billion stimulus, a Keynesian signature also benefited the
progressives’ cronies—the “green energy” companies lurking in the Bush era waiting to jump
into the speculation business. Of the $ 800 billion stimulus and tax package, at least 30% bailed
“poor” families into welfare (there is also speculation among government retailers) and grants to
local governments, while around 20% rewarded energy projects energy infrastructure. According
to Stockman, the “green energy” capitalist blessed its cronies with a total of $ 90 billion for
various green projects in the ensuing years, disrupting the normal market to run its course.
Romney’s economic ideas benefited sizably from Obama’s stimulus provision, and indirectly
through the “green” business.
Obama’s reliance on the antiquated Keynesian thinking of stimulus deployment did not
offer long term solutions to the deflated household economy of the poor household but an
artificial respite. Stockman (2013; 592) theorizes that response to the lack of income among the
poor class was not to provide overlapping cash stimulus, but to fix the productive sector to
generate more jobs. Obama’s theory of stimulus spending was largely demand-driven (a
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Keynesian approach), as opposed to supply-driven (Friedman’s), while Romney stands to gain
from the ends of either approach.
Romney’s ambivalence swings towards budget restraint and big government, in elections
(Stockman, 2013, 552-554). Central to the 2012 election was a large national debt that produced
big deficit of $20 trillion and tax cuts, massive subsidies on welfare and ostensible funding for
the military. Government over spending on social welfare benefits, disregarding the means-tested
safety net, pushed for government investment plan of $ 19 trillion for the next ten years, to make
the wealthy to retire affluently, were against the principles of limited government.
The national budget, considered Romney’s bulwark was hijacked by war proponents such
as John Bolton, the U.N. Ambassador described by Stockman as warmonger continued to
challenge his conservative world view. He proposed to spend $ 800 billion annually to
modernize war-invading machines and defense budget to boost neo-colonialist foreign policy.
This amount was no match to the Eisenhower’s military defense budget who advocated for a
limited government. Republican critics disagree with Romney’s fiscal policies that created an
avalanche of free lunch—in the end, a fiscal calamity.
Stockman (2013, 555) shows Romney’s intimacy with the cronies at Washington auction
house and Wall Street by cooperating with the tax-cut and $ 5.3 trillion financial housing policies
that burst into bubble. Ben Bernanke (Chair of the Federal Reserve), Allan Greenspan (former
chair of the Federal Reserve) and Glenn Hubbard (Columbia Business School and GW Bush’s
economic adviser) who all were crypto-Keynesian economists and unabashed advocates of the
Measurable Economic Welfare. How cronyism was perpetuated in Romney’s backyard,
according to Stockman, was due to GOP’s manipulation of economic policies, taxes, and
tightening regulation. But by mimicking the failed Reaganomics, national spending has bloated
the economy, dwarfing the GDP’s share and consuming the surpluses accumulated during the
Clinton’s administration. The cronies rolled back the 1970s excessive regulation that bound the
free enterprise and crushed it into a massive financial bubble. Romney’s Bain Capital, a
speculator, was a beneficiary.
Cronyism and the business of speculation
The decade preceding the 2007-2008 recession, subprime mortgages were legally
allowed to be traded. Investment banks and commercial lending companies bought and sold
subprime mortgages. As was legally in practice, the subprime mortgages were bundled,
securitized and equitized (collectively “leveraged”) into Mortgage-backed security (MBS) and
Credit Default Swap (CDS). It was also allowed to buy companies. The relationship built with
key officials close to Washington, cronyism by description allowed Romney to know the rules of
the game—know what resources to tap and what conditions were there to ensure the books were
in order. According to Stockman (2013, 559), Romney’s Bain Capital rose from the Great
Depression through financial speculation, benefitting from the Fed’s money-printing spree over
three decades. This relationship can be surmised by Romney’s policies favoring big government,
regulation, and deficits (Stockman, 2013, 558).
The wake of the 2007 Great Recession saw an increased economic and financial activity
(Rich, 2009). In addition to subprime mortgage trading, company acquisition and merging have
become lucrative businesses of the corporate private sector. For instance, the merger of RJ
Reynolds Tobacco and Nabisco (Oreos-maker) reported a profit of over US$ 1 million at the
close of the deal. Bain Capital, co-owned by Mitt Romney made a windfall of profits for
leveraging speculation in the financial market deformed by the Feds’ capricious money-printing
business. According to Stockman (2013, 559), Bain windfall profits were not a product of
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ingenuity and fair-handed creation of the free enterprise but speculation that took advantage of
an ailing market.
Romney’s economic ideas were shortchanging the economy for personal gain. There was
no evidence that Romney’s business enlarged the economy and created jobs, nor did he
demonstrate a business acumen. Romney’s uncanny business skills as a “master speculator who
bought, sold, flipped and stripped businesses, but he did not build enterprises the old fashioned
way that features a product, service or a process of production” Stockman (2013, 559-560).
Through these skills, Bain accumulated an impressive $ 2.5 billion out of $ 1.1 billion
investment, but 10 of the most important deals generated a $ 1.8 billion profit bubble and ended
in bankruptcy. Additionally, 4 of 10 best deals of Bain for $ 600 million were subject to legal
proceedings (Stockman (2013, 561).
The most blatant demonstration of financial speculation comes in Bain’s acquisition of
business assets that were considered high risk (Stockman (2013, 561-564). Around 1999, Bain
acquired department stores and apparel chains that were near-broke. The stores were running dry
with the entry of big department stores such as Wal-Mart. With the inevitable collapse of the
stores, Bain re-branded, consolidated, and sold by luck in stock market. It also sold the
component of the stores to 3rd party so there was almost zero remaining on Bain’s assets.
Thereafter, it would only take a minor recession to file for bankruptcy. While Romney’s
connection at Washington (discussed above) was assured of the bailout.
Bain’s paper trading business illustrates cronyism and speculation in plain sight. Bain-
induced loan based on a bloated sales projection of envelop and accordion files with American
Pad and Paper secured a loan beyond payment. Good sales projection was necessary to look
good in the stock market and avail of loan and loan refinancing—this was only on paper. Bain
would induce loans turned into debt, resulting in Bain acquiring the company. Bain then
rebranded and repackaged the company and sold it for a hefty profit.
Obama’s “green energy” policy unfolded with an avalanched of government subsidies
and “planned” bailout that triggered a much anticipated bailout. The acquisition of First Solar by
Walton Family, Wal-Mart’s venture capital arm ensured a lower-than-average unit consumption
rate with the advantage of using solar power (Stockman, 2013; 598-602). With growing number
of customers, “grid” offices were created—and over 8,000 personnel were hired. Obamas’
stimulus package funded first Solar operations without company’s equity, hence, there was
nothing to lose on the part of First Solar, and more securely, the Walton Family investment. This
was cronyism in its most blatant form. Where the stimulus package was intended to “lift”
families out of economic recession, taxpayer’s money provided First Solar was unjustified by
need, but greed. First Solar purportedly established manufacturing plants to support the
production of panels. Walton Family solar business enjoyed windfall profits from the stimulus
and from its customer, until the lack of supply of raw material for solar panel forced the business
to close. As expected, First Solar was bailed out by Obama’s stimulus. It was found that First
Solar bought Rohrglas from Germany, and the manufacturing plants were fictitious. Similar
patterns of speculation and manipulation for cronyism occurred in the automotive industry
perpetuated by Obama’s stimulus package. Stockman (2013; 608-612) argues for the normal
function of the market to regulate and heal itself from supply-demand aberration.
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Conclusion
Romney and Obama’s economic ideas do not cross the same domain but in a continuum
of policy and benefit. Romney’s Bain Capital speculative “greed” was the receiving end of Bush
and Obama’s stimulus policy, and all of Washington’s stimuli and bailout programs during Great
Recession. Obama’s failed “green” policy promoted speculation and cronyism and Romney’s
planned company acquisitions (metaphorically the flipping and re-selling companies) did not
violate any law but took home unlimited profit through speculation. Cronyism comes in Bain’s
connection with the financial caretakers at Washington to gain bail out, while Obama’s “green”
policy opened wide for company speculation through capital grants with zero equity. Obama’s
stimulus package bailed almost a purposive bankruptcy. The policies during Bush and Obama
did not effectively lift the poor out of poverty and homelessness but provided measures. Romney
and Obama’s economic ideas revolved within market speculation and rampant crony capitalism
set up by the Fed, as was Obama’s “green” energy policy and stimulus packages. The free
enterprise spirit, God’s thoughtful design of economic liberty was tarnished by greed.
Matthew 7:15 (NIV) "Watch out for false prophets. They come to you in sheep’s clothing,
but inwardly they are ferocious wolves..." The Bible warns about treachery and deceit by
politicians and businesses that seem to help, but whose aims are to amass benefit for themselves.
Mark 8:36 (NKJV) "For what will it profit a man if he gains the whole world, and loses his own
soul?" While they await God's wrath and judgment, everybody ought to be cautious and
informed when the opportunity to select or reject those people arises.
God bless.
PLCY 704
References
Borchers, T., & Miller, J. L. (2014). Bain & Political Capital in the 2012 GOP Primary
Debates. American Behavioral Scientist, 58(4), 574–590.
https://doi.org/10.1177/0002764213506218.
Bush, G. W. (2006). The War on Terror. Vital speeches of the day, 72(6), 162.
Fischer, K. (n. d.). Crony Capitalism: From George W. Bush to Obama. PLCY 704 Week
6 Course presentation. Liberty University.
Henry, C. P., Allen, R., & Chrisman, R. (Eds.). (2011). The Obama Phenomenon: Toward
a multiracial democracy. University of Illinois Press.
Kaufman, S. (2012, Aug 13). The Furor Over Romney's Tax Returns: Are 2 Enough for
Voters, 12 Too Many? Human Events, 68, 19.
Lewis-Beck, M., & Nadeau, R. (2009). Obama and the Economy in 2008. PS: Political
Science & Politics, 42(3), 479-483.
McVicker, S. (2011). Mitt And Rick's Secret Donor Deal: Before they were rivals for the
2012 GOP nomination, Mitt Romney and Rick Perry got entangled in a $1 million donation
controversy that a judge ruled broke the law. Steve McVicker reports. Newsweek Web
Exclusives, https://bit.ly/3kbpSZ3, August 5, 2021
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