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2016 Election

Koch Bros & Adelson Traveling Circus: Carly Fiorina’s House of Illusion


Carly Fiorina officially joined the Republican primary race yesterday[1], confirming her already presumed candidacy. That made Republicans happy, since they now have a woman and an African American to run besides the other 17 old white guys thus proving the racial and gender diversity of the GOP brand. The announcement was particularly applauded by the “business first” faction of the GOP, who are happy to have one of their own in the race. Ms. Fiorina was at pains to stress her business experience, proclaiming herself the best candidate because she “really understood how the economy worked.”

Ms. Fiorina’s credentials are impressive. She has academic degrees from Stanford and the Massachusetts Institute of Technology; neither institute is known for just handing out their diplomas. She is best known for her highly controversial tenure as CEO at Hewlett-Packard, where she fought with board member Walter Hewlett over her bid to purchase Compaq and was eventually fired by the Board in 2005. That’s how it goes with CEO’s in Corporate America however; from darling to has-been in the blink of an eye, it shouldn’t be held against her. Her previous performance in AT&T and Lucent Technologies was nothing less than stellar. She is obviously a very smart, driven and successful woman; a far better Republican answer to Hilary Clinton than Michele Bachmann or Sarah Palin.


Yet the whole basis of Ms. Fiorina’s candidacy is a Great Delusion, propounded by Republicans from the founding of the GOP until the present day, and unfortunately shared by too many Americans. It is the false equivalency that being a good business person means you “understand the economy”. I don’t mean to imply that Carly Fiorina doesn’t understand the economy – perhaps she does[2] – but having been the CEO of Hewlett Packard is NOT a guarantee of economic insight. The Great Delusion is a pet peeve of mine, so I apologize in advance if I grow tiresome.

The association between business success and macroeconomic knowledge would appear to be logical and indisputable, but sadly it is not. Being a successful union leader does not make you a specialist in the labor market; nor does being a successful CEO make you an expert in anything but general management and a specialist in your industry. Would Ms. Fiorina be as successful in running a steel mill or a food company or a financial services firm as she was in running a technology company? Not necessarily: CEO stars who have crossed over to new, unfamiliar industries have often failed spectacularly.

Private industry is not the only component of the economy; households and the public sector are the other two key components. Ms. Fiorina certainly manages a household, but it is not at all representative of the vast majority of American and the struggles they face. And she has never spent a day in government, which operates under far different rules than even the largest corporation (more on that in a second).

One good example of these different rules is the subject of debt. Households, corporations and governments all manage debt, but they manage them in entirely different ways with vastly different implications. There is the often heard admonition that “we must balance the books,” as if the government was a household or business writ large, but it is false: as the Japanese government has proven for the last 25 years. The difference is that the nation has sovereign power over the currency, which households and businesses do not. An understanding of corporate finance is not equivalent to an understanding of monetary policy.

The economy also consists of public goods, which are held in common and do not respond well – if at all – to market forces. A CEO like Ms. Fiorina might respond that there is nothing that shouldn’t be subjected to market forces, but that is demonstrably false. The air we breathe is not a good that ought to be subject to a supply and demand curve, with those unable to meet the market clearing price asphyxiating. Less dramatically, goods like education, water, security in our persons, access to justice, and emergency medical care follow a similar logic though often imperfectly applied. Every time we have tried to fully privatize these goods, and Republicans are always trying, the outcome has always been pernicious.


I should also mention that the US President has very little direct influence over the economy. The Chairman of the Federal Reserve is far more influential and far less constrained. There are state governors that have more influence over the economy than the President. The Federal government’s spending does represent a major portion of GDP, about 12% on average, it is not the President who simply decides how much and where to spend. The belief that Ms. Fiorina would somehow bring the magic fairy dust with her to the position is laughable; made more so by the fact that it was the same argument made by George W Bush (before the crashes in 2000 and 2008) by George HW Bush (before the crash in 1992) and by Ronald Reagan (before the S&L crisis from 1982 to 1989).  Republicans will argue that ‘it wasn’t their fault’ but if they absolve themselves from the blame, they must also refrain from the credit. And I’ve shown in previous articles that Democratic Administrations are better historically for the economy than their Republican counterparts anyway[3].

There are other fundamental differences between the public and private sectors that make Ms. Fiorina’s claim to being the best candidate dubious:

1. The private sector exists for one purpose only, to make a profit. All other considerations are marginal, including community involvement, environmental welfare, full employment, standards of living. That is precisely why we have government oversight: if businesses were as zealous about the environment as they were about profitability, we wouldn’t need a watchdog to stop companies from dumping toxic waste in the water supply, they’d do it themselves. The public sector does not exist to make a profit; it is driven by an entirely different goal: maximizing the welfare of citizens. Maximizing welfare is a complex balancing act and far more difficult to measure than profit. It involves enacting those policies that generate the greatest benefits to the most people in the most efficient manner possible. A broad-based tax cut might generate short-term welfare to many citizens, but if the lost revenue is made up by cutting education funding, the actual welfare effects might be highly negative.

2. Another crucial aspect of maximizing welfare is stewardship: preserving and enhancing the natural and man-made infrastructure of the nation for existing and future generations. This is not the same as investments in plant and equipment or accounting for the depreciation of an asset. Those decisions are driven by the cost-benefit analysis of the investment and the returns it can generate in future periods; whereas public sector stewardship is an end to itself, an inherent responsibility of government. We don’t hold Yellowstone National Park in trust because we expect to make a profit from its sale to a logging company in the future though some Republicans might; we preserve it because it is an exceptional and irreplaceable feature of our nation, owned in common by ourselves and all future Americans. No group of individuals or interests has the right to despoil it for their own private gain. There is nothing in the Wall Street-driven, relentless focus on quarterly profits that should lead us to believe that Ms. Fiorina has any experience in stewardship: quite the opposite, in fact. Mr. Hewlett’s opposition to the Compaq deal was based on his belief that it was driven more by Ms. Fiorina’s need to make a ‘big strategic move’ than any proper valuation of the synergies of the deal. Selling off Yellowstone or the ANWR might also appear like ‘a big strategic move’ to such a person.

3. Running a company is also wholly dissimilar to running a government. Shareholders are not citizens, despite the confused and erroneous cross-over of business terminology to the public. In modern corporatism, the system that capitalism has evolved into, shareholders count for very little. Only the very largest have any influence at all over the company’s Board of Directors or Executive Management. The belief that ‘CEO’s are accountable to their shareholders’ is mostly, though not entirely false; it is the very small group of men and women on the Board that they answer to. If you don’t believe me, try having the CEO of one of the companies you own stock in removed; unless you own a very material number of shares, you won’t even qualify to have the motion presented at the annual shareholders’ meeting.There is no equivalent to this in government. A CEO has far more power over their corporation than the US President has over the federal government. Our founders, wisely it seems to me, deliberately made it so. A CEO rarely has to go to the lengths of bargaining, cajoling, begging and pleading that the President must to undertake some signature initiative. If the Federal government were run as a corporation, the Affordable Care Act would have been put in approved in the course of a few months with nary a whisper and if anyone in the government didn’t like it, they would have been fired or promoted and parked in some useless ‘Innovation Group’ for imminent retirement. Democrats might smile at that, but of course, it cuts both ways. Keystone XL would have been up and running and spewing crude all over the Great Plains for the better part of a decade now with no more mention than a profit/loss entry in the ‘Petroleum Distribution Infrastructure’ ledger.

4. Imagine a corporation where the cantankerous Board of Directors has to approve every minor business decision, but goes into recess twice a year for extended periods. And then when they do meet, they seem more interested in shutting down your operations for lack of an approved budget than in actually getting any business done. Where the Finance and Legal Departments are wholly independent and often working on their own conflicting agendas. Where a quarter of your senior staff positions remain unfilled because the Board refuses to approve the folks HR has made offers to. And Ms. Fiorina really thinks H-P has prepared her for this?? The fundamental skill required for a successful and smoothly operating government is the ability to compromise in order to get things done; compromise is not a popular word with American executives.


I have always maintained that government is 99% common sense and for the other 1% there are experts. Because of this, I am convinced that ordinary people with an ordinary education can be successful representatives of their communities, their states and their country. Ms. Fiorina obviously meets those criteria, so she may – may – be a good candidate for the White House. If so, it will be because she is highly intelligent and driven, not because of her corporate background. I am acquainted with too many smart, successful business professionals who haven’t the faintest notion of Economics 101 or public policy basics to have any illusions on that score.

Sources and Notes

[1] MJ Lee, “Carly Fiorina announces presidential bid,” CNN Politics, 04 May 2015

[2] I plan a full analysis of Ms. Fiorina’s qualifications in a future article, along with all the other candidates.

[3] Fernando Betancor, “Mythbusters #4: Democrats Bad for Business”, Common Sense, 26 September 2012
Fernando Betancor, “Mythbusters #4: A Rebuttal,” Common Sense, 04 October 2012

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