Clinton-cooked books?

Posted: Aug 08, 2002 12:00 AM
WASHINGTON -- The Commerce Department's painful report last week that the national economy is worse than anticipated obscured the document's startling revelation. Hidden in the morass of statistics, there is proof that the Clinton administration grossly overestimated the strength of the economy leading up to the 2000 election. Did the federal government join Enron and WorldCom in cooking the books? Through all of President Clinton's last two years in office, the announced level of before-tax profits was at least 10 percent too high -- a discrepancy rising close to 30 percent during the last presidential campaign. Most startling, the Commerce Department in 2000 showed the economy on an upswing through most of the election year while in fact it was declining. Although a political motive for Democratic cooking of the government's books is there, nobody -- including Bush administration officials -- alleges specific wrongdoing. Nor is there any evidence. Estimation in 2000 was conducted by career public servants who are doing the same jobs today (working under a highly political Democrat in the Commerce Department). Nevertheless, such discrepancy in earnings statements by corporate executives today would warrant a congressional subpoena. The Commerce Department's Bureau of Economic Analysis quarterly estimates before-tax profits of domestic non-financial corporations, releasing the information the last week of the month following the quarter. Revised figures last week showed profits were really lower by 10.7 percent, 12.2 percent, 15.2 percent and 18 percent for the four quarters of 1999. In 2000, this gap became a chasm. The revised quarterly profits for the election year are lower than the announced figures by 23.3 percent, 25.9 percent, 29.9 percent and 28.2 percent. Most startling, original estimates showed a generally rising profit outlook for the two years preceding the election. Starting with $503.7 billion in the last quarter of 1998, the quarterly estimates rose steadily to $543.8 billion in the fourth quarter of 1999 and then took off in the first two quarters of 2000 to $574.9 billion and $606.6 billion, leveling off to $602.9 billion in the third quarter (before falling to $527.3 billion in the fourth quarter after the election). Last week's revised returns reflect not only different numbers but a different trend (starting at a much lower level of $473 billion). Profits actually fell through much of 2000, dropping from $449.7 billion to $422.4 billion for the second half (before slipping to $372.8 billion). How could there be this big of a discrepancy? How could the government have reported steadily rising profits when they actually peaked in 1998? "The gap is a bit larger than usual, but not really out of line," Brent Moulton, associate director at the Bureau of Economic Analysis, told me. Moulton, who was in charge of both the old figures and the new revision, said the problem was the two-year delay in obtaining corporate tax returns (reflecting changes in telecommunications and business services). Moulton's boss in 1999-2000 was one of the Clinton administration's most politically astute economists: Under Secretary of Commerce Rob Shapiro, a pioneer "New Democrat" and early friend and supporter of Bill Clinton. I asked him flatly: "Did you cook the books?" Shapiro laughed it off, asserting that the Bureau of Economic Analysis is "the most non-political, non-partisan agency in the government." That begs the question of whether the bureau's very political, very partisan management chief should have known the bureaucrats were on the wrong track. "No," said Shapiro, "2000 looked very good to us." He dismissed the early reports as "an econometric projection based on estimates." The result: headlines in 2000 spewing false information of corporate profits growing at 25 percent, bolstering the stock market and holding up the state of the economy as the election approached. That is the underpinning for the Democratic myth that a growing and vibrant American economy has been sabotaged by President Bush's tax cut ("We lost the opportunity for long-term economic growth," says House Minority Leader Richard Gephardt). If the government's books were not purposely cooked in the same way as corporate accounts, there still remains the question of how the government could be so wrong. The Bureau of Economic Analysis may well be free of partisan tilt, but its incompetence can cast a long political shadow.