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Wednesday, July 03, 2002
Walter E. Williams :: Townhall.com Columnist
Which is worse: WorldCom or Congress?
by Walter E. Williams
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President Bush said he was "deeply concerned" about some of the accounting practices in corporate America and called "outrageous" the disclosure that WorldCom, which is $32 billion in debt, had hidden $3.8 billion in expenses. The president added, "We will fully investigate and hold people accountable for misleading not only shareholders but also employees." The Securities and Exchange Commission (SEC) filed fraud charges against the nation's No. 2 long-distance telephone company, as the company slid toward bankruptcy. WorldCom is being called the biggest case of crooked accounting in U.S. history, where it hid nearly $4 billion worth of expenses from investors in order to make its bottom line look good. But is WorldCom really America's biggest case of accounting gimmickery and deception? I don't think so. Ask the president or any congressman: How much debt does the federal government owe? Nine will get you 10 that they'll tell you that it's $3.5 trillion. If they had just a tad of sophistication or honesty, they might add intragovernmental debt that'd bring the "total debt" to slightly more than $6 trillion. Even that figure represents a level of creative accounting, deception and lies that make the actions of Enron and WorldCom seem like child's play. Washington's deception about federal debt can be found in a report by Andrew J. Rettenmaier, a senior fellow at the Dallas-based National Center for Policy Analysis, titled, "How Big Is the Government's Debt?" Rettenmaier says that, as of 2001, the accumulated federal obligations to all people who've earned Social Security and Medicare benefits are $12.9 trillion for Social Security and $16.9 trillion for Medicare. Combined with the public and intragovernmental debt, the total federal debt burden is an unimaginable $35 trillion. That amounts to roughly $120,000 for every man, woman and child in America. It will be impossible for the government to pay that kind of debt. Washington will do what all governments do when it cannot make good on its debt. Congress will repudiate agreements with creditors by refusing to pay on agreed-upon terms or choose government's traditional method of repudiation -- inflating the currency. There's no question that both Enron and WorldCom engaged in deceptive and dishonest practices -- in a word, fraud. Here on Earth, there'll never be the end to deceptive and dishonest practices, notwithstanding supposed protection by the SEC. We're going have to wait until we get to heaven for total honesty. But let's compare what happens when deceptive accounting practices are discovered in private industry versus when they're discovered in government. Without the SEC, the supposed guarantor against corporate hanky-panky, lifting one finger, the market has exacted high penalties. Enron and WorldCom shares of stock and their reputations are virtually worthless. Heads have rolled. By contrast, what happens when Congress cooks the books and deceives Americans into believing that government debt is $3.5 trillion or $6 trillion, when it's really $35 trillion? Absolutely nothing. I bet that if you brought this up to one of our Washington politicians, he'd say: "That Williams guy doesn't know what he's talking about. What we owe to Social Security and Medicare recipients is not debt." Of course, Enron and WorldCom might get out of their troubles by redefining what debt is as well -- but the economic arena, unlike the political arena, doesn't play that.
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About The Author
Dr. Williams serves on the faculty of George Mason University as John M. Olin Distinguished Professor of Economics and is the author of More Liberty Means Less Government: Our Founders Knew This Well.
 
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