The November Choice: An election of historic proportions.

As I think about the election in November, I can’t help but think about Matt Ridley and his outstanding book “The Rational Optimist – How Prosperity Evolves”. In it he chronicles the evolution of human society and demonstrates a perfect understanding of why nations fail:

“Empires, indeed governments generally, tend to be good things at first and bad things the longer they last. First they improve society’s ability to flourish by providing central services and removing impediments to trade and specialization”.

But then “governments gradually employ more and more ambitious elites who capture a greater and greater share of the society’s income by interfering more and more in people’s lives as they give themselves more and more rules to enforce, until they kill the goose that lays the golden eggs.

From Ancient Egypt to the Roman Empire to the Ming Dynasty to the Soviet Union, these and countless other entities collapsed under the weight of their own regulation, either from the state or the church.

One has to wonder where is the tipping point that harkens the descent of a nation into the chaos that inevitably leads to its end… and more importantly, where the United States is on that scale. If you imagine a spectrum with tyranny on the left and anarchy on the right, the Constitution of the United States was crafted so that the government be a fulcrum balancing the state between the two. It worked that way for a while.

For its first 125 years the government of the United States was largely reluctant to take over the lives of its citizens. Over the last century it has become far more enthusiastic in that pursuit, with a particular emphasis in the fifty years. As Ridley points out, this is not particularly unique among nations. The United States is unique however. It is the only nation that was established for the specific purpose of allowing its people to live in freedom. The Declaration of Independence clearly articulates that the rights of men are natural and are not bestowed by any government. The Constitution sought to codify limitations on the government’s ability to infringe on those rights.

As we all know, those Constitutional limits seem to resemble paper tigers more and more each day, from everything from Obamacare to ethanol mandates to eminent domain abuses. The question as it relates to November is, must the United States go the way of the Roman Empire or can it figure out how to save itself from the seemingly inevitable fate of states?

Rarely are voters presented with two so clearly different paths ahead. On the one hand you have Mitt Romney who is an unabashed fan of the markets and market solutions. While Romney may be tin eared in some respects – read RomneyCare – he has become an avowed advocate of government restraint. His selection of Paul Ryan demonstrates his intent to address the growth of government while that’s still possible.

While Romney may not have the libertarian leanings that many of us would like, he stands in stark contrast to the man he faces in November. Romney seeks to move the lever (the board that sits on the fulcrum) rightward to balance the scale of freedom closer towards the center, Barack Obama seeks to slam it to the left where government takes over every aspect of a citizen’s life and freedom and free markets become little more than a distant memory.

Not sure about that? A few points should demonstrate the truth of that statement.

More than one third of the American households receive income based welfare assistance from the United States government – that doesn’t even include Social Security! Barack Obama has actively sought to increase that proportion, including gutting the 1996 welfare reform that reduced welfare rolls by half, and embarking on an advertising campaign to increase food stamp rolls.

At the same time fully half the population pays no income taxes while the President suggests the rich are somehow taking advantage of the system. This despite the fact that the top 1% of income earners pay 37% of all income taxes yet take home only 17% of all income. At what point do the people in that 1% or 5% or 10% decide to take their money and play somewhere else? If just the top 10% of taxpayers emigrated, they would take with them 71% of income tax revenue.

Then there is the notion of success. The President famously told businessmen that “If you've got a business, you didn't build that. Somebody else made that happen." That gets to the core of what Barack Obama counts as success. To hammer the point home, a week later he held up General Motors as a stellar example of success, going so far as to suggest “Now I want to do the same thing with manufacturing jobs, not just in the auto industry, but in every industry.” Of course this success that Obama is so proud of was bought by pouring tens of billions of taxpayer’s dollars into the company.

Then there is the regulation. In his first three years in office Barack Obama issued 106 major regulations that will impact the economy by more than $100 million or more. This compares with 38 (a still too high number) by his predecessor. A President Obama not constrained by another reelection campaign will likely increase that number dramatically.

Whether in the form of the Ming Dynasty, 18th century France or modern Greece, Spain or California, history demonstrates clearly that when government grows to the point that it overwhelms the citizenry’s ability to operate with even the most basic level of freedom, particularly economic freedom, the house collapses. Romney was not my first choice for the next president, but at least he’s mostly committed to the notion of individual liberty and economic freedom. Compare that to the cleptocratic and authoritarian Obama and the choice is simple. One wonders if the Romans had the opportunity in 180 AD would they have been smart enough to put someone other than Commodus on the throne. We are at that same point in 2012. The difference is, we have a choice. The question is, will voters understand what’s at stake when they walk into the booth in November?

A very basic primer on deciding between Romney and Obama in November

In business there is something called “sunk costs” which refers to funds that have been spent and are unrecoverable. At any given point sunk costs are irrelevant to the decisions going forward. An example of this would be a company that has spent a billion dollars building a plant and now has to choose whether or not to spend another billion dollars hiring staff and actually operating the plant. At the point of the decision the only thing that should be relevant to the decision makers is what makes best sense for the firm going forward. Does the company make more money by staffing and operating the plant or by selling it? The decision should be based solely on what’s best going forward, with no sentimental attachment to the billion dollars already spent building the plant.

The key element of sunk costs is recognizing that you can’t change or undo anything that has already happened and therefore the focus of your attention should be what you can do today to impact tomorrow.

The last three years should be looked at as sunk costs… or simply unalterable history. The November election cannot turn back the clock. It can only look at a course for the future.

As such, voters should evaluate Barack Obama and Mitt Romney as a board of directors would if they were seeking to hire a president or CEO to run their organization.

The first thing you’d do is take a cursory look at their resumes. Obama earned an undergraduate degree from Columbia while Romney earned his from BYU. Both men earned graduate degrees at Harvard. On that score you’d have to say that the men were very similar. As for their success as students it is not currently possible to compare the two. Romney graduated in the top 5% of his class at Harvard while Obama has refused to release any of his school transcripts.

The next thing you might look at their relevant work experience.

Obama worked as a community organizer in Chicago, taught Constitutional law at Columbia, was elected to the Illinois Senate and then the US Senate. His most important work experience comes from his three years as President of the United States.

Romney worked as a business consultant, founded a private equity firm, managed the 2002 Winter Olympics in Salt Lake City and served as Governor of Massachusetts for four years.

Finally you might look at their family situations and personal life as you wouldn’t want your new leader embarrassing your organization. Obama is a nondenominational Christian and is by all measures a devoted husband and dedicated father of two little girls. Romney is Mormon, has been married to his wife for 43 years and the couple has raised five boys.

On first blush both men seem to have the basic qualifications necessary to be President. But one needs to look at the experience a bit deeper now.

Barack Obama’s career was fairly unremarkable prior to entering the White House. As such, his best case can be made when looking at his time in office. He was presented with a difficult situation of the American economy in 2009. What has he done? The most obvious thing is that he’s borrowed and spent a great deal of money. Results? Higher unemployment than when he took over. Fewer people are actually working than when he became President. Inflation is 3% higher although the economy is experiencing stagnant, albeit positive, growth; the slowest recovery since the Great Depression. He passed ObamaCare and was subsequently sued by 27 states and the law is in front of the Supreme Court. Osama Bin Laden is dead. American troops are out of Iraq.

Romney’s work experience is far more telling: While at Bain Capital he earned his shareholders billions of dollars via his rescuing and restructuring companies – although not all such attempts were successful. In Olympic host city Salt Lake, he took a Winter Games that what was on course to lose hundreds of millions of dollars (which is the norm for host cities) and turned it into a money maker – to the tune of $100 million – and a successful Olympics to boot. So too as Governor of Massachusetts, where he left the state with a surplus after having entered office with an expected $3 billion shortfall.

Romney’s tenure as Governor was anything but spectacular however. Although he helped the city of Boston climb out of its Big Dig disaster, he left with a 34% approval rating and budget deficits returned once he left office. He also implemented the blueprint for ObamaCare in Massachusetts during his tenure.

As a member of the nation’s board of directors tasked with choosing a new leader you might want a viable third candidate, but you don’t have one. As such, the question is who will do a better job of running the country for the next four years. The answer is actually crystal clear. While Mitt Romney’s tenure as Governor of Massachusetts was less than spectacular, his business career was everything including spectacular. In addition, at the Olympics he had to deal with a plethora of international organizations, federal, state and local governments and everything was under klieg lights unlike any other event around the world. And he performed that job flawlessly.

Barack Obama on the other hand has made an absolute mess of the US economy, he has divided the country and has accumulated more debt in three years than any person in human history. At the same time he has discouraged millions of Americans from looking for work while dramatically increasing the number of people on the government dole. At the same time he has promised to put the United States on the socialist path of Europe, just as that continent is disintegrating.

American success was built on the backs of entrepreneurs, innovators, inventors, capitalists and workers seeking their own piece of the American Dream. Unleashing the power of that lineup to help the country emerge from the never-ending economic quagmire we find ourselves in is going to take someone who has a basic understanding of what it takes to incentivize those players to not only want to get back into the game of productivity and profitability, but more importantly, understand what keeps them from doing so… i.e. how organizations function or don’t. The organization in this case is the United States and the thing that keeps it from functioning properly is government regulations and interference.

When the American people walk into the voting booths in November and decide which lever to pull, they should imagine themselves pulling the lever for the candidate who is going to help not just them, but the employer who pays their salary or the customer who buys their products or the employee who works for them. Or if they don’t’ have a job, who can create an economic foundation for enough to be created for them to have a choice as to which one to take. They should then open their eyes and pull the lever for Mitt Romney.