I wanted to post about Herman Cain for some time, but the “R” key on my keyboard stopped working, and how can you write about HeRman without an “R”?
I have been wanting to post about Cain since he gave his response to allegations of sexual harassment. Cain said:
In theory, this is well-spoken, even eloquent. Cain is certainly right to complain about our dysfunctional media and its fascination with the pettiest and most inconsequential aspects of the candidates at the expense of more serious, substantive issues.* He is also right to refuse to play that game. Not so certain is his claim that the sexual harassment allegations petty and inconsequential. This remark happened, after all, right after a woman accused Cain of reaching under her skirt and pulling her head into his lap. Still, let’s assume Cain’s point, that these are trivial allegations, much less important than the substantive questions of who has the answers to our problems. The statement ultimately only works if Cain really does have the answers. Color me unconvinced.
For starters, he doesn’t have a clue about foreign policy, and he’s proud of it. But at least Cain understands foreign policy is not his strong suit. Maybe he can find a really good Secretary of State (George Schultz, will you come out of retirement?) and delegate foreign policy to him (or her). What Cain does see has is area of expertise is the economy. He is confident that, as a businessman, he is better qualified to deal with the economy that any politician and that, by applying business principles to the government, he can turn the national economy around. Is he right about that?
I will touch only briefly on his 9-9-9 plan. It has been dissected enough in other places. First, the 9% corporate tax is on gross earnings, i.e., total revenue minus raw materials and does not allow businesses to deduct wages as an expense. This will make hiring much more expensive and tend to discourage it, exactly what we do not want under conditions of high unemployment. Second, its regressive nature will tend to depress consumer spending in lower income groups and, by extension, depress the economy. Passing such a regressive plan may also be more difficult than Cain thinks.
Besides making taxes simpler and more regressive, the other half of Cain's program is cutting spending. Cain likes to boast that turned around, first a troubled regional section of Burger King and later the entire company of Godfather's Pizza, and that he can therefore turn around the economy. One of the ways he did this was by cutting expenses and shutting down less profitable restaurants in the chain. By cutting off its weaker branches, he was able to restore the company as a whole to profitability. The implication is that he will do the same to government and, by extension, turn around the whole economy.
This is, after all, a fairly typical business mindset, but it doesn't translate so well to government. For one thing, although shutting down an unprofitable restaurant is painful and throws people out of work, it doesn't compare to shutting down large portions of government, which means eliminating important services. For another, businessmen sometimes forget that the object of government is not to make a profit, but to govern. But most of all, although businessmen are no doubt good with the micro aspects of economics, what works best at the micro level does not necessarily add up at the macro level, and businessmen often do not understand that.
A business has to maintain a positive cash flow or it will fail. A government is under no such obligation. People sometimes try to argue to a businessman that the same rules don't apply to a government as to a business because government can print its own money. But I don't think the problem is that businessmen don't understand that. I think they understand it very well. (Cain certainly does; he served on the Kansas City Federal Reserve Bank). The problem is not that businessmen don't understand that; it's that they are mad as hell about it. They don't want the government to have its own set of rules; they want government to be held to the same set of rules they are.
On the other hand, it may well be that businessmen don't understand the implications of the different rules that apply to government. When a business runs into economic trouble, its best survival strategy is often to downsize, as Cain did. But, of course, when all businesses are downsizing at the same time, the result is that the overall economy gets downsized. We call that a recession. Another is that government is so big that when it downsizes, the result is a downsizing of the whole economy. Perhaps some businessmen would say they know that; that's why they want to shrink to government to the size where it won't matter so much. The problem with that, of course, is the time to do that is when the private sector is expanding fast enough to make up for the shrinking government. When the private sector is doing the downsizing (or hasn't grown enough to make up for the last downsizing), the government can use its advantage in borrowing to offset the shrinking private sector and limit how much the overall economy shrinks.**
In short, I would expect a President Herman Cain to seek to respond to our economic problems the way CEO Cain responded to the problems at his restaurant chains -- to downsize and eliminate the less profitable operations in order to a restore a positive cash flow. I would expect him to assume that is the key to good macro-, as well as micro-, economic health. I would expect him and the country to learn the hard way that he was wrong.
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*To take a few examples from the last election: Is Hillary’s high-pitched laugh too grating? Do Obama’s bowling scores make him out of touch? McCain looks hideous against a green background!
** Some link I no longer remember quotes a small businessman who is mad as hell that the government doesn't have to cut back when he does. When asked what he thinks Obama can do to improve the economy, his answer is two words: "Cut spending." The columnist then points out how many of the business's orders are from government these days, and won't cutting spending mean less orders? The businessman admits he never thought of that. I am guessing Herman Cain's mindset is much the same.
I have been wanting to post about Cain since he gave his response to allegations of sexual harassment. Cain said:
Our nation has very serious problems, particularly of an economic nature, and Barack Obama does not have the skill, knowledge or will to solve them.
I do.
Unfortunately, the media-driven process by which one must seek this opportunity is fundamentally unserious. I have touched on this before - the emphasis on "gaffes," gotcha questions and time devoted to trivial nonsense - and everyone knows the process only became further detached from relevance this week as the media published anonymous, ancient, vague personal allegations against me.
Once this kind of nonsense starts, the media's rules say you have to act in a certain way. I am well aware of these rules. And I refuse to play by them. . . . These rules stink. Can the process by which we pick the leader of our nation be any more absurd?
......
The nation needs its tax structure reformed, its spending brought under control, its debt reduced and its overall governing structure made far more responsive to the needs of the people. The nation needs many other problems addressed. If it's OK with the American people, I would like to address them.
In theory, this is well-spoken, even eloquent. Cain is certainly right to complain about our dysfunctional media and its fascination with the pettiest and most inconsequential aspects of the candidates at the expense of more serious, substantive issues.* He is also right to refuse to play that game. Not so certain is his claim that the sexual harassment allegations petty and inconsequential. This remark happened, after all, right after a woman accused Cain of reaching under her skirt and pulling her head into his lap. Still, let’s assume Cain’s point, that these are trivial allegations, much less important than the substantive questions of who has the answers to our problems. The statement ultimately only works if Cain really does have the answers. Color me unconvinced.
For starters, he doesn’t have a clue about foreign policy, and he’s proud of it. But at least Cain understands foreign policy is not his strong suit. Maybe he can find a really good Secretary of State (George Schultz, will you come out of retirement?) and delegate foreign policy to him (or her). What Cain does see has is area of expertise is the economy. He is confident that, as a businessman, he is better qualified to deal with the economy that any politician and that, by applying business principles to the government, he can turn the national economy around. Is he right about that?
I will touch only briefly on his 9-9-9 plan. It has been dissected enough in other places. First, the 9% corporate tax is on gross earnings, i.e., total revenue minus raw materials and does not allow businesses to deduct wages as an expense. This will make hiring much more expensive and tend to discourage it, exactly what we do not want under conditions of high unemployment. Second, its regressive nature will tend to depress consumer spending in lower income groups and, by extension, depress the economy. Passing such a regressive plan may also be more difficult than Cain thinks.
Besides making taxes simpler and more regressive, the other half of Cain's program is cutting spending. Cain likes to boast that turned around, first a troubled regional section of Burger King and later the entire company of Godfather's Pizza, and that he can therefore turn around the economy. One of the ways he did this was by cutting expenses and shutting down less profitable restaurants in the chain. By cutting off its weaker branches, he was able to restore the company as a whole to profitability. The implication is that he will do the same to government and, by extension, turn around the whole economy.
This is, after all, a fairly typical business mindset, but it doesn't translate so well to government. For one thing, although shutting down an unprofitable restaurant is painful and throws people out of work, it doesn't compare to shutting down large portions of government, which means eliminating important services. For another, businessmen sometimes forget that the object of government is not to make a profit, but to govern. But most of all, although businessmen are no doubt good with the micro aspects of economics, what works best at the micro level does not necessarily add up at the macro level, and businessmen often do not understand that.
A business has to maintain a positive cash flow or it will fail. A government is under no such obligation. People sometimes try to argue to a businessman that the same rules don't apply to a government as to a business because government can print its own money. But I don't think the problem is that businessmen don't understand that. I think they understand it very well. (Cain certainly does; he served on the Kansas City Federal Reserve Bank). The problem is not that businessmen don't understand that; it's that they are mad as hell about it. They don't want the government to have its own set of rules; they want government to be held to the same set of rules they are.
On the other hand, it may well be that businessmen don't understand the implications of the different rules that apply to government. When a business runs into economic trouble, its best survival strategy is often to downsize, as Cain did. But, of course, when all businesses are downsizing at the same time, the result is that the overall economy gets downsized. We call that a recession. Another is that government is so big that when it downsizes, the result is a downsizing of the whole economy. Perhaps some businessmen would say they know that; that's why they want to shrink to government to the size where it won't matter so much. The problem with that, of course, is the time to do that is when the private sector is expanding fast enough to make up for the shrinking government. When the private sector is doing the downsizing (or hasn't grown enough to make up for the last downsizing), the government can use its advantage in borrowing to offset the shrinking private sector and limit how much the overall economy shrinks.**
In short, I would expect a President Herman Cain to seek to respond to our economic problems the way CEO Cain responded to the problems at his restaurant chains -- to downsize and eliminate the less profitable operations in order to a restore a positive cash flow. I would expect him to assume that is the key to good macro-, as well as micro-, economic health. I would expect him and the country to learn the hard way that he was wrong.
_________________________________
*To take a few examples from the last election: Is Hillary’s high-pitched laugh too grating? Do Obama’s bowling scores make him out of touch? McCain looks hideous against a green background!
** Some link I no longer remember quotes a small businessman who is mad as hell that the government doesn't have to cut back when he does. When asked what he thinks Obama can do to improve the economy, his answer is two words: "Cut spending." The columnist then points out how many of the business's orders are from government these days, and won't cutting spending mean less orders? The businessman admits he never thought of that. I am guessing Herman Cain's mindset is much the same.
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