Romney’s been taking fire consistently over the last few days over his time at Bain Capital, a private-equity firm. He tried to spin that experience as showing he knows how to create jobs in the private sector, but his numbers are fuzzy and impossible to verify. Meanwhile, Newt Gingrich &co. in the GOP primary are doing Barack Obama & the DNC a huge favor, trotting out workers who lost their jobs to his “vulture” capitalism.
The problem, as Matt Yglesias and others have pointed out, is that private equity isn’t intended to create jobs–it’s intended to create value for the owners of the company. In many cases, that means laying off workers who aren’t providing a valuable service anymore. Replacing those workers with more efficient inputs (be they machines, overseas workers, etc.) makes the economy as a whole more efficient, and creates value for consumers and producers, but it really sucks for the people who have invested in obsolete human capital.
Yglesias’s response to that problem is smart and pithy: we need to “celebrate the creative, help after the destruction.” That also captures Romney’s problem: he can’t express any willingness to help after the destruction. If he was a Democrat, or a Republican running in a less crazy year, he could make the intelligent argument that “This is the process of capitalism: people lose jobs when industries change. That change makes us all, as a whole, better off, but it also means we have a bunch of people who aren’t doing as much as they could be. It makes sense to provide an effective safety net for those people, so they can keep buying things that the rest of us make and making things that we want.”*
As should be clear, Romney can’t make that argument in a rabidly anti-government Republican primary. I’m not even sure he would agree with the idea (to the extent that he has any intellectual principles at all). But I think that’s the one way he could effectively respond to the attacks on private equity. Claiming “100,000 jobs!” isn’t going to counter the stories of fired workers, no matter how right he is.
*In essence, we should provide some form of human capital insurance to protect people in the same way that we insure our physical capital (houses, cars, etc.) against loss. I don’t see any theoretical reason that such insurance couldn’t be provided privately, but it might make sense as social insurance because the people most likely to need it are the least likely to afford it. If anyone has seen this mentioned in the econ literature, shoot me an email!