Think of Private Equity as Healthcare for Business

I've been thinking.  At least I hope I have.  I've been thinking about how to explain private equity to the American people.



After all, until Mitt Romney came along I should imagine that the average American voter had never thought about private equity before.  In campaign-speak, therefore, the Obamis are trying to define it for the American people before Mitt Romney does.  They want us to think of a vampire sucking the blood out of good union jobs at good wages.



The vampire metaphor probably does have application in some cases.  After all, there are bad apples everywhere--even in left-wing politics.



But I propose a new metaphor.  Think of private equity as healthcare for business.



Let's think about health care for a moment.  There are two key times of life when you really need health care.  You need it at birth, and you need it in your last months on earth.  Health care at birth is the reason that women now have a longer life expectancy than men: they no longer die in childbirth.  And healthcare is the reason that we don't have half of babies dying in their first year of life.



Why, that's just like private equity!  One of its key contributions is to help start-up companies, providing start-up capital and management advice.



In healthcare, obstetric and pediatric care is pretty straightforward.  Where things get messy is with the diseases of aging: geriatric care.  When you get sick, you look for the healthcare system to save you from early death and from serious disability, and that might mean surgery, cutting out a cancerous growth, or reaming out your coronary arteries or putting in a stent.  Guess what.  Very often, there's nothing the doctor can do for you.  He may order an expensive operation but you might still die anyway.



Here's a shocking fact.  When you get a doctor to operate on you, you pay him whether he fixes you up or not. He doesn't suggest an equity deal where he gets a cut on every extra month of life he's given you.  Talk about greed!



Just like aging humans, aging corporations are often a mess.  They may be paying their employees too much; they may be paying their executives too much.  They probably got into debt to tide them over a couple of rough patches.  Now they are really in trouble. and they can't get any more money from the bank.  Enter the leveraged-buyout guys.  They come in with new money, new management, new ideas, and try to save something from the wreck.  Like the doctor doing surgery, they want to get paid for their expertise.  Like anyone doing a high-risk business deal, they want a big payout if they succeed.



It's a pity that the Obama administration wants to teach the ordinary American voter that private equity stinks.  But you can understand why.  Almost everyone in the Democratic coalition is sitting on some sort of government benefit, whether the benefit of union intimidation or subsidy or straight out pay-for-play.  The politicians and the activists promised them lifetime security and told them they had a moral right to that security.  But now the money is running out, and the rest of the American people are getting a little restless about, e.g., paying government workers 45 percent more than private sector workers.  The only way they can keep the money going for a while is with demagoguery.



The Obamis can do this because the Democratic faithful still believe.  They believe what their leaders taught them, that they have a moral right to their handouts and their benefits.  And President Obama believes that too.  He believes in "spreading the wealth" through government programs.



In the end, of course, the whole Democratic political power will collapse into ruin, as every other empire has done.



But for ordinary people that aren't plugged into the national Democratic machine things are different.  What's wrong with the private-equity guys helping the start-up you work for?  What's wrong with a leveraged buyout when your employer is teetering on the edge of bankruptcy?



Not everyone gets a lifetime government job with tenure and lifetime benefits.

The Souls of Living Things

We moderns may think of the universe as as an unimaginable vastness, with a few rocky planets sporting a curious kind of fuzz.  But Plato in the Timaeus sees the universe as a single Living Thing "that contains within itself all living things, mortal and immortal."

Plato wanted the human living thing to have both a mortal and an immortal soul, with the immortal soul containing divineness, and the mortal part the other things, "those dreadful but necessary disturbances" such as pleasure, pain, boldness, fear, "expectation easily led astray" and "fused with unreasoning sense perception and all-venturing lust."  The immortal soul resides in the head and the mortal part in the trunk, with the neck as an isthmus to keep the two types of soul safely apart.

The mortal part of the soul, safely confined to the trunk of the body, comes in two flavors.  The part "that exhibits manliness and spirit" the gods settled in the upper trunk between the midriff and the head "so that it might listen to reason" and restrain the appetitive part.  The appetitive part they put between the midriff and the navel, tied down "like a beast, a wild one."  Plants were also created by the gods, but these living things on the ground only have souls of the appetitive kind, like the human mortal soul situated between the midriff and the navel.  The plant soul is passive, and cannot "discern and reflect upon any of its own characteristics."

Plato comes up with all kinds of inventive explanations of the the body's organs.  The lungs, for instance, are there to cool the heart.  The liver is there to receive the "force of the thoughts sent down from the mind" to help tame the wild beast below.

Natural death from old age, according to Plato, comes about in this way.  Firelike triangles (actually tetrahedrons) cut up food and send nourishment all through the body.  But as the body ages, the triangles lose their ability to cut up the food and are "destroyed by the invaders from outside."  Eventually the "interlocking bonds of the triangles around the marrow can no longer hold on" and "they let the bonds of the soul go."  The soul is then released in a natural way, and finds it pleasant to take flight."  If this comes naturally, and not through disease, it can provide a "pleasant, not a painful death."

Of course, your basic human is a man.  Women only come into existence when "male-born humans who lived lives of cowardice or injustice" are "reborn as women."  Animals are descended from less than perfect men.  Birds, for instance, are descended from simpleminded men, and land animals came from men "who had no tincture of philosophy" and followed the mortal soul in their chest rather than the immortal soul in their head.  Water animals came from the most stupid and ignorant men of all!

It's easy to sneer at the natural and biological sciences of the ancients.  But mankind demands an answer to our questions, and the ancient philosophers did the best they could.  No doubt future generations will sneer at our foolish notions of the nature of life, the universe, and everything.

Welcome to the Julia Crow Era

Nietzsche was the guy that gave resentment a fancy name: ressentiment.  When people are angry because history has passed them by, it's not just resentment.  It's something more.



In the US we saw it in the Jim Crow era.  The Southern whites had lost the Civil War, and they had lost the profits of slave-grown cotton plantations.  They visited their ressentiment on the black freedmen to keep them subservient and prevent them from using their numbers to end the era of white domination in the post-war South.  The Jim Crow era only finally came to an end in the 1950s and 1960s when the federal government--led by liberals--broke the back of white racial domination in the US South.



Perhaps it is more compelling to describe the Jim Crow era in the language of modern psychobabble.  The white Southerners in the late 19th century were in denial about the fact that the glory years of ante-bellum slave plantations were gone forever.  So they vented their rage and their disappointment upon the people they used to own and exploit.  You could even say that they projected their own faults--developed during the lazy hazy days of life presiding over the plantation--upon their former slaves.



So now we have the liberal welfare state hitting the wall.  Do the liberals turn upon themselves, find a scapegoat, and move on to a politics that acknowledges the truth of the conservative and economic critique of big-government liberalism?  No, they do not.  Instead they write "hate speech" laws to make criticism of liberals a crime.  They demonize private capital firms that try to clear the arteries of failing unionized firms hooked on government subsidy and intimidation.  They erect a crony capitalism to reward their friends.  They respond to government failure with more government programs.  They call people that oppose them "extremists" while they send their union and Occupy goons out to intimidate them.



I've thought of a name for this twilight era of liberalism.  I call it the Julia Crow era, after the faceless woman in the Obama campaign's "Life of Julia."



It took the best part of a century to beat back the ressentiment of the Jim Crow era.  The old white Southern elite was well entrenched and taught the poor whites to fear the black hordes that threatened to engulf them.  It took face-to-face federal power to put a stop to the Jim Crow era and defeat it.



Let us hope that the Julia Crow era will not last as long.  The best way out would be for liberals to admit to themselves that their day is over, that their ideas have been exploded, that their top-down big government welfare state is unjust.  But I am not that optimistic.  History is littered with the wreckage of dog-in-the-manger elites that refused to give up their grip on political power until forced to.



In the 1950s, America decided that it was nobler, better than the meanness and the injustice of Jim Crow.  Let us hope that by 2050 we will have also put the Julia Crow era behind us and reasserted our faith in American exceptionalism, America as the last best hope of mankind on earth, the lodestar, the inspiration of those who must have freedom.

The Liberal Con

Everyone in the political elite knows that "entitlements" are really welfare.  So when middle-class voters talk about having "earned" their benefits, well, here's the New York Times:

Anecdotes about citizens’ demanding that government “keep its hands off Medicare” are Exhibit A in the prosecution’s case. In July 2009, for example, President Obama informed an audience that he had received a letter from a woman who wrote, “I don’t want government-run health care, I don’t want socialized medicine, and don’t touch my Medicare.” Such demands, wrote Timothy Noah at Slate, reflect a politics of “infantile denial.”

Except, writes William Voegeli, it was the liberals and Democrats that taught Americans to believe that Social Security and Medicare were just like an insurance policy.  You put your money in so you can take it out later.

Central to liberalism at high tide was a rhetorical effort to establish the untruth that Americans receiving social-insurance benefits were getting back nothing beyond what they had already paid for...

Vincent M. Miles, one of the inaugural members of the Social Security board, explained the basis of this right in a 1936 speech: The program’s old-age benefits “are best understood if we compare them to insurance.” The monthly checks from the government are “like the installments on annuities from an insurance company.” And, “like an insurance-company policy, the worker’s old-age benefit from the government must be paid for in advance. Instead of weekly, monthly, quarterly, or yearly premiums, however, the government collects weekly or monthly payments which are called ‘taxes.’”

Of course, this was a lie, a liberal "con."  Social Security has never been run like an insurance policy.  It has always been run like a welfare program.  Taxes have been arbitrarily set based on the overall immediate payout needs, and benefits have always been skewed to provide a basic benefit to the low-paid and the contributor that has only paid in for a few years.  Medicare is worse, because it is not an actuarial program based on simple mortality, but on the future demand for health care and the demands of the health care practitioners.

Yet now our liberal friends are sneering at the simple-minded people that bought the "con."

Nothing remarkable here.  Confidence artists have always regarded their "marks" with disdain, and rightly so.  Because you can only get taken in by a confidence man if you want the something-for-nothing that the confidence man offers.

But that doesn't change the fact that liberals lied about their welfare state entitlement programs.  They lied because that was the only way that they could get proud and independent Americans to buy into their programs, and get Americans to exchange their birthright for a mess of pottage.

Why Obama is "Even Close"

Columnist David Brooks was well chosen to be the gentle voice of conservatism for The New York Times.  He's careful to write in a way that makes his ideas at least acceptable to his knee-jerk liberal readers.



So when he asks the rhetorical question: why is Obama even close in the  presidential opinion polls, he provides comfortable words for the NYT faithful.   After backing and filling for 700 words he leaves them with this fudge.

I’d say that Obama is a slight underdog this year: the scuffling economy will grind away at voters. But his leadership style is keeping him afloat. He has defined a version of manliness that is postboomer in policy but preboomer in manners and reticence.

But the best thing to do when thinking about Obama is to do the Bush substitution.  Imagine that President Bush was presiding over 8 percent unemployment and sluggish 2 percent growth.



Exactly.  Back in 2002 the Democrats and their willing accomplices in the media were screaming blue murder about 3 percent growth and 6 percent unemployment.  Imagine what they would be doing if a Republican president had President Obama's numbers.  They would be pulling the place down.



The reason that President Obama is even close is not that he has defined a "new version of manliness" but that up to now he hasn't really experienced any serious opposition.  That's the way with US politics.  Republicans only get to talk to the moderates and independents for about six months before an election, when they pay for the privilege.  The rest of the time the MSM is pushing its liberal agenda from the horrors of climate change to the cruelty of budget cuts and the mean-spirited policies of eevil Republicans.  That's all that non-political people get to see on their TV news.



Guess what.  Here we are, about six months out from the November election and the Republicans have selected a candidate and his campaign is starting to get into gear.  That means that the independents and moderates are finally beginning to get a message from the Republicans.



Guess what his campaign theme is.  "Believe in America."  It's as gauzy as "Hope and Change," but you can see the difference.  "Believe in America" is a direct appeal to American nationalism, the American idea, and American exceptionalism.



It suggests that the Obamis don't believe in America (Ya think?).



David Brooks is right.  Right now the election is pretty close, and it's pretty remarkable.  But I don't think things are going to stay that way.  Watch when the needle starts to move.  Then the wailing and gnashing of teeth will start in earnest.

Plato's Receptacle

Suppose you are Plato and you've been pushing your concept of the Forms for ages. Everything comes from these perfect ideas that can be comprehended up there in the firmament beyond the rim of heaven. Ordinary things that you and I see, the perceptions and particulars, are not reality but opinion, true belief.

But if you were Plato you might worry a bit about how you get from the perfect Forms to the everyday sensible particulars. So Plato pops behind the curtain and briefs his alter ego Timaeus on a quick and dirty fudge, a half-way house between the Forms and the particulars: The Receptacle.

You can think of this Receptacle as a kind of wetnurse. Or you can think of it like gold: Gold is gold, but you can manipulate it into all kinds of shapes. Or you could think of it as the mother, the receptacle of the father's seed or Form, which incubates the offspring. Or you could think of it as a plastic, impressionable stuff, or you could think of the receptacle as the odorless liquid that is used as the base for a fragrance.  You see the point.  Plato reckons he needs something more substantial than Forms upon which to hang the everyday impressions of moment to moment sensation.

In our modern science we have a similar concept, for we understand that the sensible particulars we detect with our eyes are in fact the result of electromagnetic radiation emitted from a lattice of atoms and molecules, which don't necessarily have sensible properties by themselves but emit signals to us that we interpret as red and yellow, hard and soft, solid and liquid.

Let us take an example: a left shoe. First of all, the left shoe comes into being in a Receptacle, as an instance of the Form of shoe in a process of shaking disordered elements into order, producing the particular instance of left shoe. On the gold analogy, it would be the combination of elements shaped and molded into a shoe. On the mother-father analogy it is the offspring of the Form of a shoe incubated by a lactating mother. On the plastic, impressionable stuff, it is the Form of shoeness impressed upon plastic stuff into the particular of a shoe. Or the receptacle is shaken and stirred, like the pieces in a kaleidoscope into the instance of a shoe from the Form of shoeness. On the reflection metaphor, the left shoe is a projection into a certain space or site of the Form shoenessness.

In part, the Receptacle is meant to represent stuffness, the place where Form is manifested into stuff; in part, according to another interpretation, the Receptacle is the space, the place, the room where an instance of a thing comes into being and then, in time goes out of being.

But what happens when the left shoe moves? Perfectly simple. We have the shaken-and-stirred analogy to account for that. The shoe is shaken from its original position and moved, for the Receptacle is not just stuff but a space, a site of stuff. Or it is gold, moved and remolded into a new shape in the Receptacle. Or it is switched from one breast of the wetnurse to the other.

There is no doubt that, the more specific you get, the more incoherent the analogies become that Plato uses to illustrate his Receptacle concept. But there is no shame in that.  Our modern science is barely free from incoherence. We have the action-at-a-distance problem with the notion that a single photon can seem to go through two slits at once and interfere with itself. And what really do we have in a solid lattice of molecules, or a soupy wetland of a liquid? We have our likely story, our true belief about what is going on that is developed by persuasion and we have our understanding, our theories of relativity and quantum mechanics that are communicated to young physicists by years of instruction.

What does it all mean? Ask Plato about that.

Arianna's Greek Fantasy

If you want a native's eye view of the Greek crisis why not turn to America's favorite Greek, Arianna Huffington.  That's what The New York Times did.

When I was growing up, my family was a tiny microcosm of the current Greek economy. We were heavily in debt; my father’s repeated attempts to own a newspaper ended in failure and bankruptcy. Eventually, my mother took my sister and me and left him...



Further austerity was coming, but my mother was clear about one thing: she would cut back on everything except our education and good, healthy food...



As I contemplate the statistics — especially the 54 percent unemployment rate among young Greeks — I think of all the stories behind this appalling data. All the dreams dashed. All the promise unfulfilled. And all the guilt, shame and fear that so often go hand in hand with intractable unemployment and little hope for a better future.



The punitive path of austerity and relentless economic contraction is, not surprisingly, likely to lead to further stagnation in 2013 and cannot be allowed to continue...



Argentina, which defaulted and restructured beginning in 2001, offers a point of comparison. The austerity crowd warned that Argentina would collapse if it stopped pegging the peso to the dollar and defaulted on its debt. There are many differences between Argentina and Greece. But Argentina’s default was followed by a few short months of economic crisis and then many years of steady economic growth — a dramatically different direction than the one Greece is now taking toward a potentially endless path of contraction that is destroying millions of lives and crippling the indomitable Greek spirit.

Er, no Ariana, darling.  Maybe you should check the stats.  Argentina's GDP went from $269 billion in 2001 to $102 billion in the trough of 2002.  That's a decline of over 60 percent.  So far the Greeks have only experienced three years of GDP decline from the peak of $341 billion: 2% in 2009, 4.5% in 2010 and an estimated 3% in 2011, around $290 billion.



In Greece, as the saying goes, they ain't seen nothing yet.  I don't know what Ariana Huffington reckons as austerity, but I'd say that contracting the GDP from around $300 billion to $100 billion in one year, as the Argentines did "in a few short months of economic crisis", counts as something a little worse than Paul Krugman's dreaded "austerity."



The problem for Greece has is that, tied to the Euro, it can't steal money from its people right now and reduce government entitlements by 50 percent.  To do that it needs to cut loose from the Euro and devalue the currency, as Argentina did in the 2001-2002 crisis by converting dollars in Argentine bank accounts to pesos.  People riot in the streets if you cut their benefits, but a devaluation is a fait accompli.  If you look at the chart, Greek GDP will probably decline from the current $300 billion to about $125 billion, one way or another.



The problem for the politicians in a debt crisis is how reduce the weight of government without the people burning the place down.  The best thing is not to create a big government in the first place, but it's now a bit too late for that, for Greece and for many other countries.



On the other hand, you have to hand it to Arianna Huffington.  Her father may have failed in the newspaper biz, but she is doing fine--not in old-fashioned newspapers, but in new online media.