The Mackinac Center for Public Policy
(MCPP is a nonpartisan research and educational organization devoted to improving the quality of life for all Michigan citizens by promoting sound solutions to state and local policy questions through the objective analysis of Michigan issues. MCPP seeks to broaden the policy past the belief that government intervention should be the standard solution for various issues. MCPP offers an integrated and comprehensive approach encompassing the role of voluntary associations, business, community and family, as well as government.)
MIDLAND, Mich.-- Are More Laws the Answer to Corporate Scandals?
By Daniel Hager
Well, corrupt activity by corporate executives is on the way out now. Congress is passing new legislation to put tighter clamps on business. That'll solve the problem.
If you're so naïve as to believe that, you should consult the timeless wisdom of the great labor leader Samuel Gompers. He was the longtime president of the American Federation of Labor in the late 1800s and early 1900s. Gompers was also a Constitutionalist who advocated sharply limited government. Laws, he maintained, promise more than they can deliver. Accordingly, he believed the fewer laws the better.
In 1915 he wrote, "Many conscientious and zealous persons think that every evil, every mistake, every unwise practice, can be straightaway corrected by law. There is among some critics of prevailing conditions a belief that legislation is a shortcut to securing any desired reform -- merely enact a law and the thing is done. Now enacting a law and securing the realization of the purpose the law is aimed to secure are two vastly different matters."
A law merely imposes restrictions under which persons must operate. It does not ban anyone from continuing to pursue ends that may be affected by the law. The highly motivated study the law to ascertain the forms of conduct that may still be permitted.
Cynics describe this process as "searching for loopholes." Frequently some may be found and exploited.
Consider the quarter-century-long string of laws aimed at limiting contributions to political campaigns and requiring disclosure of donors and donations. But candidates for the higher public offices still need hoards of money to underwrite their efforts, and supporters are happy to help -- and sometimes in the most ingenious ways.
Currently in Michigan we have a controversy animating the Democratic gubernatorial primary race. The St. Clair County Democratic Party is placing ads that favor one candidate and criticize past actions of another. These commercials are considered "issue ads" and fall outside the scope of present laws. The sponsor need not disclose the expenditures of the ad campaign or even the identity of the donors financing it. Laws promote inventiveness.
Laws also run the risk of doing more harm than good. In the wake of the WorldCom debacle, quick-fix legislation rushed through by Congress may impose new shackles on honest companies that should be freed to create additional wealth rather than further hindered from doing so.
Again the words of Gompers are wise across the years, "To enact a law with the hope and for the purpose of educating the people is to proceed by indirection and to waste energy. It is better to begin work for securing ideals by directing activity first for fundamentals."
The fundamentals are these: Publicly held companies need to tap into capital markets to finance efficiencies and expansion. As custodians of funds provided by others, they have a self-interest in using that money wisely. To secure these funds, they must build trust.
Now the general trust has been breached. A widely overlooked element in the collapse of that trust is government itself and laws that have empowered it.
The 1990s stock market experience bears a strong parallel to the euphoric boom of the 1920s except in one respect -- the Securities and Exchange Commission did not exist until 1934. Investor recklessness in the late 1990s, in distinction to its counterpart 70 years earlier, was built on a base of purported governmental "protection." After all, if pipedream business projections were a pack of lies, government regulators would clamp down on the crooks, so ostensibly there could be some degree of sanity in the soaring markets.
Unfortunately, the SEC can never possess an adequately large staff to fully police businesses any more than police departments can be big enough to nab all highway speeders.
Today, despite all the laws, Arthur Andersen is a late-night, talk-show joke, WorldCom Inc. a shambles, Enron Corp. a wreck. In a freer market with fewer laws, swindlers would still run loose in pursuit of short-term gain but would eventually receive their deserts because of their violation of trust. Corporations would have to plead with the cautious for the privilege of securing investment funds and to employ scrupulously honest business practices to prove their worthiness. The shysters, as through all of history, would still be able to appeal to the greedy.
An overload of laws obscures one of the least-appreciated principles of the free market: Ultimately the strongest product that any business can offer is its record of integrity.
(Daniel Hager is an adjunct scholar with the Mackinac Center for Public Policy.)
The Heritage Foundation
WASHINGTON -- Putting the War Effort on Defense
By Jack Spencer
Congress has no problem shelling out $6.5 billion for mass-transit systems that fewer and fewer Americans use each year. It manages to fully fund Medicare, despite $23 billion in waste and fraud each year. It pays farmers -- mostly mega-corporations, actually -- $1.3 billion not to grow certain crops.
But federal lawmakers have only recently begun to respond to a request the Bush administration made March 21 for $14 billion to help the Defense Department wage war on terrorism. It passed a House-Senate conference committee on July 18, and Pentagon officials say they're confident Congress will try to work out any problems it has with the request before the August recess.
But time is short, and it's downright scary to think what could happen if this supplemental budget request does not move forward before then.
The Defense Department has asked for $7.2 billion basically to deploy forces and equipment and rotate new soldiers to the front. It's asked for $4.1 billion to pay the 82,000 reservists and National Guard members called to active duty since Sept. 11. The rest would go for the Air Force to pay people it prevented from retiring in the wake of Sept. 11, munitions, and what the Pentagon calls "coalition support" -- helping Pakistan, mainly, allay the expense of helping us fight the war.
For weeks, the Defense Department has been meeting today's expenses with money allocated for the fourth quarter of the fiscal year. This arrangement works nicely until the fourth quarter arrives on Aug. 30 and the military has no money left.
Then, we get to find out what actually happens if Congress doesn't solve this before the recess. Planning for this has begun. The EA-6B, an airplane that jams enemy radars to protect troops and other American planes, falls into what's called the HD-LD category-high-demand, low-density. In short, we need it a lot, and we don't have many. If funds don't arrive soon for maintenance, planes will be pulled out of service so they can be used as "hangar queens" -- cannibalized for spare parts for other planes. Same goes for combat aircraft, such as the F-18.
And by the middle of August, absent the supplemental, the Air Force will cease many training flights. Oh, those guys all know how to fly already, some say. Well, how long can they fly high-speed, high-stress missions without making mistakes that cost lives? And is it worth it to find out they can't? No training means no relief for people who work under incredibly demanding circumstances for dangerously long periods.
By the end of August -- that is, before Congress could return from the recess and rectify things -- payrolls also would go unmet. The Defense Department has said it would have to furlough up to 35,000 civilians who staff its bases and facilities.
Navy ships would have to cut back on operations and eventually be forced to return to port absent the funding. The supply line that keeps our military going extends more than halfway around the world. The Army would have to cancel three training events -- two battalions visiting the National Training Center at Fort Irwin, Calif., and one brigade going through an entire training rotation.
And that's not to mention the security measures that will be postponed. Most bases are constructing "lay-by" lanes to inspect all trucks that make deliveries; will the trucks simply not be inspected? Then there's the calamity for families of service men and women who could find themselves calling off planned moves, scrambling to pay rent, and struggling to get their kids in school.
So it's a fair question: Why the delay? More than 3,000 of our fellow citizens died in the Sept. 11 attacks, and a dark force inimical to our way of life and committed to training its full intellectual, financial and war-making capabilities on us lurks. The Taliban may be gone from Afghanistan, but al Qaida continues to operate, and our costs in weapons, systems and personnel figure to escalate -- from $2 billion per month now to $2.5 billion -- as the war moves to its next stage.
If Congress doesn't act before the recess, Pentagon officials say it will set back purchasing, deployment, maintenance and training at least 10 weeks. And that's provided the issues get resolved immediately upon Congress' return.
Given that superior training accounts for much of America's military advantage over its opponents, skimping there does not serve us well. Given that the dependence on National Guard and reserve units has reached the point where active units find it nearly impossible to deploy without reserve support, training becomes even more critical.
As for spare parts, we can either buy those or skimp now on parts and find ourselves buying entire planes in the near future. It's penny-wise and pound-foolish.
(Jack Spencer is a defense policy analyst in the Davis Institute for International Studies at the Heritage Foundation, a Washington-based public policy research institute.)
Institute for Public Accuracy
(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)
WASHINGTON -- Stock Market Slide: What Does It Mean?
-- Ellen Frank, professor of economics at Emmanuel College in Boston and author of the forthcoming book "Money Illusions."
"For the last 10 years or so, the broad public has been encouraged, mostly because of 401(k) plans, to regard the stock market as a safe place to invest retirement funds and obtain consistently high, if occasionally volatile, returns. Small investors have been led to believe that a buy-and-hold strategy will yield a certain 7 percent return, when it almost certainly will not. Stock prices have risen faster than the economy, than sales, than corporate profits. This simply can't continue. Insiders have been bailing out, leaving small investors to suffer the losses. What the U.S. government should be doing is developing retirement programs that are safe, secure, stable and not dependent on stock returns. The decline is of course a compelling argument against Social Security privatization."
-- Dean Baker, co-director of the Center for Economic and Policy Research and the author of the article "The Costs of the Stock Market Bubble."
"The 1998-to-2000 stock bubble was completely transparent to any economist or analyst who looked at it seriously. The public has every right to be scared about our political and economic leadership."
-- Doug Dowd, author of the book "Understanding Capitalism" and the article "The
New Economy: Stairway to the Stars or House of Cards?"
"The stock market now is playing very much the same role it did in the late 1920s; it got very seriously inflated then as it did the last five or six years. It's largely driven by euphoria. What has been keeping the economy going is debt -- household debt and international debt. The debt has to continue to rise for the economy to continue its course, but the debt can't continue to rise indefinitely. So much has been based on borrowing, borrowing, borrowing. It's likely that there will not be a panic just in the market, but throughout the economy."
-- Robin Hahnel, professor of economics at American University, Hahnel is author of "Panic Rules! Everything You Need to Know About the Global Economy" and the
forthcoming "The ABC's of Political Economy."
"The essential problem is that we've tied the real economy of production and consumption -- which is what most of us care about -- ever more tightly to the fortunes
of the financial sector that has been made much more volatile and crisis-prone by liberalization and deregulation of financial markets.
While changes in the financial sector have provided new opportunities for speculators to increase their wealth, the increased fragility of the financial sector does great damage to the real economy. The depression in East Asia that followed the Asian financial crisis of 1997 and 1998 was one poignant example ... The problem is clearly not just evil chief executive officers; the regulatory framework dating back to the New Deal has been scuttled...."