WASHINGTON, D.C. -- Some money sages, witnessing the stock
market's decline, are heartened that Congress is promising to apply therapy.
They hear that Sen. Tom Daschle and Rep. Richard Gephardt are beating their
hairy chests over accounting derelictions and corporate chicanery, and they
let out a shout of gratitude. Others are less sanguine. They attribute part
of the market's decline to Congress' promise to take action, a promise that
the president endorses.
The doubters believe that investors are actually made
apprehensive by Congress' promise to attend to corporate funny business. I
side with the doubters.
What would Congress know about accounting rectitude? Is it not
Congress that has turned Social Security accounting into a shell game? Is it
not Congress that conceals debt with off-the-books sleight-of hand?
Jonathan Karl in The Wall Street Journal the other day told us
that Congress has exaggerated government revenue by juggling accounts
receivable. It has understated costs by "shifting employee pay periods to
the previous fiscal year." It has even raided pension funds. Now Congress is
going to reform corporate accounting and ethical lapses that began in the
glorious 1990s, during the Clinton bubble that Congress was not particularly
Moreover, the congressional posse comitatus that is charging in
is led by politicians who have never had any experience in commerce
whatsoever. Such brave reformers as Daschle and Gephardt are as innocent of
business experience as they are innocent of investing experience.
To be sure, part of the problem with Congress reforming business
is that it has so little experience in business. It has indulgently sat back
and watched companies such as Microsoft be walloped by government for
practices that have not only not hindered commerce but have actually
encouraged commerce. In the chaos of the tech revolution, Microsoft's
Windows operating system has actually given computers a standardization that
enhances their ability to work with others.
Before the standardization of the railroad track bed, railroad
commerce was limited to whatever track one was on. Computer use would be in
the same fragmented condition without the standardization Windows has
allowed. So government is harassing Microsoft with allegations of monopoly,
notwithstanding the evidence that technological advances are rendering the
government lawsuits irrelevant.
The problem with government reforming business ethics is that
government's ethics are so dubious. Take the harassment of tobacco. If it is
an evil, it should be banned. Instead of treating it as just another form of
commerce or as an evil to be proscribed, government treats tobacco as an
endless source of revenue, notwithstanding the fact that the tax falls
disproportionately on the working classes.
The federal tax on a pack of cigarettes is now 39 cents. In New
Jersey, a state tax of $1.50 is added. In New York City, a smoker is also
clouted with a state tax of $1.50 and a whopping city tax of $1.42. Sixteen
states this year have burdened the lowly tobacco smoker with the obligation
of closing state budget deficits. The consequence is to turn every smoker
into an unwitting tobacco bootlegger.
Then there are the multitudinous lawsuits initiated by state
attorneys general against the tobacco companies. They reveal the states as
little more than shakedown operations, and these operations are aimed not
only at the tobacco companies but at any other industry that is exposed to
our litigious masters, as Microsoft has discovered.
There is a trend here. Government is ferreting out unpopular
pastimes and taxing them to pay for government's inability to live within
its means. In California, there is a move afoot to tax junk food and candy
for the good of government spendthrifts. Throughout the country, alcohol is
seen as a likely target for tax increases. And in the end one has to ask,
If the politicians see tobacco, junk foods and alcohol as public
health problems, why not put the matter to the test? Ask the electorate if
we should institute a new Prohibition against these substances.
Yet the politicians are reluctant. Their ethical compasses are
not that precise. And so they live by their ethically dubious tax increases
and now promise to apply their superior judgment to corporate ethics. Not
surprisingly, large numbers of investors are calling their brokers and
telling them to sell.
Clearly when the bear market began, it was because the market
was untenably high. But today, such economic sages as Arthur Laffer are
arguing that the market is as much as 40 percent undervalued. And why might
that be? Well, one answer surely is that government is riding to the rescue.