Washington — Some money sages, witnessing the stock market’s decline, are heartened that Congress is promising to apply therapy. They hear that Senator Tom Daschle and Congressman Richard Gephardt are beating their hairy chests over accounting derelictions and corporate chicanery, and they let out a shout of gratitude. Others are lest sanguine. They attribute part of the market’s decline to Congress’s promise to take action, a promise that the President endorses.
The doubters believe that investors are actually made apprehensive by Congress’s 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 tells 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 concerned about. 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, why? 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 forty percent undervalued. And why might that be? Well, one answer surely is that government is riding to the rescue.