The Federal Fraud

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What About Government Accountability?

by Rep. Ron Paul, MD

Accounting scandals dominated the headlines last week, and publicity-hungry politicians from both the House and Senate enjoyed acting self-righteous while grilling WorldCom executives. However, the message that Congress will clamp down on corporate accounting practices rings hollow with at least one journalist. Neil Cavuto from Fox News recently offered a very important question that desperately needs to be asked of Congress: "Who the heck are YOU to judge?" Given the incredible fiscal mismanagement that pervades the federal government, Congress is "throwing stones from a very big glass house," as Mr. Cavuto puts it. It’s refreshing to hear Mr. Cavuto point out the hypocrisy of politicians standing in judgment of executives whose misdeeds pale in comparison to their own reckless spending.

This does not mean corporate America is innocent. Many big corporations soak taxpayers for billions in government subsidies every year, while using political influence to avoid fair competition in the marketplace. Criminal conduct by executives at Enron, WorldCom, or any other company should be prosecuted vigorously under state fraud laws. If these executives indeed lied to investors, presented false earnings statements, or otherwise stole from shareholders, they should return the stolen money and serve jail time.

Yet Mr. Cavuto is absolutely right. No corporation on earth comes close to the accounting fraud practiced year after year by the federal government. In fact, there is no real accountability at all for the trillions in tax dollars raised and spent annually by Congress and our entrenched federal agencies. The official "accounting" that does take place is a sham. Every year Congress creates a meaningless budget, the Fed prints phony money, the Budget office issues false revenue forecasts, and the administrative agencies waste billions in the most unproductive ways imaginable. Literally tens of billions of dollars go unaccounted for every year, simply disappearing down bureaucratic black holes. This hardly represents a standard against which corporations should be judged!

None of the free-market restraints against financial mismanagement apply to government. The federal government doesn’t need to raise money by meeting a market demand or raising investment capital — it simply takes what it wants through taxes, which can be raised at will. It never has to operate profitably or efficiently; witness Amtrak and the Postal Service. It also has no incentive to cut costs. In fact, federal agencies scramble to spend every last penny of their budgets to justify more the next year. There is no stock price to worry about, and nobody tracks government "performance" against earlier years. Nobody ever gets fired. Simply put, the money is not hard-earned, so it’s not well-spent.

So why is there not more outrage about government financial accountability? Of course we read the occasional news article lamenting $400 hammers at the Pentagon, but for the most part Congress gets a free pass on its own fiscal mismanagement. What we hear instead are calls for more regulation of our already heavily regulated mixed economy. Few suggest that federal interference in the market, especially Federal Reserve expansion of credit, creates the distortions that make it possible for corporations to become so overvalued in the first place. No one mentions that market forces ultimately cut through the distortions, causing the stock prices of fraudulent corporations to plummet. Instead we hear denunciations of the free market, and calls for more regulations from the very career politicians who are so completely unfit to manage anything.

Of course Congress could clean up its financial mess, but ultimately it is voters who must demand accountability for their tax dollars. Remember that you give government at all levels nearly half of everything you earn. If you invested that much into a private company, don’t you think you would keep a close eye on it and demand accountability as a shareholder? The only thing we know for sure about the federal budget is that it will go up each year unless and until voters remove the politicians who insist on taxing, spending, and borrowing us to death.

Dr. Ron Paul is a Republican member of Congress from Texas.

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