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Brooks Wilson's Economics Blog: Bain Capital and Make-work Bias

Saturday, May 19, 2012

Bain Capital and Make-work Bias

Mitt Romney claims to have created 100,000 jobs as the head of Bain Capital.  In a new political add, the Obama campaign claims that he destroyed jobs.  The both feed into a common error in voters’ understanding of economics. 

Steven Rattner, who oversaw the auto rescue/bailout for President Obama, recognizes that both campaigns stray from economic reality in focusing on Bain’s role in job creation.

I think the ad is unfair. Mitt Romney made a mistake ever talking about the fact that he created 100,000 jobs. Bain Capital’s responsibility was not to create 100,000 jobs or some other number. It was to create profits for his investors, most of whom were pension funds, endowments and foundations. It did it superbly, acting within the rules and acting very responsibly and was a leading firm. So I do think to pick out an example of somebody who lost their job unfortunately, this is part of capitalism, this is part of life. And I don’t think there’s anything Bain Capital did that they need to be embarrassed about.

Bryan Caplan exquisitely explains this misunderstanding in The Myth of the Rational Voter.

The public often literally believes that labor is better to use than conserve.  Saving labor, producing more goods with fewer man-hours, is widely perceived not as progress, but as a danger.  i call this make-work bias, a tendency to underestimate the economic benefits of conserving labor.  Where noneconomists see the destruction of jogs, economists see the essence of economic growth—the production of more with less. 


  1. Dr. Wilson, I do not believe everything that is written or said regarding anything especially when it comes to politics. Because like most people they only tell you want they think you want to hear, 100,000 jobs is nothing to brag about considering that there are 12.7 million unemployed persons and the unemployment rate has risen to 8.2 %. That is a mere drop in the bucket to turning the economy around. I understand that saving labor producing more goods with fewer man-hours is perceived not as progress, but I perceived it as learning how to make a product in a more efficient way, how to utilize the employees you have with better training and responsibilities. Yes I believe as the economy gets better they will eventually have to increase the labor, but right now they have to work with what they have and can afford. We cannot expect business to jump into things quickly because we have all been burn, the American public is not spending money as they did four or five years ago and until we all move forward the economy will remain as it is to only increase slowly.

  2. There isn't going to be some single solution that will create the millions of jobs needed. Creating 100,000 jobs here and there is a great start but we have to realize that there is no end all solution to this problem and one man cannot fix this. The more advanced our world becomes the more difficult it will be to create more jobs for the unemployed especially when the advancement of technology take away jobs and our population growth is positive. As for Romney, he has created a great amount of jobs but nobody can put an exact number on it but at the end of the day he did create jobs even if it was not as high of a number his adds proclaimed