Blaming Business
No one can accuse these guys of being soft on crime, so long as the alleged crime occurs within the private sector, and involves the always-vulnerable businessman. Should supposedly defrauding shareholders be a distinct crime punishable by up to ten years in prison, thereby replacing the existing system in which defrauding shareholders falls under the category of mail and wire fraud? Yes, said the Senate in a 100-to-0 vote. Should the government prohibit companies from docking the pay of employees who scheme with government investigators? Yes, 100 to 0. Should the period of time in which investors can file lawsuits against companies to recoup losses due to alleged securities fraud be extended? Yes, 100 to 0. Should it be easier to prosecute people for altering or destroying their records when a government agency is investigating a corporation, even if the investigation isn't yet official? Yes, 100 to 0. Should all penalties of all sorts be expanded? Yes, 100 to 0. John "The Bomber" McCain caught the reigning fascistic spirit of the moment: "Until somebody responsible goes to jail for a significant amount of time, I'm not sure these people are going to get the message." The message is: all the crooks are in business, and only great government can save us. The proposals to crush, thrash, smash, and otherwise slam business are raining down hard, with Republicans joining with Democrats in sheer demagogic hatred of the capitalist system itself. None of this has to do with a conviction that WorldCom and Enron and the rest really committed fraud in the usual sense. The problem with these companies (and they are not typical) is that they took part in a more general fraud called the New Economy: the idea that the Federal Reserve can create limitless prosperity through money creation and lower interest rates. Had these companies’ forecasts of infinite product demand, and thus infinitely increasing stock prices panned out, nobody would be complaining. But the Fed’s boom turned to bust, as it must, and the political parasites had to find someway to deflect the blame. Remember the scale of what we are dealing with. By the late 1990s, tens of millions of people had grown accustomed to checking their online holdings daily, and watching them grow. Regular citizens became day-traders. Folks were exuberant as their portfolios rose to double and triple expected figures. Visions of early retirement and the lush life danced in their heads. Everyone was a financial genius. But by this year, these same people have seen their once-fat portfolios grow shockingly skinny. While people can deal with stock-market losses, they cannot understand how in a mere 12 to 19 months, trillions could have vanished, and their exuberant visions too. There is something intuitively correct about the average person's suspicions. It doesn't make sense that so much could be wiped out so quickly, and people are right to assume that powerful people are rigging the game. The business cycle isn't an act of nature. It is brought about by shady characters working behind the scenes. So Washington is attempting to turn public anger away from the guilty – the Federal Reserve and the politicians who cheered on its credit runup – to business. All this hot air about corporate fraud is designed to permit people to believe that their portfolios were looted by CEOs with shredding machines. You say: nobody is stupid enough to believe that! Think again. In the early 1930s, this was precisely the view promoted by FDR and widely believed among the general public. This was also the import of Bush's anti-business rave on Wall Street, which Republicans celebrated and Democrats denounced for not going far enough. This is why the Senate is passing stupid resolutions and voting on bad legislation, which will muck matters up further in predictable and unpredictable ways. Not even Wall Street experts have a clear fix on why markets fall, other than some general lack of confidence that plays on itself. Not one in a thousand would identify the loose credit of the 1990s as the cause of the boom, and fewer still could explain how that boom unraveled and why. Every economic downturn in modern history has been accompanied by a boom-time accounting scandal, leading to more regulation. This is why ignorance of economics – in particular Austrian economics – is so dangerous. Something about the business cycle seems fishy, even crooked, but precisely what does not flow from intuition alone. It's time to buy copies of Gene Callahan’s smart and funny Economics for Real People for your friends and family, and your stockbroker and congressmen too. Knowledge may be the only way to stop the government from blaming everyone but itself for the meltdown nobody but it brought about.
Copyright © 2002 LewRockwell.com
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Forget
gridlock and partisanship, the US Senate has found something besides
attacking other countries to agree on: attacking business right
here at home. 
July
12, 2002