Saturday, November 26, 2011

Sorry, Cain Fans

Within the first few minutes of his appearance with David Letterman, Herman Cain told the host and audience two things that disqualify him for public office. First, candidate Cain proclaimed that he is “not a politician.” Second, he stated that the “country should be run like a business.” It does not work that way. If a person is not a politician, they do not qualify for an elected government position – appointed, maybe, but not elected, where being a politician is requisite. As to running government like a business, that is a false analogy. It does not work that way.

Government is like business” is a text book example of the false analogy. In such an analogy, two objects, A and B, are shown to be similar. Then the argument is that since A has property P, B must also have property P. The analogy fails when the two objects, A and B, are different in a way which affects whether they both have property P. You have heard this populist argument that just as business must be sensitive primarily to its bottom line, so also must government.

The problem is that the objectives of business and government are completely different. Business is all about profit and governments are all about people.

Both business and the government have budgets. Budgets are based upon revenue and expenses. However, business revenue is based upon sales and government revenue is based upon taxes. The revenue mechanisms are entirely different, hence the false analogy. Governments can only increase revenue by passing laws to raise taxes, which may have irksome political implications beyond the grasp of the finest CEO. Businesses can only increase revenue by increasing sales.

In either case, reductions in spending do not increase revenue. Less spending only impacts margin, which is not a government consideration at all. The government does not have a Profit and Loss Statement or a Balance Sheet, where there is such a thing a negative equity. The concept of equity is not governmental.

The whole idea of a federal budget is relatively new anyway. The Constitution does not even mention such a thing. The Budget and Accounting Act of 1921 created the U.S. General Accounting Office as part of the Legislative Branch. Its purpose is to audit the federal books and prevent fraud. That 20s legislation created the Bureau of Budget in the Executive Branch to coordinate budget submissions by various departments and agencies. By the 40s, the idea of a balanced budget existed but was considered just so much old political rhetoric.

Speaking of the Constitution, the balanced budget amendment, H.J.RES.2, came to the House floor and went to committee last January. Last week Congress failed to pass it, as the Super Committee succeeded to fail.

Budgets that propose to reduce revenue only work when a business plans to downsize itself as a company strategy.

Let’s say that a company makes a 2% margin on a revenue volume of $20M, which is a $400K profit. The company’s downsizing strategy is to make a 10% margin on a revenue volume of $10M, a $1M profit. The $600K difference is sellable to a BOD because it cuts fixed expenses and reduces revenue. The idea of downsizing the federal government and reducing taxes may sound good, it is just that the government has no mechanism to reduce its size.

President Reagan said, “No government ever voluntarily reduces itself in size. Government programs, once launched, never disappear. Actually, a government bureau is the nearest thing to eternal life we'll ever see on this earth!”

Balanced budgets only exist in business. Prudent business management is all about balancing revenue and costs to achieve profit. That is why successful business managers, as Cain claims he is, think inside the box. That is where the money is. Likewise, successful politicians think inside the box, because that is where the votes are.

At his word, Cain says that he knows all about being a business person but not about being a politician. So, why should anyone vote for him? He is missing the point. Politicians do not just say things they think that voters want to hear. Politicians say things that are calculated to appeal to an electorate constituency. Candidate Herman Cain says things that may sound good to him, but they did not sound good to television show host David Letterman. Sorry, Cain fans, your candidate does not qualify.

Bragging about not being a politician and expecting to become president is like bragging about not being a business person and expecting to become a CEO.

Article first published as Sorry, Cain Fans on Blogcritics.

1 comment:

Tommy "Mack" McEldowney said...

Herman Cain quit. I feel for Cain's followers, but not their candidate. Narcissists never apologize for anything, like their dishonesty and lack of class.

It is not the alleged sexless extramarital business, which he denied; it is the dishonesty that is so disqualifying. Gingrich is next. He is another dishonest narcissist.