Countries aren’t corporations

In his latest column, CNBC’s Larry Kudlow equates the United States with “U.S. Government Inc.” As he sees it, this “company” is facing “bankruptcy,” and needs a private-equity firm to come in and start “downsizing, modernizing, shrinking staff and making substantial changes in management.”

The point isn’t subtle. Kudlow is making the case for Mitt Romney, arguing that the former governor may have been a corporate raider, but we’d all benefit from a takeover along the lines of the ones Romney executed at Bain Capital.

Let’s pause to note an observation that sometimes gets overlooked: countries aren’t corporations. Paul Krugman’s column the other day tackled the subject nicely, highlighting an important observation.

Consider what happens when a business engages in ruthless cost-cutting. From the point of view of the firm’s owners (though not its workers), the more costs that are cut, the better. Any dollars taken off the cost side of the balance sheet are added to the bottom line.

But the story is very different when a government slashes spending in the face of a depressed economy. Look at Greece, Spain, and Ireland, all of which have adopted harsh austerity policies. In each case, unemployment soared, because cuts in government spending mainly hit domestic producers. And, in each case, the reduction in budget deficits was much less than expected, because tax receipts fell as output and employment collapsed.

Now, to be fair, being a career politician isn’t necessarily a better preparation for managing economic policy than being a businessman. But Mr. Romney is the one claiming that his career makes him especially suited for the presidency. Did I mention that the last businessman to live in the White House was a guy named Herbert Hoover? (Unless you count former President George W. Bush.)

And there’s also the question of whether Mr. Romney understands the difference between running a business and managing an economy.

It’s likely that many voters will find the basic premise — Romney ran a successful vulture-capitalist firm, so maybe he can run a successful country — credible enough to consider. With folks like Kudlow pushing the line, we’re likely to hear it quite a bit in the coming months.

The United States, however, needs quite a bit of help right now. A leveraged takeover of “U.S. Government Inc.” isn’t going to get us on track.