How private equity firms make money

kimmy · October 21, 2012

A few weeks ago I posted about how Sealy Mattresses got bought by a capital equity firm, squeezed for equity, saddled with debt, and was ultimately bought by an upstart competitor.

I saw a video from Robert Reich today, explaining the process:

Some on this forum have argued that if somebody is making a profit, that is proof that they are doing something that creates value for society. But I think the story of Sealy Mattresses demonstrates that it just isn't so. Reich explains why.

Newt Gingrich (of all people) expresses it well here:

I’m for capitalism. I’m for honest entrepreneurs investing, I’m for people creating businesses. Callista and I have created four small businesses in the last decade, I get it. But I’m not for looting. There’s a company in The Wall Street Journal today that Bain put $30 million into, took $180 million out of and the company went bankrupt. And if you have to ask yourself, you know, was a six to one return really necessary? What if they had only taken $120 million out, will the company still be there? Would 1,700 families still have a job? I think there’s a real difference between people who billed in a free market and people who go around, take financial advantage, loot companies, leave behind broken families, broken towns, people on unemployment.

And I think Governor Romney in the next week or so is going to have to hold a press conference and he’s going to have to walk the country through the things that they did at Bain because in three or four cases, they don’t look like capitalism. They look like rich guys looting companies, taking all the cash and leaving behind all the unemployed.

That’s not the kind of free market I want to be part of. I want to be in a free market where everybody has a fair chance. That doesn’t mean you always win. There are times you lose, there are times you go bankrupt. That’s fine if the person who’s getting rich is also taking the risk and is also suffering some of the consequences. It’s not fine if the person who is rich manipulates the system and gets away with all the cash and leaves behind the human beings.

-k

Shady · October 22, 2012

No silly, that's not how private equity frims make money. But it's a nice hit piece by a far leftwing website/blog. Congratulations.

kimmy · October 22, 2012

No silly, that's not how private equity frims make money. But it's a nice hit piece by a far leftwing website/blog. Congratulations.

Thanks for that well-researched and informative reply, Shady.

Robert Reich has a resume longer than your arm, and your expertise is mostly limited to lifts and crunches, so all other things being equal I value his opinion more highly than yours. However, you're certainly free to explain the errors in Reich's video. Whenever you're ready.

I think that perhaps some people are under the impression that private equity firms make money by buying struggling firms, making them profitable, and selling them for more than they bought them for. And maybe in some cases that's true. Maybe it used to be true more often than it is now. But right now, private equity firms make sure they get paid before any actual fixing of the companies has occurred. Now they get paid for the takeover, not for improving the management:

This approach has one obvious virtue: if a private-equity firm wants to make money, it has to improve the value of the companies it buys. Sometimes the improvement may be more cosmetic than real, but historically private-equity firms have in principle had a powerful incentive to make companies perform better. In the past decade, though, that calculus changed. Having already piled companies high with debt in order to buy them, many private-equity funds had their companies borrow even more, and then used that money to pay themselves huge “special dividends.” This allowed them to recoup their initial investment while keeping the same ownership stake. Before 2000, big special dividends were not that common. But between 2003 and 2007 private-equity funds took more than seventy billion dollars out of their companies. These dividends created no economic value—they just redistributed money from the company to the private-equity investors.

The benefit private equity firms provide for the economy is supposed to be that they save troubled companies

They are using special dividends to make sure they get paid whether they improve the co

In 2004, for instance, Wasserstein & Company bought the thriving mail-order fruit retailer Harry and David. The following year, Wasserstein and other investors took out more than a hundred million in dividends, paid for with borrowed money—covering their original investment plus a twenty-three per cent profit—and charged Harry and David millions in “management fees.” Last year, Harry and David defaulted on its debt and dumped its pension obligations. In other words, Wasserstein failed to improve the company’s performance, failed to meet its obligations to creditors, screwed its workers, and still made a profit. That’s not exactly how capitalism is supposed to work.

LA times article on Harry and David:

The firm, founded by the late New York buyout king Bruce Wasserstein, financed the deal by issuing $250 million in bonds — and used some of the proceeds to pay itself back all of the cash it had put up to buy the company.

"All of the Wasserstein original investors got their money out of it and left Medford with a shell of a company with gigantic debt," said Charles Jaeger, a professor at Medford's Southern Oregon University business school. "They handled it in their typical greedy Wall Street way."

The interest payments on the debt have been staggering. In the first half of its current fiscal year, Harry & David posted $6.2 million in operating profits, but its debt service totaled $10.9 million.

The company posted operating profits, yet was losing money because the debt payments were crushing them. And the reason the company had these crushing debt payments in the first place was because the private equity firm had the company borrow a massive amount of money to provide them a "special dividend" as a reward for buying the company. Instead of making money by improving a company, the private equity firm made money by taking money out of the company and saddling it with debt.

-k

Michael Hardner · October 22, 2012

The benefit private equity firms provide for the economy is supposed to be that they save troubled companies

The company posted operating profits, yet was losing money because the debt payments were crushing them. And the reason the company had these crushing debt payments in the first place was because the private equity firm had the company borrow a massive amount of money to provide them a "special dividend" as a reward for buying the company. Instead of making money by improving a company, the private equity firm made money by taking money out of the company and saddling it with debt.

The idea seem to be that the smart companies will turn around companies and improve the economy overall. But if they are simply outplaying other companies then the assumption is that the losing companies are being marginalized or pushed out.

But they're not.

Kohlberg Kravis Roberts & Co or KKR (http://en.wikipedia.org/wiki/Kohlberg_Kravis_Roberts) were the ones doing the buyout here - and they were the same guys who bought RJR Nabisco in the 1980s - remember Barbarians at the gate ?

It seems to me that the economics game (and if there is any doubt that it's a game, watch the video again) is too easy for the big players. Bailouts, buyouts... meanwhile the economic benefit isn't materializing. Adam smith warned of this, but I don't think he anticipated that the merchants would be leading the debate by owning the press as well.

cybercoma · October 22, 2012

I think that perhaps some people are under the impression that private equity firms make money by buying struggling firms, making them profitable, and selling them for more than they bought them for. And maybe in some cases that's true. Maybe it used to be true more often than it is now. But right now, private equity firms make sure they get paid before any actual fixing of the companies has occurred. Now they get paid for the takeover, not for improving the management:

This has been an issue for many years. It was the whole idea behind Blue Star in Oliver Stone's Wall Street.That was the reality of what was going on in the 1980s. Greed is good and all that with no consideration of the employees and the costs to society of their actions. And why should they care? They don't have to pay for the social harms caused by unemployment and poverty. They don't even have to see it from their gated communities.

Edited October 22, 2012 by cybercoma

Michael Hardner · October 22, 2012

Blue Star was a clear underperformer though. If they weren't profitable enough then they could be gobbled up and the airline industry would lose one company to Darwin. Sealy was profitable, but was milked then resold to a sucker.

Michael Hardner · October 22, 2012

Blue Star was a clear underperformer though. If they weren't profitable enough then they could be gobbled up and the airline industry would lose one company to Darwin. Sealy was profitable, but was milked then resold to a sucker.

And further to that... the sucker has fallen for this trap before and still marches on. If our betters (the ones who dress like the Monopoly man, I mean) can't lose then the system is too soft on them. Which explains why it seems to be so hard on US despite the fact that productivity keeps improving.

August1991 · October 23, 2012

Kimmy, the argument in that salon article is a meme that runs through many leftist-style arguments against "capitalism": "greedy capitalists only care about the short term and a quick buck". Here's a quote from your link in the OP:

But Bain was more interested in cutting costs and boost short-term profits than in providing value to consumers.

I have always found this argument, while sadly common, false and simplistic.

If you inherited a Mercedes-Benz S600, would you drive it around for a few months, never maintain it and then ditch it when it broke down? Would you sell its tires because someone offered you a few hundred bucks? IOW, if you have a valuable asset, it is not in your interest to seek short term gain. You can gain far more profit in the long term.

If people are stupid, or live in country with insecure property rights, then they may strip valuable assets for quick gain. But neither situation applies to Mitt Romney or Bain Capital. Romney was far too greedy to strip a valuable property that had long term potential.

In short, a new Mercedes-Benz is expensive because embedded in its sticker price is its resale value. Capitalists, markets and Romney for that matter think long term.

-----

BTW, the term "private equity" is used to distinguish from "public equity". Public equity is money raised through an IPO and stocks traded in a market. Private equity means raising money outside of a stock market.

Here's an example (that I happen to know about). Public Mobile, the cell phone company, started operations with private equity from pension funds of Ontario municipal employees. Public Mobile is not publicly traded.

This has been an issue for many years. It was the whole idea behind Blue Star in Oliver Stone's Wall Street.That was the reality of what was going on in the 1980s. Greed is good and all that with no consideration of the employees and the costs to society of their actions. And why should they care? They don't have to pay for the social harms caused by unemployment and poverty. They don't even have to see it from their gated communities.

Cybercoma, you should know better than to use a Hollywood movie script to analyze modern business or economics. I am surprised that you provide such a reference on a public forum. (Hollywood, of all places, works on the principle of profit.)

But since you've gone there, let me follow. You state: "Greed is good and all that with no consideration of the employees and the costs to society of their actions."

Cybercoma, would you have Hollywood make movies that cost $100 million to make but only earn $50 million in ticket sales on the grounds that if the movie wasn't made, editors, script assistants etc would be unemployed? If a Hollywood producer refuses to greenlight an unprofitable movie, what is the "cost to society"?

Edited October 23, 2012 by August1991

kimmy · October 23, 2012

Kimmy, the argument in that salon article is a meme that runs through many leftist-style arguments against "capitalism": "greedy capitalists only care about the short term and a quick buck". Here's a quote from your link in the OP:

I have always found this argument, while sadly common, false and simplistic.

If you inherited a Mercedes-Benz S600, would you drive it around for a few months, never maintain it and then ditch it when it broke down? Would you sell its tires because someone offered you a few hundred bucks? IOW, if you have a valuable asset, it is not in your interest to seek short term gain. You can gain far more profit in the long term.

If people are stupid, or live in country with insecure property rights, then they may strip valuable assets for quick gain. But neither situation applies to Mitt Romney or Bain Capital. Romney was far too greedy to strip a valuable property that had long term potential.

In short, a new Mercedes-Benz is expensive because embedded in its sticker price is its resale value. Capitalists, markets and Romney for that matter think long term.

First off, to be clear, I don't think this is particularly about Mitt Romney. The Sealy Mattress purchase was toward the end of his time at Bain, and the sale of Sealy to the next sucker was after Romney had left. How much of what transpired was related to Mitt is entirely speculative.

As for your complaint that it's not a rational way for capitalists to act, that's kind of beside the point. Whether it's rational or not, it's what they did in both the Sealy Mattress case and the Harry and David Fruit Company case discussed above. And the New Yorker article claims $70 billion of "special dividends" were taken out of companies by private equity firms between 2003 and 2007, so clearly a lot of other "harvesting" has been done.

Is it a rational way for capitalists to act? Well, yeah. Sure it is. Your objection is that maybe if they hung on to Sealy long-term it could grow into an asset far more than what they would get from what they actually did with it. Well, that's arguably true, but there are 2 major down-sides to that. First off, risk. Maybe the company doesn't grow as big as you hope, or maybe doesn't grow at all. Maybe TempurPedic Mattresses comes along and eats into your market share and your investment doesn't appreciate the way you want it to. Secondly, you're neglecting to consider the opportunity cost of holding on to Sealy. The money you have tied up in Sealy is money you can't use for your next take-over. The time you're spending with Sealy is time you could be using to engineer a new take-over.

Why wait years and gamble on the return on your investment, when you can get paid right away with 100% certainty? Is it rational? Absolutely. If you had the chance to do it, you'd be crazy not to.

-k

Pliny · October 23, 2012

Looks like, from Reich's description, that banks get saddled with a lot of defaulted loans from the activities of private equity firms. What he describes won't happen for long or very often.

Besides that simple point, which would surely kill the existence of private equity firms, does Capitalism exist in today's economy at all or has it devolved into some shell game?

Is the US government acting like a private equity firm in bailing out GM? The taxpayer being the investor in this "private equity" firm of course and not interested in making a profit at all. In fact, if it loses its "investment" entirely that's ok too, we can make it up by making the rich pay their fair share.

dre · October 23, 2012

I dont think these type of organizations have one cookie cutter means of operating.

Theres a lot of focus on one particular strategy which is buying a company for the sole purpose of using it as a vehicle to borrow money, then taking all that money and allowing it to default.

But private equity firms also provide venture capital, growth capital, etc.

BC_chick · October 24, 2012

If you inherited a Mercedes-Benz S600, would you drive it around for a few months, never maintain it and then ditch it when it broke down? Would you sell its tires because someone offered you a few hundred bucks? IOW, if you have a valuable asset, it is not in your interest to seek short term gain. You can gain far more profit in the long term.

My analogy would go more along the likes of...

You see an old man with no family so you think, well, he has nobody to leave anything to anyway so let's see if there is anything in it for me. You give him a great story about helping him prepare for his final years and you get him to sign power of attorney to you. You take out a loan against the equity in his house and you give it to yourself for 'managing' his property. He is still being a drain to your resources to you put him in a retirement home.

When he dies you tell yourself that at least someone tried to help him in his final years. He was going to die anyway, right?

Edited October 24, 2012 by BC_chick

August1991 · October 27, 2012

Your objection is that maybe if they hung on to Sealy long-term it could grow into an asset far more than what they would get from what they actually did with it. Well, that's arguably true, but there are 2 major down-sides to that. First off, risk.

Risk?

Wait, you go further. Like a lawyer, you consider some of the worst-case scenarios:

Maybe the company doesn't grow as big as you hope, or maybe doesn't grow at all. Maybe TempurPedic Mattresses comes along and eats into your market share and your investment doesn't appreciate the way you want it to. Secondly, you're neglecting to consider the opportunity cost of holding on to Sealy. The money you have tied up in Sealy is money you can't use for your next take-over. The time you're spending with Sealy is time you could be using to engineer a new take-over.
Why wait years and gamble on the return on your investment, when you can get paid right away with 100% certainty? Is it rational? Absolutely. If you had the chance to do it, you'd be crazy not to.

Risk!

What a concept!

[Note to the Albertan lawyer who has hacked into Kimmy's Mapleleaf account: If you want to post here, use your own identifier and stop using Kimmy's good reputation.]

My analogy would go more along the likes of...
You see an old man with no family so you think, well, he has nobody to leave anything to anyway so let's see if there is anything in it for me. You give him a great story about helping him prepare for his final years and you get him to sign power of attorney to you. You take out a loan against the equity in his house and you give it to yourself for 'managing' his property. He is still being a drain to your resources to you put him in a retirement home.

When he dies you tell yourself that at least someone tried to help him in his final years. He was going to die anyway, right?

"You see an old man with no family... "

No family? BC Chick, you're now like Alan Greenspan. State pension schemes (CPP/RRQ, old single men) rely on rating agencies for advice.

Old men with family/kids face a different situation: "This is your inheritance, and my future care."

In short, the State is not the family. They are different institutions.

Edited October 27, 2012 by August1991

bleeding heart · October 27, 2012

In short, the State is not the family. They are different institutions.

My French is rusty; does "in short" mean "as an irrelevant aside"?

Michael Hardner · October 27, 2012

I dont think these type of organizations have one cookie cutter means of operating.

Theres a lot of focus on one particular strategy which is buying a company for the sole purpose of using it as a vehicle to borrow money, then taking all that money and allowing it to default.

But private equity firms also provide venture capital, growth capital, etc.

But ... is there a metric to say whether:

1 ) This type of business is increasing, as a trend ?

2 ) If it is, why this is happening ?

3 ) Is it evidence of some kind of new phenomenon ? For example - do we have excess amounts of capital sitting around waiting to be invested or maybe gambled ?

4 ) If the answers to 1 ) and 3 ) are 'yes' - is there something we can do to make the rules of the game benefit more people from this type of gaming ?

Certain types of investment are better for society as a whole than others. Government controls this, and the current environment is a result of policy - so it can be changed if that makes sense.

Pliny · October 27, 2012

But ... is there a metric to say whether:

1 ) This type of business is increasing, as a trend ?

Perhaps

2 ) If it is, why this is happening ?

Investors are always looking for the least risky investment.

3 ) Is it evidence of some kind of new phenomenon ? For example - do we have excess amounts of capital sitting around waiting to be invested or maybe gambled ?

Same old phenomenon. Capital is sitting around looking for investment. The stock market is a little unstable these days so it's riskier than usual, interest rates are low so capital is looking for whatever it can find.

4 ) If the answers to 1 ) and 3 ) are 'yes' - is there something we can do to make the rules of the game benefit more people from this type of gaming ?

The foundation is cracked we can patch it up but it could only be a short-term fix that will lead to further damage.

Certain types of investment are better for society as a whole than others. Government controls this, and the current environment is a result of policy - so it can be changed if that makes sense.

So you are saying Government controls the types of investments people make? Investment capital does tend to minimize or avoid taxation if at all possible. Is closing tax loopholes and eliminating incentives and subsidies the policy you mean? How about if government allows investment to be less regulated and concentrates on detecting fraud and criminality in the market instead?

Michael Hardner · October 27, 2012

So you are saying Government controls the types of investments people make? Investment capital does tend to minimize or avoid taxation if at all possible. Is closing tax loopholes and eliminating incentives and subsidies the policy you mean? How about if government allows investment to be less regulated and concentrates on detecting fraud and criminality in the market instead?

Taxation policy is a part of it, yes. Fraud detection also. Licensing of resources, labour law, trade policies...

Investment being less regulated is an idea too - we can talk about that. What are the objectives ? I hear a lot about "jobs" from the US presidential candidates (since B_C is back, I have to make sure I rationalize why we're framing this in a US context - which is the example given here) so how do these policies contribute to providing jobs that pay well ?

Pliny · October 28, 2012

Taxation policy is a part of it, yes. Fraud detection also. Licensing of resources, labour law, trade policies...

Investment being less regulated is an idea too - we can talk about that. What are the objectives ? I hear a lot about "jobs" from the US presidential candidates (since B_C is back, I have to make sure I rationalize why we're framing this in a US context - which is the example given here) so how do these policies contribute to providing jobs that pay well ?

The market needs correct information to function. The regulations from government today are copious and complex and seem to be arbitrarily applied depending upon what the whim of government is at the time. These factors contribute to uncertainty in the market but the worst one is not knowing what government may have an inclination to do with respect to resources, policy and taxation in the future . This kind of control is destructive to market function and prosperity.

In order to control the market as they wish, and from their view that ability is primarily about where they can extract their pound of flesh, they would have to make the rules up as they go along which is not conducive to a flourishing market.

Obamacare is a huge imposition on business. No one is certain of the effect it will have on their business. Obama, of course, tries to minimize the effects and is thus not exactly straight forward on the facts. If he isn't then rumours are the only thing one can go on and that won't fly because the risks cannot be assessed from rumours. There are, apparently 21 different tax increases in the Affordable Health Care Act. It's been passed and we still don't know what's in it. Some benefits have kicked in but paying for it doesn't start until 2014. The US may need health care reform but it certainly doesn't need Obamacare.

If jobs are the objective government wishes to forward then it has to have a very stable set of laws that change very little over time. The problem is that whatever the government taxes tends to disappear and jobs are no exception. Income and Payroll taxes make employment an expensive venture. Businesses would prefer to just sub-contract their labour needs rather than go through the headache of having employees.

The game then becomes a cat and mouse chase with business concentrating on tax avoidance and government looking for new revenue sources when old ones disappear.

But essentially, there is only one pocket that taxes come out of. Businesses have to pass the cost of taxation on to consumers.

There is an economic necessity to keep government limited so that the market can function and create the prosperity necessary for a viable society.

Having government continually expand its mandate, funding ever more social programs that perpetually increase economic demand is self-defeating and a vortex that leads to oblivion. Capitalism is often described by the left as a dog eat dog race to the bottom. But we don't all have to go at once.

It is like the left doesn't have any idea that businesses will go through a virtual cycle of life just as any individual does.

BC_chick · October 28, 2012

My French is rusty; does "in short" mean "as an irrelevant aside"?

Brilliant.

That pretty much says it.

bleeding heart · October 28, 2012

Brilliant.

That pretty much says it.

Michael Hardner · October 28, 2012

The market needs correct information to function. The regulations from government today are copious and complex and seem to be arbitrarily applied depending upon what the whim of government is at the time. These factors contribute to uncertainty in the market but the worst one is not knowing what government may have an inclination to do with respect to resources, policy and taxation in the future . This kind of control is destructive to market function and prosperity.

One can talk about the whims of government, but their motivations are pretty transparent at a general level: they want to get re-elected. To do so, they will balance off interests of those who support them financially with the voters.

How has business been doing over the last 30 years on that model ? Pretty well, it seems.

In order to control the market as they wish, and from their view that ability is primarily about where they can extract their pound of flesh, they would have to make the rules up as they go along which is not conducive to a flourishing market.

Obamacare is a huge imposition on business. No one is certain of the effect it will have on their business. Obama, of course, tries to minimize the effects and is thus not exactly straight forward on the facts. If he isn't then rumours are the only thing one can go on and that won't fly because the risks cannot be assessed from rumours. There are, apparently 21 different tax increases in the Affordable Health Care Act. It's been passed and we still don't know what's in it. Some benefits have kicked in but paying for it doesn't start until 2014. The US may need health care reform but it certainly doesn't need Obamacare.

If jobs are the objective government wishes to forward then it has to have a very stable set of laws that change very little over time. The problem is that whatever the government taxes tends to disappear and jobs are no exception. Income and Payroll taxes make employment an expensive venture. Businesses would prefer to just sub-contract their labour needs rather than go through the headache of having employees.

The game then becomes a cat and mouse chase with business concentrating on tax avoidance and government looking for new revenue sources when old ones disappear.

I believe that if the costs were much lower then that would address it. But business always has to have a domestic workforce, so of course they will continue to lobby for whatever works in their favour.

But essentially, there is only one pocket that taxes come out of. Businesses have to pass the cost of taxation on to consumers.

There is an economic necessity to keep government limited so that the market can function and create the prosperity necessary for a viable society.

Having government continually expand its mandate, funding ever more social programs that perpetually increase economic demand is self-defeating and a vortex that leads to oblivion. Capitalism is often described by the left as a dog eat dog race to the bottom. But we don't all have to go at once.

It is like the left doesn't have any idea that businesses will go through a virtual cycle of life just as any individual does.

That's the point of this thread - where's the cycle of life for these loser companies that get gobbled up ? Why aren't the wealthiest Americans declining, given the complaints of your post above ? If there's a level playing field shouldn't there be more examples of wealth investors losing out ?

It's a playing field defined by government... and over time, there tends to be more money, more productivity and general gains. Whatever is happening today, whatever the complaints about regulations - the resulting gains are going to those who have government's attention.

bleeding heart · October 28, 2012

One can talk about the whims of government, but their motivations are pretty transparent at a general level: they want to get re-elected. To do so, they will balance off interests of those who support them financially with the voters.

How has business been doing over the last 30 years on that model ? Pretty well, it seems.

Yes, hasn't it?

To the point. Well done.

Pliny · October 29, 2012

One can talk about the whims of government, but their motivations are pretty transparent at a general level: they want to get re-elected. To do so, they will balance off interests of those who support them financially with the voters.

How has business been doing over the last 30 years on that model ? Pretty well, it seems.

I believe that if the costs were much lower then that would address it. But business always has to have a domestic workforce, so of course they will continue to lobby for whatever works in their favour.

That's the point of this thread - where's the cycle of life for these loser companies that get gobbled up ? Why aren't the wealthiest Americans declining, given the complaints of your post above ? If there's a level playing field shouldn't there be more examples of wealth investors losing out ?

You say that business has been doing pretty well on the current model of government (politicians) granting them favour to get re-elected and then you wonder why the wealthiest Americans aren't declining?

It's a playing field defined by government... and over time, there tends to be more money, more productivity and general gains. Whatever is happening today, whatever the complaints about regulations - the resulting gains are going to those who have government's attention.

Yes, now that the money supply is controlled entirely by government and it is a fiat paper token system the playing field is defined by government. Government needs a growing economy to sustain itself when government screws up and the economy falters they deficit finance themselves and the economy will have to pay it later with interest. People would be able to get along in a faltering economy a little better if they had savings but government discourages saving and the people suffer more than necessary.

So all is rosy in Canadian economy today and the global economy ticks along, over time, with more money, more production and more general gains? That's your view?

You need to look a little deeper and little further to what government is doing. They push the economy along and build it on a house of cards thinking they are in control but it just keeps getting more unwieldy over time.

You can pretty much predict disaster although things might appear rosy to the person who doesn't care to know much about economics or its history beyond the superficial indicators government likes to use, like more tokens, more wasteful production, mal-investment and general gains for the already wealthy.

Michael Hardner · October 29, 2012

So all is rosy in Canadian economy today and the global economy ticks along, over time, with more money, more production and more general gains? That's your view?

I don't think most people would say that things are rosy today, me included.

You need to look a little deeper and little further to what government is doing. They push the economy along and build it on a house of cards thinking they are in control but it just keeps getting more unwieldy over time.

You can pretty much predict disaster although things might appear rosy to the person who doesn't care to know much about economics or its history beyond the superficial indicators government likes to use, like more tokens, more wasteful production, mal-investment and general gains for the already wealthy.

Due to politics, governments are unwilling to remove entitlements or to increase taxes. What would you do ?

cybercoma · October 29, 2012

Due to politics, governments are unwilling to remove entitlements or to increase taxes.

This is the crux of the problem in the West, imo. People rely on the social safety net (everyone, not just the poor or struggling), but they don't want to give enough money to the government to run them effectively.