In Praise of Vultures

In praise of vultures.

There has been a great deal of criticism of Mitt Romney because the firm where he made his millions apparently closed down some firms. This is viewed as morally questionable and at the very least supposedly goes against his claim that he is a job creator. Romney has responded by saying that sometimes bad things happen and pointing to all the companies that expanded employment under his guidance or the guidance of his firm. But this is the wrong defense. He should be proud of all the jobs he eliminated. Vultures are more important to capitalism than breeders.

People have got it all wrong. The great virtue of capitalism is not that it allows people to invest and create new firms. That is the easy part. Getting rid of jobs is where the other systems fall down. Any fool can create jobs, it is getting rid of them that is tricky.

The reason that capitalism creates wealth is that all available resources are used in the most efficient way possible. Each factor of production--whether physical or human--is employed in the way that creates the most possible value.

This very often involves getting rid of firms. The whole reason that a vulture capitalist can make money by breaking up a company and selling off its parts is that the the product of the company is worth less than the factors of production the company is employing to produce the product. Vultures only attack the dead. If a vulture buys a company that is not worth less than the sum of its parts, after all, it is the vulture capitalist that loses money.

Try being a vulture capitalist with a good company. Want to break up Micro-soft or Apple? Go ahead. You have some buildings and a lot of people that can walk into some better jobs elsewhere. The reason that GM is a bad investment is that the pieces of the company are almost surely worth more than the company as is.

There is something immoral about beating employees out of their pension benefits, but the employees themselves are not always blameless. Part of the reason that GM and Chrysler are so unprofitable is that they spend far more on employee retirement benefits than they do on employees, i.e., the people that actually make something. That is part of the reason why the Obama administration stepped to stop the normal course of bankruptcy: the pension and health care schemes would never have survived a court ordered bankruptcy and the Obama administration was determined to protect its political allies in the auto unions. Now the public is saddled with unprofitable enterprises that tie up billions in capital that could be going to supporting profitable business. A vulture would have sold the pieces of the company that made sense to someone that would have put those resources to better, more profitable, use.

The vultures didn’t fire those people that worked at unprofitable companies, their customers did. Vultures don’t kill companies, customers do. By their willingness to pay more for products from another use of the carcass company’s assets they are telling the world that the company in its existing form is not the most efficient use of these resources, that more wealth could be created by breaking the company up. The ‘vulture’ is just the messenger.

Of course this is no fun for the people that get fired. Which brings us to the other great sin supposedly committed by Romney, saying that he “enjoy[s] firing people.” Of course, what he was referring to is not the actual act of telling people they no longer have a job. He was not literally talking about firing people at all, but being able to tell ‘people’--meaning a a company that produces a good or service that he doesn’t like--that he is ‘firing’ them by taking his money elsewhere.

And so he should. Who doesn’t? Just as who doesn’t hate not being able to fire the provider of an inferior good or service? Who has never felt the frustration that comes with dealing with an incompetent government employee and realizing that there is nothing you can do? The only way that goods and services get better is the constant threat of being “fired” by your customers. I like being able to fire people and make no apologies for it. The vultures of this world do us a great service and are the reason for our prosperity. We could use a few in government.