Think Tanks Wrap-up

Jan. 17, 2002 at 6:07 PM
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WASHINGTON, Jan. 17 (UPI) -- The UPI Think Tank Wrap-Up is a daily digest covering brief opinion pieces, reactions to recent news events, and position statements released by various think tanks.

The Cato Institute

WASHINGTON -- Top 10 Fiscal Myths of Sens. Kennedy and Daschle

By The Cato Institute

In an economic address Wednesday at the National Press Club, Sen. Edward Kennedy, D-Mass., called for supplanting the next stage of the $1.35 trillion tax cut, passed last year, with more federal spending on existing and new programs. Kennedy's speech echoed many of the ideas expressed recently by Senate Majority Leader Tom Daschle, D-S.D.

Cato Director of Fiscal Policy Chris Edwards identified 10 enduring myths in both senators' speeches.

1)Myth: Tax cuts cause budget deficits, but more spending doesn't.

Reality: Spending is set to soar at least $120 billion in fiscal 2002, much more than the Bush tax cut reduced this year's revenues.

2) Myth: Any unmet "needs" in society demand government action. Kennedy identified a national education system for 2-year-olds as an unmet need.

Reality: Government big enough to supply everything you need is big enough to take everything you have.

3) Myth: Politicians should be army generals exhorting the nation with "we should" and "we must" commands. Daschle had 16 "we shoulds."

Reality: America is a hugely diverse society of 280 million citizens with different needs, which they won't be able to meet if the federal government keeps expanding.

4) Myth: The government's interests are the same as society's. Daschle says the Bush tax cut "put us in an unnecessary fiscal bind" that will "shortchange critical needs."

Reality: The size of the federal budget and the size of private pocketbooks are inversely related. The fiscal bind and critical needs of families and businesses during a recession can be aided with lower taxes.

5) Myth: New spending programs make families better off since money grows on trees.

Reality: Research shows that every $1 of new spending costs Americans about $1.40 due to higher compliance costs and inefficiencies of the tax system. So new spending, on net, makes American families worse off.

6) Myth: Failing government programs simply need more reform, co-ordination, and consolidation.

Reality: Many government programs have been "reformed" repeatedly with the same bad results. The real answer for many programs is termination or privatization.

7) Myth: Tax cuts cause high interest rates. Both Kennedy and Daschle say that the Bush tax cut caused high interest rates.

Reality: Both short and long-term interest rates are currently low, not high. These days capital markets are global, so modest U.S. budget deficits have negligible effects on interest rates.

8) Myth: Public/private partnerships combine private sector efficiency with government funding.

Reality: Mixing business with politics usually leads to corruption and favoritism as private groups latch onto the government gravy train.

9) Myth: Any problem in the private sector is a "crisis" that will get worse without government help.

Reality: Private markets and individuals are constantly solving problems and making life better for their communities. Washington's "help" usually makes things worse.

10) Myth: Centralization and universality in education and other industries is the wave of the future.

Reality: Diversity and decentralization of power are the way for America to go in the 21st century.

The Acton Institute

(The Acton Institute works to promote a free and virtuous society characterized by individual liberty and sustained by religious principles. Its goal is to help build prosperity and progress on a foundation of religious liberty, economic freedom, and personal moral responsibility.)

GRAND RAPIDS, Mich. -- Enron's Moral Lessons

By Phillip W. DeVous

As the Enron meltdown continues to unfold, analysts of every kind are searching for the deeper meaning in this catastrophic corporate collapse. Left-leaning pundits have used Enron's failure to decry what they perceive as the inherent and systemic corruption of corporate America. They choose to ignore the fact, however, that any system or governing structure is only as good as the people who administer it.

In the case of Enron, the need for morally informed corporate governance, founded on solid moral reasoning, has been quite clear.

A recent New York Times article highlights the role of Sherron Watkins in seeking to hold Enron's questionable business practices accountable to proper moral and ethical standards. Watkins, Enron's vice president for corporate development, stated her concerns in an unsigned letter to Enron's chief, Kenneth Lay. In her letter, she argued that the company's questionable accounting methods threatened to destroy Enron's credibility, and even the company itself. For those who would deride the corruption of corporate structures, Watkins lends a much-needed voice to the call for moral witness in issues of corporate governance.

In her letter to Lay, Watkins not only highlights the need for morally discerning corporate officers, but also offers a sound insight into how the free market responds to morally questionable behavior on the part of business executives. In commenting on the off-balance sheet accounting arrangements employed by Enron to obscure massive losses, she offers that "the business world will consider the past successes as nothing but an elaborate accounting hoax."

No doubt, many investors felt the same way and responded by selling their Enron holdings en masse. The consequences of this loss of investor confidence in Enron management are now familiar to all.

The loss of investor confidence in Enron, however, does not rectify the harm done to many investors, most notably many of Enron's own employees, whose life savings have been wiped out to due to executive malfeasance.

It is truly shameful that Enron executives failed to heed Watkins' advice to come clean on the questionable, and perhaps illegal, arrangements devised to obscure the real financial condition of the company. This failure on the part of Enron's management, however, should not serve to indict the structure of corporate America. Rather, it should serve to illustrate the need for a properly formed moral culture among those called to the vocation of business and commerce.

Any structure, corporate, government, or otherwise, is susceptible to the failings of the individuals involved. The foundational convictions of business life should be sound moral reasoning and the desire to accomplish moral good in serving a customer. In the case of Enron, the company's executives defaulted on more than loans. More significantly, they defaulted on their responsibility and accountability to shareholders and customers.

This breach of the public trust between the company and its shareholders cannot begin to be restored until moral accountability is achieved and restored. Sadly, the respected law firm of Vinson & Elkins has continued to aid Enron executives in their shaky moral reasoning by affirming the very practices that led to the company's demise. In a report obtained by The Wall Street Journal, Vinson & Elkins attorneys argue that "Enron's practice of forming special-purpose entities to keep debt off the books was creative and aggressive, and that no one has reason to believe that it is inappropriate from a technical standpoint."

It might well be accurate to say that company executives are correct from a "technical standpoint," but it is clear that many shareholders found the company's practices "inappropriate," even if corporate executives were legal from a "technical standpoint." Certainly, the loss of confidence in and financial collapse of the company indicates that something was "inappropriate" in their conduct of Enron's business.

Such a legalistic approach to moral reasoning may keep Enron executives out of jail and clear of liability (which remains to be seen), but it will not revive a corporation once heralded as the corporate model of the Twenty-First Century. Furthermore, such a crassly pragmatic approach to moral reasoning in corporate governance -- an approach that replaces solid moral conviction with acrobatic legalisms -- serves to further undermine the credibility of corporate institutions. No doubt, such tactics lead to a deeper cynicism concerning the business structures that are at the foundation of American leadership in business and commerce.

In responding to the vocation of business and commerce, one assumes the obligations of moral leadership associated with that vocation, which include accountability, honesty, and transparency in governing the corporation. Abdicating such leadership in attempting to cover poor management decisions is something that cannot stand if our society is to strive to be both free and virtuous.

(Phillip W. De Vous is the public policy manager for the Acton Institute.)

Competitive Enterprise Institute

WASHINGTON -- Enron's Lobbying Goals Would Kill More Jobs Than Its Collapse

Many members of Congress are criticizing the Bush administration for not having tried to prevent thousands of people from losing their jobs and pensions when Enron Corp. collapsed last month. Dispute is nearly nonexistent among economists, however, that far more jobs would be lost if Enron ever achieved one it its main political goals -- limiting carbon dioxide emissions.

A recently revealed Enron memo asserted that the Kyoto global warming treaty and ensuing limits on fossil fuel energy use would "do more to promote Enron's business than almost any other regulatory initiative outside of restructuring the energy and natural gas industries in Europe and the United States." It was also reported that Enron lobbied both the Clinton and Bush administrations frequently and vigorously to cut carbon dioxide emissions under cover of a "market mechanism," i.e., an emissions trading program.

"As a natural gas producer, gas pipeline owner, wind power generator, and energy trading middleman, Enron knew that it could make huge profits from government programs to cut carbon dioxide emissions," said Myron Ebell, director of global warming policy at the Competitive Enterprise Institute. "But Enron's profits would come at the expense of other industries and consumers. Every economic study that has been done on the various proposals to ration energy has shown that the economic losses would be enormous --far larger than those caused by Enron's bankruptcy. Any emissions trading scheme is simply a hidden tax on energy, as a Congressional Budget Office study reported."

Unfortunately, Enron's collapse doesn't mean that these policies have disappeared. Several major corporations joined Enron to lobby for the same energy rationing schemes because they stand to make hundreds of millions of dollars on the backs of consumers and taxpayers. These corporations include members of the Pew Center on Global Climate Change's Business Environmental Leadership Council and of the Clean Power Group.

"What's most shocking is that some of loudest voices in Congress criticizing Enron's contacts with the administration, for example, Rep. Henry Waxman and Sen. Joseph Lieberman, support the same policies pushed by Enron to enrich special interests by rationing energy and raising prices," Ebell added.

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