1) They didn't act according to the convention. 2) More importantly, they aren't signatories to the Geneva Convention. The Convention isn't like the White Ribbon Pledge -- it's a treaty, and applies only to member nations. Which the Taliban, so far as I know, isn't.
THIS REVIEW OF A MANAGEMENT BOOK on the salvation army mentions the incredible work the Salvation Army is doing down here at WTC. Amen. Not showy, like the Red Cross, but effective, omnipresent, and marvelously efficient. The Red Cross came and packed up shop, but the SA's still here, giving the workers a warm place to go and get a snack or -- if they want it -- some warm words from the volunteers. Meanwhile, their CEO makes less than a mid-level accounting manager at most firms.
THERE ARE RUMORS flying that the guys on the Pile are getting sick. A lot of it seems eerily reminiscent of Gulf War Syndrome -- several aneurysms, a guy with spots on his lungs given five years to live, and reports of mysterious green vomit. (My guess: broccoli for lunch.) Not that I doubt that there are noxious things coming out of that hole -- it's just that I think it takes more than 3 months to develop lung cancer. The one thing I can confirm is that my asthma is awful -- I haven't been able to go to the gym in weeks -- and an extraordinary number of previously clear-skinned people seem to be developing acne. I will skip the obligatory jokes about finding a date for the prom.
The retreat of business bureaucracy in the face of the market was brought home to me recently when I joined the advisory board at Enron--a company formed in the '80s by the merger of two pipeline operators. In the old days energy companies tried to be as vertically integrated as possible: to own the hydrocarbons in the ground, the gas pump, and everything in between. And Enron does own gas fields, pipelines, and utilities. But it is not, and does not try to be, vertically integrated: It buys and sells gas both at the wellhead and the destination, leases pipeline (and electrical-transmission) capacity both to and from other companies, buys and sells electricity, and in general acts more like a broker and market maker than a traditional corporation. It's sort of like the difference between your father's bank, which took money from its regular depositors and lent it out to its regular customers, and Goldman Sachs. Sure enough, the company's pride and joy is a room filled with hundreds of casually dressed men and women staring at computer screens and barking into telephones, where cubic feet and megawatts are traded and packaged as if they were financial derivatives. (Instead of CNBC, though, the television screens on the floor show the Weather Channel.) The whole scene looks as if it had been constructed to illustrate the end of the corporation as we knew it.
Personally, I don't think it's a puff piece; it looks like the same kind of idiotic millenial blather that convinced my co-workers, who couldn't read a balance sheet, that they were stock-picking geniuses, and my classmates, who could, that they were better off borrowing money to pay for school than selling any of their precious Webvan stock.
Sullivan's point, however, is well taken: for Krugman to criticize the administration for doing pretty much what it would have done anyway after taking money from Enron is the height of hypocrisy, the more so because Krugman admits straight out that he couldn't figure out any legitimate reason for Enron to give him that $50K.
Why I'm in Favor of Abolishing the Corporate Income Tax
Bloggers note: This is a long explanation about tax policy. You should not attempt to read it if you have some reason that you must stay awake: for example, if you are cooking dinner or operating heavy machinery, or your husband expects you to pick him up at the airport and doesn't have much of a sense of humor about things like spending an extra couple of hours at the arrivals terminal.
How many times have we heard columnists or activists foaming at the mouth about those evil corporations that don't pay their "fair share" of taxes? Well, since I have to wait for the copier repairman to finish up some work, I'm going to take this opportunity to plug one of my pet causes: abolishing the corporate income tax.
Now, I know what you're thinking. If you're a conservative, you're thinking "Right on!" If you're a liberal, you're thinking "typical pro-business yuppie." (You make more money than I do. Trust me. I'm currently the executive copy girl in a construction trailer.) If you're one of those activists, you're thinking "When the revolution comes, she'll be the first one with her back against the wall." Too true, and it will save me a lot of time waiting for common sense to wither away and true Naderism to arrive. And probably I'm not going to convince you. But the rest of you, listen up, because I've got compelling arguments with which to convince you, or your friends, if you're already a believer.
Background: How the Corporate Tax Works Corporations are taxed on their revenue minus their expenses. This is different from the way people are taxed, because the government assumes that the expenses necessary to operate a person are roughly the same from person to person. You may think you need a widescreen TV with picture-in-picture and dolby surround sound in order to support basic life functions, but the government doesn't. Therefore, it taxes you on your revenue -- the money you make for selling your services -- and leaves it to you to figure out the expense part.
The problem with doing likewise with corporations is that they are very different from each other. An aluminum smelter, for example, may have very high revenues, but because there is a lot of competition in the market, it may cost the smelter 99.5 cents to make every dollar it earns. Since the corporate tax rate is 35%, the aluminum smelter would be making an after-tax profit of -34.5 cents for every dollar in revenue. This would quickly put the smelters out of business, and we'd all have to go back to shingling our houses and desperately gulping Mountain Dew out of our hands before it all ran through our fingers.
My old consulting firm, on the other hand, by my rough calculations experienced a 450% return on the cost of my labor and associated overhead (although that figure leaves out the various layabout nephews, current and former mistresses, and assorted friends' children employed by the owner of the company to write reports nobody read. I view those as a personal expense, although the IRS, unfortunately, did not.) 35% of revenue hardly makes a dent in the profits. That is why the government takes into account expenses as well as revenues when calculating taxes.
Argument One: Corporations aren't People As my favorite macroeconomics professor pointed out, it is impossible to tax a corporation because the corporation is just a fictional entity designed to pass profits back to its owners. When you say you're going to "tax a corporation", the corporation doesn't go to the money farm to harvest some more cash to give to the government so we can expand job training for unwed mothers -- some real person is going to pay that tax. When you put a tax on wages, such as social security or the unemployment tax, the employer doesn't say, "oh, well, profits dropped 15% this year; better tell Merrill Lynch to issue a 'sell' rating" -- they pay their employees less, both to lower the tax burden and to recover the lost profits. They hire fewer employees, because each employee is now more expensive. This costs real people money. When you up the corporate tax, either the employees pay, because the firm can't afford as many of them; the customers pay, because the firms have to raise their prices to cover the taxes; or the shareholders pay because dividends are lower and the company is worth less. And before you liberal types start rubbing your hands in glee at the thought of those pained shareholders, keep in mind that the largest shareholders in companies are insurance companies, which invest in stocks in order to make the money they need to pay off when your house burns down; and pension funds, making the money to take picketing US Steelworkers off the streets and put them into good homes. The other big holders are mutual funds, which is what most of us have our 401(k)'s in. So when you say "I want to tax corporate profits", try silently saying to yourself "so that Mom can sell the condo in Florida and move in with me."
Argument Two: The Corporate Income Tax Costs the Economy More than it Earns The Corporate Income Tax brought in $204.9 billion in 1998. My tax professor (a Democrat) estimated the cost of corporate compliance in that year to be $300 billion. That's just the direct cost -- what corporations paid tax lawyers and accountants.
This labor is unproductive. It adds no new wealth to the economy; we are paying people simply to transfer money from one place to another, a net economic loss. Particularly so because the money isn't being transferred into any sort of wealth producing investment, such as a store or manufacturing plant. This doesn't mean that we shouldn't have any government or regulations -- the police add no new wealth to the economy, but I still want them around. It just means that we have to weigh the cost of the regulations against the benefit we get out of them. In this case, we make $204.9 billion off the corporations, but at the expense of taking $300 billion worth of resources out of the economy which could have been building widgets or thinking up a new recipe for fat-free muffins.
Nor is $300 billion the only cost. Remember, those corporations won't stump up on their own: you need IRS agents to check on them. And congressional staffers to write laws closing "loopholes". And courts to take corporations you think aren't complying. And reporters to write foamy-mouthed editorials about how corporations aren't paying their "fair share". More importantly, there is a hugely distortionary effect on the economy, because corporations spend an enormous amount of time and money trying to structure transactions to get around taxes. All of this activity is economic dross, and its so widespread I've given it its own section.
Argument 3: The Corporate Income Tax is Extremely Distortionary I've talked elsewhere about the lengths that companies go to in order to avoid, among other things, taxes. One of the most egregious of these is the way that taxes favor debt. Now, corporations prefer debt to equity anyway, for the same reason that you'd rather take a loan from your parents than sell them part of your house. What makes this preferance so compelling, however, is that while corporations have to pay dividends or repurchase shares out of their after-tax profits, they can deduct any interest on debt. Suppose I have a project that is projected to return 8% -- every dollar I invest yields me $1.08 at the beginning of the year. We'll posit 0 inflation and a risk-free environment so that we don't have to get into tiresome concepts like the time value of money. Now assume that I don't have the cash to make the investment, but I can borrow money at 9%. In a tax-free world, this would give mea return of -1%, and I would pass up the opportunity to own my very own fur-bearing trout ranch. However, if I am a corporation, I can deduct that 9% -- call it $9 annual interest on a $100 loan. Since the corporate tax rate is 35%, I have just lowered my tax bill by a little over $3. Add that $3 to the $8 I'm getting off the trout, and suddenly it's an attractive business opportunity. The trout are no more fruitful, their pelts no more soft and lustrous -- the tax status makes all the difference.
So why is this bad? Partly because it encourages companies to make investments that have a negative economic return -- the actual economic return of 8%, with an actual economic cost of lending the money of 9%. (Yes, this is simplistic. Work with me.) But mostly because it allows companies to take on more risk than they otherwise would. As I said in the above-referenced post, debt makes the company riskier in ways that equity does not, because corporations, not being people, can't borrow money from their parents and therefore get into real trouble when they can't meet their interest payments. The tax exemption, added to the innate preference for debt, means that companies will leverage themselves right up to the point where Moody's threatens to drop their rating to "run for the hills!". People are always over-optimistic about the outcomes of the projects they are pursuing, as you know if you've ever attended a budget meeting or a bridal shower. Add in a little shoddy accounting and you get Enron.
There are numerous other ways in which companies engage in distortionary behavior; entire firms exist for the sole purpose of arranging asset swaps between firms or entities that can't deduct the assets, and firms or entities that can -- every major investment bank has several groups pretty much solely devoted to this purpose. This makes money for the corporation, but it doesn't create new wealth; it merely transfers money from the government's pocket to its own. Meanwhile, all those people and resources that could be utilized to actually produce something are paid instead to engineer the transfer.
The standard activist response is to close the "loopholes." This is discussed in our next section:
Argument 4: It is Impossible to Close the Loopholes I am all for closing loopholes that are special breaks generated by friendly legislators. Most loopholes, however, do not fall under that category. Most loopholes have to do with items that are legitimately treated as expenses for some purpose. For example, if you eliminated the debt deduction, you would get rid of a lot of fur-bearing trout ranches -- but there are companies that require a high level of capital investment in order to operate, such as automakers. They finance their physical plant with debt, partly for the tax break, but also partly so that they can match the financing cost of the equipment to the life of the equipment. During a bad year, with those debt payments coming in, it wouldn't be a good idea to slap them with an enormous tax bill too -- not unless we've decided as a nation that we'd rather drive Yugos. Many of the "loopholes" decried by Nader and his ilk fall into this category -- corporations engaged in clearly distortionary, but legal behavior, in order to minimize their taxes.
So why can't we eliminate this? There are several reasons. The first is the same reason that it's impossible to entirely eliminate computer hacking, or burglary -- they've only got to find one way in, while you have to close all the doors. As fast as you write the new laws, an army investment bankers, accountants, and tax attorneys will get busy seeking a way around it. I'm sure Nader would like to outlaw this as well, but since this would amount to a law against thinking, it would be impossible -- although he may not realize this, given how successful he's been at implementing such a plan among his own followers.
The second reason is that there's a fine line between necessary and unnecessary transactions, and picking where that line falls will remain more of an art than a science. The harder we try to crack down, the more time and money we waste arguing whether the trout pelts really need to be stored at the dry cleaners before they're sold.
And the third goes back to those costs we talked about in Argument 2. The more laws we write to try to close loopholes, the more congressional staffers we need to write them, judges to interpret them, IRS staffers to enforce them, tax lawyers to brief companies on them, etc. And the effect is geometric, not arithmetic -- the more tiny, specific laws we write, the more impossible the tax code becomes to comply with, as complexities generate ever more conflicts and gray areas, and the code itself passes beyond the comprehension of a single person, thereby making it impossible to completely tell whether or not you're in compliance. This unpredictability adds risk, raising the cost of capital and reducing the willingness of companies to invest. This latter cost is impossible to quantify, but we could quantify most of those direct compliance costs -- and I would be willing to bet that they far exceed any revenue generated by "closing the loophole".
Argument 5: Eliminating the Corporate Income Tax Makes Corporate Welfare Harder At last, an argument even a Naderite could love. Much of that corporate welfare consists of tax deductions, credits, or what have you, that the public perceives as "free" because we're not handing them a fistful of cash. Eliminating the corporate income tax will force voters to ask themselves whether we actually like Chiquita bananas enough to hand them a wad of our hard earned cash every April 15. When we think about all of the unproductive activity we'd be eliminating by eliminating the corporate tax, lets not forget all those high-priced lawyers eating tax deductible dinners with your congressman in order to convince him that his latest client desperately needs a tax break for the Good of the Nation.
Summary The corporate income tax costs the economy much more than it produces in revenue. Eliminate it and watch a flood of economic activity be unleashed as all those unemployed accountants, tax lawyers, and IRS agents get to work inventing the next Furby. Recoup any lost revenue by eliminating the capital gains tax and treating capital gains as ordinary income in order to equalize the tax treatment of debt and equity, and it will be a long time before we see another Enron.
Summary for Those Who Started to Nod off in the Third Paragraph and Skipped to the Bottom The corporate income tax is very bad. You should be against it. Email this link to any of your friends who question this.
THE WALL STREET JOURNAL says roundabouts (traffic circles, for Americans) are a no-go in the United States. I don't see why -- I love roundabouts. They keep the traffic moving, reduce accidents, and prevent frazzled ENTJ types like my ex-boyfriend from tapping maniacally on the steering wheel at intersections. Yet the journal reportst that in America they caused more accidents than they solved because people couldn't figure out how to use them. Is the nation that gave the world the first man on the moon now so stupid that they can't figure out "inside lane to drive, outside lane to exit"?
SEEMS THE SAUDIS WANT US to get the hell out, militarily speaking. I'm bemused, befuddled, and otherwise bewildered. While I hesitate to suggest the US strongarming lands legitimately owned by another country (well, as legitimately as can be said of anything conferred by a drunk Winston Churchill), I wonder how long the Saudis think that they will last if they stop being our allies. While I suspect that they are trying to maintain their legitimacy by hurting our ability to war on Iraq, I see this as ineffective for two reasons:
1) Turkey, which likes us, borders Iraq. It may be harder to stage an attack from Turkey, but I doubt that it's impossible.
2) If Saudi stops being a vital military base, we are free to notice the profligacy with which the royal family sponsors terrorism. Now, I know that toppling the house of Saud is what Osama wants (or wanted); however, I doubt that what he wanted was for the oil fields to be seized and operated in a trust for the whole Arab people to buy things like schools that teach math and science and economics instead of The Protocols of the Elders of Zion. While I realize that there are so many political and diplomatic obstacles to this that it would probably never happen, I don't think its entirely improbable; countries like France and Japan, after all, just want access to the oil, regardless, and most Arab nations would be happy to get a cut of Saudi oil wealth. As a bonus, we could simply tell nations that if we find terrorist connections, you're off the list for oil revenues for five years. No appeal, nothing -- just cancel that order for the solid gold toilet.
Big argument in my family as to whether we could hold the fields. I say we could and here's why: no rebellion that I am aware of has ever succeeded without outside financing. Exhibit 1: Ireland. Tons of rebellions that went absolutely nowhere until the 1870's, when Irish-Americans started making enough money to finance Sinn Fein. Heartwarming movies about Michael Collins to the contrary, the Irish fought the English with American-financed guns, not peat and pitchforks. Exhibit 2: The French. The French Resistance was more valuable as a source of information to the nations with the big guns than as a Force Saboteur. Exhibit 3: The Quagmires. Russia foundered in Afghanistan because we were arming the hell out of the other side, not because its impossible to hold, just as, myths to the contrary, I am reliably assured that we would have had little trouble holding Vietnam if they had not been funded by the Russians and Chinese. Notice that the Polish, who hate Russians with a rare passion, did not manage to free themselves until the giant faltered -- they didn't even manage to make a good show, because the Russians had all the guns and stuff.
The other great danger of holding territory -- that its more expensive than its worth -- is a non-issue, because its self-financing merely through eliminating OPEC. Plus the alternative, terrorism, is very expensive. If we cut off the oil money, Arab terrorists would be back to fighting with rocks. Rocks are not very effective against an army with tanks and F-14's. Also, teenaged boys don't look nearly as cool toting around a sack of gravel as they do lightly caressing the stock of an AK-47.
I am not necessarily advocating that we do this. I don't like the idea of the United States walking in and taking over someone else's land, no matter how badly they have behaved. Nonetheless, I think it behooves the Saudis, who provided the funding for the gaping pit in the ground across the street from me, to think very carefully before they decide that they are no longer our friends. But then at least Sgt. Stryker won't have to worry about going to Saudi Arabia.
WILLIAM SAFIRE on the birth of patriotic schmaltz. He explains elegantly why those commercials on the History Channel make me choke up even though, like sausage, I know exactly what goes into making them.
Mickey Kaus reports that Lieberman also has ties to Enron, via an ex-staff member who lobbied him on Enron's behalf. Says Mickey: "Lewan's revolving-door mendacity sharply limits Lieberman's ability to unctuously condemn the Bushies' Enron 'ties.' " Democrats may be learning the lessons Republicans got -- fast -- during the Lewinsky scandals: if you want to crticize that mote in thy neighbor's eye, be prepared for some careful scrutiny of the beam in thine own. The question is, will the Democrats follow the Republicans' lead in having the integrity to boot but good anyone found to be breaking the rules they're howling about?
The market's tanking and my classmates are sending out emails advertising sublets in NYC, SF, and other high-end meccas. It's hard to cry for MBAs, of course, but it does not bode well for recovery.
Redistributionist balderdash from the Washington Post in the form of an article on why poor children do worse in school. The cause, according to the article: summer vacation.
During the school year, the students in all three status categories gained the same amount on the tests. The difference between the three groups is what happened during summer vacation. When the kids came back in the fall, the tests showed that over the summer months the poor kids lost ground in reading the first two summers, then held their own, but sank in math. The middle-class kids gained in reading and held their own in math. The rich kids gained in both reading and math, but a lot more in reading
Fair enough -- seems methodologically sound, and it sounds like a new insight. Quick as a flash I thought, "well, let's make the school year longer." But the authors have anticipated this, and are quick to caution against such simplistic solutions:
The researchers, Karl Alexander, Doris Entwisle and Linda Olson of the Johns Hopkins University, are quick to point out that what poor kids need is not necessarily more school: "We found that better off children in the [study] more often went to city and state parks, fairs, or carnivals and took day or overnight trips. They also took swimming, dance, and music lessons; visited local parks, museums, science centers and zoos; and more often went to the library in summer." They also were more likely to participate in organized sports and in more types of sports.
Computation drills and work sheets in August are probably not the answer.
No, more school isn't the answer for poor kids -- they need to be sent to camp.
Notice that there is absolutely no correlation offered between any of the activities cited and reading or math skills, which are the metrics we are supposed to be discussing. No, these are just a grab bag of activities that high-culture types consider "enriching" and therefore force on their children. Not that I am against any of these things, mind you, but I am hard-pressed to identify in what way swimming improves your math skills, or taking overnight trips helps you to read. (All the children in my family spent those overnight trips reading like mad, but since we were also known for reading while walking down the street, that's not very good evidence.) Its possible that trips to the zoo, etc. have a measurable effect in stirring interests in children that they then develop reading and math skills in order to pursue -- but I want to see some data, please, not a blanket assertion. As someone who was dragged to every activity on that list on a regular basis, I have a feeling that the books piled on every flat surface in our house and the relentless math and spelling bees to which my father subjected us had more to do with our academic prowess (such as it is) than our junkets to the Planetarium.
ONE EXAMPLE OF my assertion yesterday that all presidents make decisions that benefit their friends comes from The Weekly Standard (subscription required):
ON JULY 5, 1995, Enron Corporation donated $100,000 to the Democratic National Committee. Six days later, Enron executives were on a trade mission with Commerce Secretary Mickey Kantor to Bosnia and Croatia. With Kantor's support, Enron signed a $100 million contract to build a 150-megawatt power plant.
Enron, then a growing giant in energy trading, practically had a reserved seat on Clinton administration trade junkets. . . and Enron benefited from its government contacts during the Clinton years. After Lay's trip to India with Ron Brown, Enron received nearly $400 million in U.S. government assistance so that it could build a power plant south of Bombay. According to reports in the Houston Chronicle at the time, the Export-Import Bank kicked in $298 million, while another federal agency, the Overseas Private Investment Corporation, put up $100 million. . . Clinton himself was involved in starting the India effort for Enron. According to Michael Weisskopf of Time, Clinton scrawled a note to McLarty telling him to help with the project . . . All told, Enron received over $4 billion from OPIC and the Export-Import Bank for projects in Turkey, Bolivia, China, the Philippines, and elsewhere.
Under Clinton, the Commerce Department was proud that it was finally using the might of the U.S. government to assist favored firms. But the enterprise was plagued by constant criticism that somehow it always seemed to be big political donors that got most of the help.
This train wreck has been 65 years in the making, since 1937, when pharmaceutical maker McKesson & Robbins went belly up and congressional investigators were flummoxed to learn that the SEC laws they passed didn't mean accountants were supposed to be in the business of detecting fraud.
Let's not pretend to know more about Andersen's destroyed documents than we do. But still: When auditors have reservations about a large and successful company's books, they don't blab to the press or shout an announcement from the rooftops, blowing a hole in a stock owned by thousands of investors. No one would ever hire them again. The missing emails may well contain a record of Andersen wringing its hands hopelessly over this dilemma, as accounting firms have done since time immemorial.
This is an impossible bind, made more so because accountants have been prepared to live with cognitive dissonance rather than give up a federal meal ticket. . .
The profession's drippy rhetoric would have you believe accountants work for the public good or the Gods of Absolute Accounting Purity (GAAP), but this is silly. They make a living selling a service to involuntary customers who are going through the motions to satisfy a federal mandate. The annual audit is a service truly valued by no one: It doesn't catch crooks and it doesn't benefit honest companies either, because it provides no proof or assurance to investors about the accuracy and completeness of a company's books. Had it been otherwise, Enron might have been more inclined to listen to Andersen's advice, in which case Enron would still be around.
JAMES CRAMER, founder of TheStreet, has an excellent article excoriating the regulatory environment that allowed Enron to happen. I may not agree with his implicit prescriptions for regulation, but I certainly agree that the peculiar, quasi-populist way that the Clinton Administration structured the regulations (not allowing firms to profit from good research by distributing it to preferred clients, then weakening enforcement on accounting fraud) was a key factor in the disaster that Enron became. I also, of course, agree with his primary solution:
Nobody's too worried about [accounting fraud] because nobody goes down for it. Particularly the accountants! I can't find an instance where a major accounting firm's partners lost personal property or spent time in jail for abetting or simply looking the other way when there was fraud. Enron should change all that. . . The government could send a message once and for all that if you hide transactions, if you dissemble to directors, if you cheat on your books to move up your stock price, as I think we will find happened with Enron, you are going to jail. More important, since Enron is now bankrupt, your accountants, who checked off on the deceit, will get prosecuted as well and get held for the damages. They still have money! . . .
The focus in Washington needn't be on endless hearings . . . the focus should be on getting scalps and making those scalps pay. The goal should be that everyone else is too scared to launch another scheme to boost stock prices through bogus accounting and hidden, off-balance-sheet investments
PatrickRuffini takes apart Josh Marshall much more thoroughly than I did for his attempt to blame the deficit on the Bush tax cut -- Ruffini has numbers and everything. He also points out that the tax cut we've given out so far ended up being twice what Bush asked for because the Democrats padded them in pursuit of the sort of wrong-headed fiscal stimulus I talked about earlier -- and that Josh Marshall wanted the Democrats to take credit for the tax cuts a little while ago.
TNR describes the social chaos in Argentina. It all boils down to this one delicious quote (from a taxi driver, of course; P.J. O'Rourke says that all third world taxi drivers are under contract to UPI to provide memorable quotes): "Here we have two parties: the thieves and the incompetents. . . they are devouring Argentina." The writer points out that while in Asia, there was broad consensus about what should be done (the consensus centered around doing the wrong thing, but at least it prevented utter chaos), in Argentina the rich and poor have very different visions of how to go about things. The poor seem to be wrong about the economic fix, but right in believing that any fixes implemented by the non-Peronists will be directed first at making sure that well-to-do sons, brothers, and layabout brothers-in-law maintain their sinecures, and only then to making sure that the poor have enough to eat.
THE WALL STREET JOURNAL REPORTS that prosecutors are requesting life in prison, rather than death, for Johnny Walker. While I am very much against the death penalty, I worry that this sends a bad message about how seriously we take high treason.
Paul Krugman sounds more than a little desperate today. As far as I can tell, not even Krugman thinks Bush has really done anything -- he's just hoping that if he repeats "Bush" and "Enron" together enough times, we'll throw the bum out.
This latest, though, is a disappointing turn for Paul Krugman. He goes beyond silently allowing readers to think that he knows more than he does; now he is actively distorting what he is an expert on.
Wealthy businessmen in Asia didn't bother to tell investors the truth about their assets, their liabilities or their profits; the aura of invincibility that came from their political connections was enough. Only when a financial crisis came along did people take a hard look at their businesses, which promptly collapsed.
Yes, this is very similar to the Asian crisis, in the same way that taxicabs are very similar to bananas because they are both usually yellow. The crisis in Asia was not that a single company committed criminal acts; the crisis was caused by the fact that in Indonesia they weren't criminal acts. If you wanted to do business in Indonesia, you made sweetheart deals with the worthless relatives of politicians, invested massive sums in the idiotic schemes of whichever bureaucrat happened to be in charge of your industry, and followed the same accounting standards as my college roommate, who stuffed her unopened bills in a drawer until it was too full to open, then bought a new desk. The very fact that Enron is going to jail indicates that we are not practicing "crony capitalism" -- although I'm sure we will be if Ralph Nader has anything to say about it. Paul Krugman knows this -- his specialty is international monetary and trade economics -- which makes this criminal academic negligence. I'm extremely disappointed, because although we are on different ends of the political spectrum, I've always thought of Krugman as not only smart, but also middlin' honest.
Not any more, though. The Op-Ed is a series of irrelevancies. Here's my favorite: "Why did George W. Bush make the absurd claim that Enron's C.E.O., Kenneth Lay, opposed him in his first run for governor, and that the two men got to know each other only after that race?" Why can't Krugman come up with anything more damning than the possibility that Enron supported him in his first, as well as his second, bid to get his hands on the vital financial regulatory apparatus of Texas?
Read the article. All of the allegations run along these lines -- vague accusations of dishonesty notable only for their total triviality. They not only have no taint of unethical behavior, but also have nothing to do with crony capitalism, which is the alleged subject of the Op-Ed. But these are not the meat of the piece. The meat of the piece is vague accusations of impropriety based on the following:
1. Bush recently made two decisions that were "worth billions to companies with very strong connections to Mr. Bush." Its too bad we don't have some Democrats in office, whose decisions would presumably be worth billions only to the ACLU and Friends of the Earth. 2. Bush the Elder is on the payroll of some company that buys distressed defense contractors, then turns them around by getting them government contracts. We should certainly get rid of Presidents whose family members have unseemly connections. For example, if his father was involved in a large scale criminal enterprise like the mob, or his brother were so closely involved with drug dealers that he asked Bush to pardon. . . oh, sorry, I'm having flashbacks again.
But I shouldn't be getting Bush off the hook by invoking Clinton or the Kennedys -- I certainly think we should hold Bush to a higher standard than that. I should be getting Bush off the hook by pointing out that the two closest things to actual allegations are that the administration made decisions that happened to help their friends. No proof. Of course its possible that this was illegal or unethical, but if so, Krugman had better have more than the simple fact that the decision helped those friends -- as an economics PhD of all people should know, the fact that an action has a given effect does not mean that producing that effect was the sole reason, or even part of the reason, that the action was taken -- otherwise we'd only eat chocolate ice cream when we wanted to get our faces messy and gain three pounds. Our government is 30% of our GDP -- even if Jesus Christ himself were making the decisions, statistically, some of them would turn out to disproportionately benefit the 12 Disciples. Krugman knows all this, which is what is so disturbing. If one of Krugman's undergrads had turned in a paper based on this evidence, he'd have to flunk him. Which is why I don't understand why he would not only write this thing, but publish it.
EXCELLENT ARTICLE from NRO explaining the mechanics of Enron's collapse. It points the figure to a common pattern in the development of new financial instruments: high profits for the inventor, then declining profits as competition enters the market. When the firm that enjoyed those windfall profits tries to protect them by leveraging up to expand the scale of their operations, they become exposed to the possibility -- nay, the probability -- of disaster.
THE INCOMPARABLE Rand Simberg takes me to task for using the "have your cake and eat it to" cliche. Now, normally I spring to the defense of my cliches -- cliches may not be original, but they are often useful shorthand. However, in this case, Simberg is pointing out that the cliche stinks because it's incomprehensible. Which it is, as evidenced by the fact that I, who am of normal intelligence, didn't figure out what it meant until I was a junior in college. So I hereby retract "have their cake and eat it too" and replace it with "eat their cake and have it too".
