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Thursday, October 18, 2018

May 11 (Bloomberg) — We can already see the next six months in American politics: Tit for tat. Blow for blow. You’re Richie Rich. You’re Jimmy Carter. This is what presidential elections have been about since 1800. The only difference is that we have YouTube instead of the Pony Express, so the noise is louder and more constant.

But discerning voters need to understand the deep philosophical distinctions between Mitt Romney and Barack Obama even if they don’t lend themselves to campaign slogans or barbs.

Labels such as “conservative” and “liberal” are worn out. “Right-wing” doesn’t fit Romney, who describes himself as “severely conservative” but isn’t a wing nut. “Left-wing” is an inaccurate description of the president, whose most “leftist” initiative — Obamacare — is modeled on plans proposed by those noted Bolsheviks Bob Dole and Howard Baker.

A more useful distinction may be between venture capitalists and human capitalists.

Romney came up as a private-equity investor. Like his party, he believes in his heart that the way forward for the U.S. is to slash taxes for the wealthy even further so that they have more venture capital to invest in businesses.

Obama came up as a community organizer. Like his party, he believes in his heart that a great nation must invest in human capital through education, health care and infrastructure.

The distinctions get more interesting when it comes to their strategies for creating jobs. Republicans are right that the U.S. needs to lower the corporate income tax rate, which in 2012 was the highest in the developed world. But cutting individual rates in 2001 did nothing for job creation; and by keeping taxes low on dividends, the Bush tax cuts inadvertently helped bring about a crisis of capital investment in U.S. manufacturing, the kind of investment that Republicans claim to champion.

Investment by U.S. companies in new plant and equipment for manufacturing was the lowest in the 2000s of any decade since records were first kept in the 1940s. The net stock of fixed assets in manufacturing grew by only 1.8 percent in the 2000s, versus 25.7 percent in the 1990s.

The venture-capital answer is to just cut taxes further and hope that the market will self-correct and this trend will reverse itself. The human-capital answer is to use the tax code to incentivize investment not just in plant and equipment, but in research and development and workforce training (where companies in the U.S. are investing about half as much as a share of gross domestic product as they did a decade ago).

Who can argue with R&D spending, the main engine of innovation? Both Obama and Romney are for making the R&D tax credit permanent. But Congress, after letting the R&D tax credit expire at the end of 2011, has yet to renew it. In 1992, the credit was the world’s most generous; by 2008, it was only the 24th most generous, and the rate of growth in business R&D spending has lagged that of many national competitors.