Jose Hernandez grew up in Puerto Rico in a home with a dirt floor. After serving in the Marines Jose studied business and then worked his way up to head a major battery manufacturer. He created jobs, fostered research, paid millions in taxes, contributed to countless charities and produced the D-cells in the radio I'm listening to right now.
With the bursting of the housing bubble, and the ensuing credit crisis, business is now in disrepute. But that's because most of us - including the mainstream media and, to varying extents, both presidential candidates - fail to distinguish between out of control speculators and honest entrepreneurs. And that failure could really sink our economy.
Our founders embraced John Locke's idea that property is a natural right that government must protect in order to ensure liberty. And the founders were men of business. Washington farmed scientifically on a vast scale. Samuel Adams really did brew beer. Alexander Hamilton used government to nurture private industries that had been suppressed by the British.
In the nineteenth century Horatio Alger's wildly popular dime novels showed how pluck, self-discipline and a concern for others could lift poor boys from rags to riches, or at least the middle class. And it wasn't fiction, as a lot of our forebears could attest. Immigrants flocked to America for the freedom to succeed by dint of their own sweat and ingenuity. Henry Ford earned a fortune by inventing the assembly line and by realizing that paying good wages turned his workers into customers. And when Silent Cal Coolidge said in 1925, "The business of America is business," most Americans gratefully agreed.
Abuses by business, then as now, required reasonable regulation. Teddy Roosevelt's on Mount Rushmore not because he was a Rough Rider but because he busted trusts. And Coolidge's era of prosperity was built on a foundation, not just of industrial production, but also of unchecked speculation. You could buy stocks on margins of ten cents for the dollar, and everyone from tycoons to shoe shine boys did, until the house of cards collapsed.
Economists still argue about what happened after the 1929 stock market crash, but it bears examination, because we may be making the same mistakes now. Most agree that choking off free trade with the Smoot Hawley tariff act was disastrous. More controversial were the wide range of government programs that comprised FDR's New Deal. Did they relieve the Depression or deepen it? Some of those programs were necessary stopgaps to prevent starvation. Others, like Social Security, had long-term benefits, although Congress's refusal to make needed reforms - given longer life-spans and a diminishing ratio of workers to retirees -- means that safety net may not be around for our kids. Still other programs mushroomed in ways that Roosevelt could not have foreseen. A bill to help widows morphed into what came to be called welfare and threatened to destroy generations that grew utterly dependent on government. Politicians dependent on those recipients' votes fought reform until President Clinton and Congressional Republicans finally joined forces in 1996.
The New Deal also forged a new mindset among opinion leaders, including academicians and journalists. For many of them, socialism seemed more humane than the Social Darwinism of capitalists. Following Woodrow Wilson and FDR, they were eager to entrust the best and the brightest from the Ivy League with the burden of ensuring, not just equality of opportunities, but equality of outcomes -- through government.
Whether it was the New Deal or World War II or both, America eventually climbed out of the Great Depression, only to ride more cycles of boom and bust. During each boom, those making money or winning elections or both imagined they had repealed the business cycle. Republican and Democratic administrations alike applauded "irrational exuberance" when the credit accrued to them. That phrase was coined by Alan Greenspan, who chaired the Federal Reserve under Reagan, Clinton and both Bushes. Critics (many of them only in hindsight) blame Greenspan's cheap money for the era's speculative fever -- which, by the way, did not begin with this housing bubble. Have we forgotten that the bursting of the dot com bubble during the Clinton years wiped out five trillion dollars and the savings of countless retirees? Yes we have, because the mainstream media rarely care to recall that.
Senators Barack Obama and John McCain are now both decrying Wall Street speculators. Both are demanding tighter regulations, lower leveraging (from levels that exceeded 30 to 1), and more transparency.
But they diverge when it comes to the other side of the ledger - entrepreneurial businesses providing goods and real services, including banks and financial firms that take stock of their clients, and of themselves, to make sure they're acting responsibly.
As he too candidly confessed months ago, McCain's strong suit is not the economy. Despite four years chairing the Senate Commerce Committee, the former Navy pilot, P.O.W. and training squadron commander feels more at home with foreign affairs. The senator told me during the 2000 campaign that businesses and high income earners don't really need tax cuts. McCain seems not to have embraced the credo of John F. Kennedy, Ronald Reagan and Bush 43 that cutting taxes -- across the board -- stimulates growth and actually increases total tax revenue. Nevertheless, McCain's promised to try making Bush's tax cuts permanent - not likely if Democrats still control Congress.
McCain also supports the president's "all of the above" approach to energy independence. Besides pursuing conservation and alternative fuels he wants to lift restrictions on off-shore oil drilling (though still not in ANWR), clean coal, natural gas and nuclear power plants.
And McCain seems to support capitalism's "creative destruction." He lost the Michigan primary to Mitt Romney after telling auto workers that some of their jobs would not be coming back. Like Bush (and Bill Clinton) McCain backs free trade and believes America needs markets more than it needs to protect industries from foreign competition. Instead, McCain wants to train students and workers for the jobs of the future.
But if McCain is ambivalent about business, Barack Obama at times seems downright hostile. In his memoir Dreams from My Father, the senator writes of working as a researcher with a New York firm that did consulting for multinational companies: "Like a spy behind enemy lines. I arrived every day at my mid-Manhattan office and sat at my computer terminal..." We could discuss Obama's mentors, associates and allies, but let's instead focus on his current policy proposals. He would raise taxes on capital gains, and on families and businesses earning more than $250,000 a year. He would end secret ballots in union organizing elections. He wants to renegotiate Bill Clinton's North American Free Trade Agreement. He has until very recently opposed more off-shore drilling and nuclear plants, and even now his support hinges on conditions that may never be met, such as finding ways to store nuclear waste that would satisfy environmentalists.
When a chastened President Clinton told Congress in 1996 that "the era of big government is over" he didn't really mean it, and in many ways both Obama and McCain believe in big government too. For instance, both support cap and trade plans to limit carbon emissions that would vastly expand federal control over businesses. Although they differ on details, both support further nationalizing the mortgage market by having taxpayers help keep people in homes they should never have bought.
Still, there is an essential difference in the attitude of McCain and Obama - and of Republicans and Democrats generally -- toward capitalism. Voters need to consider which they agree with and take that into account on what could be a historic election day, however it turns out.