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Capitol Comment

    Obama: Clueless and Wrong

    President Obama granted an interview with CBS News in which he not only mischaracterized basic economic principles, but did so using his usual logical fallacies. After making these basic errors, he went on to question his opponent's ability even to think about the issues Mr. Obama had just shown himself unable to comprehend.

    Before we break down the main quote line at a time, let's first put the whole discussion in context.

    "Well, they invested - they invested," said Mr. Obama said. "So that's his premise. I think it is entirely appropriate to look at that record and see whether, in fact, his focus was creating jobs and he successfully did that. And when you look at the record, there are questions there that have to be asked."

    The interviewer asked, "Like what?" Mr. Obama's response:

    "When some people question why I would challenge his Bain record, the point I've made there in the past is, if you're a head of a large private equity firm or hedge fund, your job is to make money," Mr. Obama said. "It's not to create jobs. It's not even to create a successful business - it's to make sure that you're maximizing returns for your investor. Now that's appropriate. That's part of the American way. That's part of the system. But that doesn't necessarily make you qualified to think about the economy as a whole, because as president, my job is to think about the workers. My job is to think about communities, where jobs have been outsourced."

    The density of bad logic and misstatement of fact is so dense here that we have to pick it apart line by line. So:

    "When some people question why I would challenge his Bain record, the point I've made there in the past is,..."

    Here President Obama uses one of his stock rhetorical devices: referring to his past statements as if repetition of a point increases its validity. It does not. Obama also incorrectly appeals to authority, his own. 

    "...if you're a head of a large private equity firm or hedge fund, your job is to make money," Mr. Obama said.

    The job of any business owner is to make money. That is how the business owner knows that his products and services appeal to his customers. There is in fact no other way for the business owner to know that his customers are pleased. If they choose to spend their money with another firm, or not to spend it with his, he can only infer that his business is inferior in the only way that matters. In particular:

    "It's not to create jobs."

    That is both correct in the strictest sense and, ironically, fallacious by being half true. The reason it is correct is that a business designed simply to create jobs will lose customers to another business designed to pay attention to the price signals the customers send.  A business designed to create jobs is by definition less efficient than one designed to make money.

    The line is only half true, however, because only businesses that do turn a profit can create jobs, and usually have to create jobs to turn a profit. Jobs are created  when management sees an opportunity for which they don't have sufficient labor. Whether the business is a sole proprietorship, a small-to-medium enterprise, or a giant multinational, the situation is the same: an opportunity exists to make a larger profit by hiring someone than can be had without them.

    In short, businesses create jobs to turn a profit, they don't turn a profit to create jobs.

    Mr. Obama would prefer reality to be different. He would prefer that businesses hire personnel, train them, supply them, house them, and expect at the end of that process for some means to pay them suddenly to appear. No matter how badly he wants that to be the case, it is not and can not be. 

    "It's not even to create a successful business - it's to make sure that you're maximizing returns for your investor."

    Here Mr. Obama is incorrect in his premise. A successful business is exactly one that maximizes returns to its investors. But it must do so over the period of time in which those investors -- who are the owners of the business -- are most interested and in which the business, by its particular market niche, must be judged. 

    The implicit game Mr. Obama is playing is to charge business with wanting rapid returns to the exclusion of long-term viability. Investors want both short-term profit and long-term competitiveness. Most of the time, short-term profit and long-term business health complement one another. To the extent that they don't, business owners must balance the two competing priorities. Doing so isn't a simple matter, as businesses are often engaged in multiple projects of varying duration, and management must decide how to allocate labor and capital to successfully complete the projects.

    So the false multichotomy that Mr. Obama presents should serve as a warning to anyone who has ever owned a business, managed one, or even worked for a living that Mr. Obama really and truly doesn't know what he's talking about. 

    "Now that's appropriate. That's part of the American way. That's part of the system."

    He just finished saying that maximizing return on investment is not how a successful business is run. However, this is Mr. Obama engaging in his usual tactic of appearing to side with his opponents, to make it seem as though he stands above the fray and is not merely one of the contestants, but the judge of the contest.

    "But that doesn't necessarily make you qualified to think about the economy as a whole,..."

    It is perhaps true that merely running a business doesn't necessarily qualify someone to "think about the economy as a whole". However, the business in question, Bain, was one that specialized in finding struggling businesses and either infusing capital and expertise to make them successful, or breaking them up into component pieces so that those pieces could be successful under new management, or with new ownership after merger with other firms. To do so requires understanding of where those businesses fit into "the economy as a whole".

    In addition, Mr. Obama is employing perhaps his favorite fallacy, the Straw Man. Though Mr. Romney is stressing his economic expertise in the campaign, his time at Bain is not his sole proffered qualification. Our task here is not to cheerlead for Romney, so we won't go into detail about those qualifications or argue in his favor. But anyone receiving an MBA from Harvard, raising a family, running for office, running organizations, governing a state, and generally living life as a publicly engaged person learns enough "to think about the economy as a whole". Whether those qualifications are superior to Mr. Obama's qualifications even now is left the judgment of the reader.

    Surprisingly, that is not all that Mr. Obama argues. His explanation of his criticism is a rather startling statement about his opinion of his job as President:

    "...because as president, my job is to think about the workers."

    No, Mr. President, your job is to support and defend the Constitution against all enemies, foreign and domestic. You are expected to be on the side of no group or class of people, whether "workers", to use the Marxist terminology for American citizens, or management. Your job is to run the Executive Branch of the government, not to tinker with the economy.

    "My job is to think about communities, where jobs have been outsourced."

    Again, that is simply incorrect as a factual matter.  Of all the activities the Constitution says are the jobs of the president, thinking about communities is not one of them.

    Also, Mr. Obama reveals his fundamental misunderstanding of what outsourcing is. On one level, every business that has ever existed has used outsourcing: the practice of using the products and services of another business rather than those produced internally. 

    Famously, no one knows how to make a pencil. Every business must use the services of other businesses, and must decide whether it can more profitably and more efficiently perform the services and create the products it needs itself or should hire those operations out to other firms.

    On another level, Mr. Obama is using outsourcing as a synonym for off-shoring, using the products and services of companies in foreign countries. He blames the companies who move operations overseas for the loss of American jobs, when those companies are responding to economic incentives he favors: high taxes, high wages, and burdensome regulations in the US compared to elsewhere.

    Mr. Obama is attempting to associate his opponent with the economic dislocation caused by the policies he himself favors. To do so, he engages in fallacy after fallacy, misstates his role as President, and tries to avoid the responsibility of his office. 

    His fundamental mistake is presuming to know how well something he has never done would prepare someone else for a task he is doing badly.

    It would be far better for the country, and quite possibly for Mr. Obama's reelection effort, if instead of demonizing his opponents and tinkering with the economy to favor one group over another, he promoted the general welfare of the nation. 

    6 comments
    NoMoreRepubs NoMoreRepubs
    07/18/2012

    "The job of any business owner is to make money.That is how the business owner knows that his products and services appeal to his customers. There is in fact no other way for the business owner to know that his customers are pleased. If they choose to spend their money with another firm, or not to spend it with his, he can only infer that his business is inferior in the only way that matters."

    -This is the exact reason we need government to regulate businesses because all they think about is profit. Yes, how much profit they make is an accurate way to tell if their business is selling and operating efficiently but it also can bring out the worst in the company because with more profits brings more money to the top and not necessarily the bottom.

    "The line is only half true, however, because only businesses that do turn a profit can create jobs, and usually have to create jobs to turn a profit. Jobs are created when management sees an opportunity for which they don't have sufficient labor. Whether the business is a sole proprietorship, a small-to-medium enterprise, or a giant multinational, the situation is the same: an opportunity exists to make a larger profit by hiring someone than can be had without them."

    - A company hires someone if they know they can make even more profits down the line, yes that may be true, but a company can and also does fire people or hire lower wage people to perform those same jobs if it can create more profit. There are two ways to make profit and you hit one of them, expanding, but forgot one of the more important ones, CUTTING THE BOTTOM LINE.

    "However, the business in question, Bain, was one that specialized in finding struggling businesses and either infusing capital and expertise to make them successful, or breaking them up into component pieces so that those pieces could be successful under new management, or with new ownership after merger with other firms. To do so requires understanding of where those businesses fit into "the economy as a whole"."

    - I'm sorry but buying out companies and forcing them to shut down does not make the successful in the long run. There are plenty of stories out there about Bain capital that you forgot to mention in this one-sided article.

    "No, Mr. President, your job is to support and defend the Constitution against all enemies, foreign and domestic. You are expected to be on the side of no group or class of people, whether "workers", to use the Marxist terminology for American citizens, or management. Your job is to run the Executive Branch of the government, not to tinker with the economy."

    - This paragraph is just a bunch of mumbo jumbo. If the job of the president is to not tinker with the economy then why have republican predecessors given tax cuts to the wealthy? They say it "trickles down". I'm sorry but they did so by tinkering with the economy.

    "On another level, Mr. Obama is using outsourcing as a synonym for off-shoring, using the products and services of companies in foreign countries. He blames the companies who move operations overseas for the loss of American jobs, when those companies are responding to economic incentives he favors: high taxes, high wages, and burdensome regulations in the US compared to elsewhere."

    - From this paragraph it seems to me that you would enjoy America becoming a third-world nation where we can pay our workers less than minimum wage or even non-livable wages for that matter. Regulations and taxes are in place because that is the job of the government, it collect taxes so that all of us Americans and enjoy the "commons". I understand why companies move their jobs overseas and its because they want to make a profit. We need the government to reign in this outsourcing so that companies begin bringing jobs back here. We already know the rich in this country have more money now then ever before, lets begin giving tax breaks to corporations that move jobs back here and add tarrifs on exported products. Its time to prevent the complete collapse of the middle class at the hands of making the super rich even more wealthy.

    lheal's picture
    Loren Heal
    07/20/2012

    Wow. Such fear of proves my point. Our public education system clearly failed you in a number of ways.

    NoMoreRepubs NoMoreRepubs
    07/19/2012

    "Evil corporate monsters"? Do you think that the dramatic transfer of wealth in this nation to the top is just a coincidence? There as been no other time in our country's history where corporations has as much profits as they do now and I don't see them trying to fix out country by hiring left and right. If corporations could run this country by having everyone make penny's on the dollar, they would. You cannot sit here and tell me that when a corporation decides to cut thousand of jobs here in the United States, it does it for reason other than MAKING A PROFIT. I'm sorry but I'd rather have my trust in the government who has the little guys back than in a corporation where its ultimate goal is to make a profit at all costs.

    NoMoreRepubs NoMoreRepubs
    07/19/2012

    Communism??? No, I believe in capitalism that is regulated. I'm sorry but we all know the free market without regulation is a very scary situation. This is one of the reasons why we have anti-trust laws here in the United States. When corporations main objective is to make a profit, a majority of people lose. If you want no government regulation, move to Ghana

    lheal's picture
    Loren Heal
    07/19/2012

    Wow, indeed. Your comment is summarized with: "This is the exact reason we need government to regulate businesses because all they think about is profit." What "we" need is an education system and media culture that don't traumatize children with scary stories of evil corporate monsters.

    Dave Hallila
    07/19/2012

    Wow! Thats a long post for such simple minded drivel. We get it. You believe in Communism.

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