[PEN-L:31505] Krugman on Business as Usual

[Bill Lear <rael@xxxxxxxxxx>]

Business as Usual

By PAUL KRUGMAN

NY Times, Oct. 22, 2002

     The mood among business lobbyists, according to a jubilant
official at the Heritage Foundation, is one of "optimism, bordering on
giddiness." They expect the elections on Nov. 5 to put Republicans in
control of all three branches of government, and have their wish lists
ready. "It's the domestic equivalent of planning for postwar Iraq,"
says the official.

     The White House also apparently expects Christmas in November. In
fact, it is so confident that it has already given business lobbyists
the gift they want most: an end to all this nonsense about corporate
reform. Back in July George W. Bush declared, "Corporate misdeeds will
be found and will be punished," touting a new law that "authorizes new
funding for investigators and technology at the Securities and
Exchange Commission to uncover wrongdoing." But that was then; don't
you know there's a war on?

     The first big step in undermining reform came when Harvey Pitt,
chairman of the S.E.C., backtracked on plans to appoint a strong and
independent figure to head a new accounting oversight board.

     But that was only a prelude. The S.E.C. has been underfunded for
years, and most observers --- including Richard Breeden, who headed the
agency when Mr. Bush's father was president --- thought that even the
budget Mr. Bush signed back in July was seriously inadequate. But now
the administration wants to cancel most of the "new funding" Mr. Bush
boasted about.

     Administration officials claim that the S.E.C. can still do its
job with a much smaller budget. But the S.E.C. is ludicrously
underfinanced: staff lawyers and accountants are paid half what they
could get in the private sector, usually find themselves heavily
outnumbered by the legal departments of the companies they
investigate, and often must do their own typing and copying. Officials
say there are investigations that they should pursue but can't for
lack of resources. And the new law expands the S.E.C.'s
responsibilities.

     So what's going on? Here's a parallel. Since 1995 Congress has
systematically forced the Internal Revenue Service to shrink its
operations; the number of auditors has fallen by 28 percent. Yet it's
clear that giving the I.R.S. more money would actually reduce the
federal budget deficit; the agency estimates that it loses at least
$30 billion a year in uncollected taxes, mainly because high-income
taxpayers believe they can get away with tax evasion. So starving the
I.R.S. isn't about saving money, it's about protecting affluent tax
cheats.

     Similarly, top officials don't really believe that the S.E.C. can
do its job with less money; the whole point is to prevent the agency
from doing its job.

     In retrospect, it's hard to see why anyone believed that our
current leadership was serious about corporate reform. To an extent
unprecedented in recent history, this is a government of, by and for
corporate insiders. I'm not just talking about influence, I'm talking
about personal career experience. The Bush administration contains
more former C.E.O.'s than any previous administration, but as James
Surowiecki put it in The New Yorker, "Almost none of the C.E.O.'s on
the Bush team headed competitive, entrepreneurial businesses." Instead
they come out of a world of "crony capitalism, in which whom you know
is more important than what you do and how you do it." Why would they
turn their backs on that world?

     And don't forget the personal incentives. Almost all of those
ex-C.E.O.'s in the administration became wealthy thanks to the
connections they had acquired in Washington; the exception is Mr. Bush
himself, who became wealthy thanks to the connections his father had
acquired in Washington. This process continues. Senator Phil Gramm,
who pushed through legislation that exempted Enron's trading practices
from regulation while his wife sat on the company's board, is retiring
and taking a new job: he's going to UBS Warburg, the company that
bought Enron's trading operation. Somehow, crusaders against business
abuse don't get similar offers.

     The bottom line is that you shouldn't worry about those TV images
of men in suits doing the perp walk. That was for public consumption;
now that the public is focused on other things, it's back to business
--- insider business --- as usual.