Wednesday, January 30, 2008

False Corporate Accounting

“High Court limits investors suits against 3rd parties,” Chicago Tribune, Jan. 16. Scientific-Atlanta and Motorola were vendors for cable company, Charter Communications. Charter misrepresented its revenue to pump up its stock prices. When the accounting errors were revealed, their stock price plummeted. Investors sued
S-A and Motorola arguing that they were part of the scheme. The Supreme Court in a 5-3 decision limited the liability of third parties to the company committing the fraud. The Court’s revolutionaries Kennedy, Scalia, Thomas, Alito and Roberts argued (imagined) that a contrary decision would result in an explosion of securities litigation. Well, if there is a ton of wrong-doing, that is exactly what should happen. The same argument was used by the administration in opposing holding CEO’s liable for fraud, ignoring the advise of then Secretary of the Treasury O’Neil and Alan Greenspan chair of the Council of economic advisors.
The progressives Stevens, Souter and Ginsberg argued that Charter could not have committed the fraud without the vendor’s help. Motorola supplied cable boxes at inflated prices to Charter and used the windfall to buy advertising on the cable. The higher prices were booked as a capital expense while the advertising purchases were noted as revenue. The decision is expected to have a major impact on class-action lawsuits arising from the implosions of Enron and HealthSouth. (It did.) The administration ignored the advice of the Securities and Exchange Commission that pleaded to be allowed to file a brief in the case, and instead followed the advice of the Justice Department. The SEC clearly has the authority to bring such suits on its own behalf, instead of being brought by private investors in class action suits. Obviously, if they can’t file a brief, they are not going to bring their own suit. The decision was applauded by the U.S Chamber of Commerce and the National Association of Manufacturers. This is the payoff to generous campaign contributions from big business.
This is a clear example of how the average guy gets screwed. But, how can the average citizen understand what is going on? I had to read the story in the NYT to get the whole picture. The Tribune just said two vendors were involved, but did not explain the fraudulent accounting that obviously could not have happened without Motorola’s knowledgeable participation. Maybe they did not directly tell the public how wonderful investment in Charter would be, but they clearly understood how their cooperation would be used. But what the hell, they owe it to their own stockholders to make as much profit as possible and sell as many boxes as possible and get free advertising. Greed is good, or so we are told! John Edwards is running for President as the champion of the little guy. His examples are not as complicated as the above. He paints a picture of big, bad health insurance companies not paying the claims of those unfortunately suffering from unusual diseases. That is easy to understand, but nevertheless Edwards is not getting much support from voters.

Saturday, January 12, 2008

The Public Services-Tax Disconnect

A New Hampshire exchange between Mitt Romney and Mike Huckabee dramatizes the disconnect in many peoples’ minds between public services and taxes.

Romney asked Huckabee (paraphrasing), “Did you or did you not raise taxes while governor of Arkansas?” Huckabee replied, “I invested in public infrastructure and the state’s future.” Romney, “You are not answering my question.” After twenty seven years starting with Reagan we have been bombarded with the message that taxes are bad and simply not related to government services. Thus, Huckabee deemed it prudent not to use the tax word. He apparently feels that he cannot simply say that he raised taxes to invest in the state.

The Republicans have succeeded in the war of words and symbolic politics. They get applause for supporting wars and a strong military while cutting taxes. The Republicans label the Democrats as the “tax and spend party,” while they have become the “spend and increase the debt party.” I guess that many Americans believe in the tooth fairy.

Black Identity & Black Power

In his conversation with Bill Moyers on his JOURNAL, Jan. 11, scholar Shelby Steele said the following:

“I am black and happy to be so, but my identity is not my master. I’m my master. And I resent this civil rights leadership telling me what I should think and what issues I should support this way or that way. And that’s where, in black America, identity has become almost totalitarian... You [must] subscribe to the idea that the essence of blackness is grounded in grievance, and if you vary from that you are letting whites off the hook. And we’re gonna call you a sell out. We’re gonna call you an ‘Uncle Tom’... I was gonna have a life or I was just going to be a kind of surrogate for blackness... but you enter an exile where the group identifies you as someone who is a threat, and part of being black is despising or having contempt for people like me.”

Steele contrasts the approaches taken by Blacks in race relations. One is the “bargainer” approach that says, I will not assume you whites are racists if you will regard me as an equal individual. This is the approach of Obama and Oprah, and they are popular among whites. The “challenger” approach says, All whites are assumed to be racists, and you must give me advantages. This is the approach of Sharpton. Steele regards the essence of “Blackness” as grievance, which is the foundation of Black Power creating anxiety among whites. The challenger approach keeps alive white obligation to Blacks.

Wednesday, January 2, 2008

Free Market: What Can It Mean?

The New York Times editorial (Dec 30, 07) entitled “Free Market: A False Idol After all,” contains the following quote:
“Every regulation reduces people’s freedom,” said David R. Henderson, a libertarian economist at Stanford University’s Hoover Institution. “The more regulation we get, the worse we do.” Who is the “we” referred to here?
Pitting the free market vs. the non-free market is a misleading conception. All markets begin with a distribution of property rights to be exchanged. Regulations are simply somebody’s property right and opportunity, and somebody else’s exposure to that opportunity. For example, a workplace safety regulation simply says that workers own the right to be free of certain hazards. Henderson uses an undifferentiated “we” that ignores the fact that freedoms of people with different interests conflict. Or as Isaiah Berlin put it, “Freedom for the pike is death for the minnow.”
A safety regulation functions no differently than a land owner’s property right. It is an asset for a worker just as is his human capital made valuable by regulation of slavery. It is part of what is antecedent to market trading. It says who has what to trade. If you do not want to live in a world that is the outcome a particular set of property rights, change the rights and a different outcome will be forthcoming. The market is not the culprit— it is the fact that some people have all of the rights. You need not oppose free markets, rather oppose the particular rights that account for the performance you want to change. Rights get changed by legislation and by court rulings.

By the way, slave owners argued against the abolition of slavery as an offense against freedom. To be honest, they should have said that regulation of slavery reduced plantation owners’ freedom and enlarged the freedom of former slaves. It draws attention away from the real issues of the distribution of property rights to cast the choice as free market vs. regulation. The false idol is not the market, but the particular market rules that produce a particular performance of the economy.