Obama 0, Private Equity Investments 1

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The President, realizing that his opponent in the upcoming election became a very wealthy man because of private equity investments, is making claims that don’t add up.

“If your main argument for how to grow the economy is, ‘I knew how to make a lot of money for investors,’ then you’re missing what this job is about,” President Barack Obama said at a news conference last Monday. “This issue is not a distraction. This is what this campaign is going to be about.”

Though it is not surprising for Obama to use class warfare and make villains of wealthy Americans for political reasons, Mayor Corey Booker of Newark, N.J., recently pointed out the absurdity of a President running against a type of business.

But if Obama really wants Americans to believe that his attack on private equity is not a red herring, he is also asking them to believe that he is extremely misinformed. Private equity investments such as those that Mitt Romney was involved in during his tenure at Bain Capital are good for the economy on the whole.

Reason recently pointed to a 2010 National Bureau of Economic Research 2010 study, Private Equity and Economic Performance, by researchers from Columbia and Harvard Universities and the Swedish Institute for Financial Research. It says (the emphasis is the author’s own):

Industries where PE [private equity) funds have been active in the past five years grow more rapidly than other sectors, whether measured using total production, value added, or employment…

PE industries appear to grow significantly faster in terms of labor costs and the number of employees. The annual growth rate of total labor cost is 0.5 to 1.4 percentage points greater for PE industries, and the number of employees grows at an annual rate that is 0.4 to 1.0 percentage points greater. These findings are particularly surprising, since a common concern is that PE investors act aggressively to reduce costs with little concern for employees. This concern is not necessarily inconsistent with our results. Despite initial employment reductions at private equity-backed firms, the greater subsequent growth in total production … may lead to subsequent employment growth in the industry overall.

Considering the specifications with PE activity quartiles, industries with more PE activity appear to have more rapid growth of total labor costs, but the growth rate of the number of employees is fastest in industries with more moderate levels of PE activity. Regardless of the level of PE activity, however, the PE industries’ growth rates of labor costs and employment always exceed the rates for non-PE industries.

Perhaps someone should send the Obama Administration a memo stating that private equity works better than government bailouts.

Sam Rolley

Sam Rolley began a career in journalism working for a small town newspaper while seeking a B.A. in English. After covering community news and politics, Rolley took a position at Personal Liberty Media Group where could better hone his focus on his true passions: national politics and liberty issues. In his daily columns and reports, Rolley works to help readers understand which lies are perpetuated by the mainstream media and to stay on top of issues ignored by more conventional media outlets.