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Let's leave law-abiding businesses alone
By Brad Jansen
While (so far?) lacking a sexual impropriety with a young intern angle, the Enron story elicits strong reaction with buzzwords and soundbites: scandal, paper shredding, subpoenas, political contributions, Congressional hearings, fraud and a spectacular stock price rise and fall.
While there are a host of issues involved, it is important to separate those public policy issues that need to be addressed and other issues that might tear at the heartstrings but do not warrant governmental policy concerns.
Allegations of fraud and shredding documents (both by Enron and Arthur Anderson) need to be investigated by the proper authorities and will be. Politicians seeking the limelight that fail to focus on the proper issues will not help anyone. Responsible public officials will divert their attention to the systemic issues involved and let the courts, company officials, shareholders and regulators concentrate on individual cases of wrongdoing.
Bush Administration officials were right to refuse to bail out the company. Kudos go to economic advisor Larry Lindsey and Treasury Secretary Paul O'Neill for acting in the best interests of all of us instead of the special interests of a few. They understand that the gales of creative destruction, as Austrian economist Joseph Schumpeter explained, free up resources for more productive uses. Taking money from the people of this country who work and provide products and services that people want in order to redistribute it to Enron or other failed companies makes us worse off. Such policies are not compassionate.
This decision was entirely within the character of the administration. Rather than viewing government as a means to micromanage the economy, the budget requests had sought to reverse the Clinton administration policies that contributed to the mess. Specifically, so-called export promotion programs represent the worst of corporate welfare and corporatist central planning: High-priced lobbyists lavish funds on corrupt politicians who increase taxes on the more productive parts of the economy to fund projects that the wisdom of the sum total of everyone else, i.e. the market, knew better to reject.
Unfortunately, the majority of Congress appears to fear cutting off the feeding frenzy of political contributions for political favors. The Export-Import Bank was funded in fiscal year 2002 at $94 million over the president's request. Other Export Assistance Programs will waste $92 million more than the president's request. The $348 million for Congress will give to the International Trade Administration will also be more than requested. The list goes on To the extent that there is a political scandal here such as Whitewater, it rests on those that abuse their office. Refreshingly, at least this president and his team abide by a higher standard.
Now is the time for Congress to clarify the consumer privacy issues related to the data of companies in bankruptcy proceedings. While this is not an issue as much with Enron, we should not have to wait for the next ToySmart.com, eTour.com or Voter.com before politicians step forward to address these important questions. How will our data be used when a company fails? Will our personal information be sold to pay off creditors? There is a story now circulated by email about a man who is having trouble controlling use of his data by a company that bought another company where he had closed an account years earlier. A consent-based approach would go a long way to clarify some of these questions.
On a more macro level, responsible public officials need to correct some of the policy decisions that contributed to the Enron fiasco. The most important of which is the easy credit bubble that fueled the stock market price inflation. Advocates of sound economic principles have noted that the Austrian business cycle theory explains the resulting malinvestments from such easy money policies. Just as Federal Reserve Board Chairman Alan Greenspan (and the Congress charged with oversight responsibilities) received praise for the stock market boom, he is responsible for the bust.
Such policies distort the pricing mechanism of the supply and demand of money: investments that are not profitable in the marketplace appear to be profitable with so much easy credit sloshing around the system. In such an environment, Enron and other now or soon-to-be corporate failures mislead investors. This is a case of government failure, not "market failure." A Securities and Exchange Commission on steroids would not have prevented this malinvestment manifested in the stock market.
What we need is more private market regulation with an honest pricing mechanism for money. It was heroes such as David Tice, Michael Belkin, James Grant and other analysts who tell the truth about the problems with SEC reporting requirements being abused (such as with Tyco and Tice and Associates), the credit bubble (the Belkin Report) and money misinformation (Grant's Interest Rate Observer) that protect us.
It is Steve Forbes who has the last laugh. His sound money, flat tax and scaled back government proposals would have averted much of the source of problem. Unfortunately, some who are partially to blame for this mess refuse to take responsibility for their actions: economist Paul Krugman accepted a fat check for sitting on Enron's board and lavishing praise (Fortune, May 1999) but now criticizes companies that seek to reduce the costs of business legitimately.
Out of a responsibility to their employees and shareholders, many companies choose to do business in more, well, business friendly environments. Such legal tax avoidance undermines the political corruption that results from risky government redistribution schemes. One of the definitions of a money laundering haven, according to our tax-dollar funded Organization for Economic Cooperation and Development and its Financial Action Task Force, is a jurisdiction with low or no taxes. Some of us think al-Qaeda is a bigger threat. Rather than working against places that protect our privacy, multilateral organizations should cooperate with terrorist and other investigations, such as Zimbabwe's cleptocratic President Robert Mugabe and leave law-abiding businesses and people alone.
Brad Jansen is the deputy director of the Center for Technology Policy at the Free Congress Foundation.
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