Friday, May 17, 2002
As I began to read Paul "Line 47" Krugman's column today, I found myself searching for the attack on President Bush. I had printed out a "Printer-Friendly Format" of Krugman's column for contemplation in the proper room of my apartment -- the throne. [Note to New York Times webmaster -- you need to add breaks between the paragraphs.]
It was disturbing, but as I neared the end of the first printed page, I found myself largely agreeing with Krugman. My only point of disagreement was really a minor philosophical one.
Why does S.&P. ? along with Warren Buffett, Alan Greenspan and just about every serious financial economist ? think that current accounting standards require a drastic overhaul? And if such an overhaul is needed, why doesn't the government do it? Why does S.&P. think that it must do the job itself?
In the wake of the Enron scandal and the ripple effect it's had on the accounting world, I certainly agree that accounting rules have to be strengthened. Where I disagree with Krugman is the necessity that the government take a lead role. I think that most corporations, at least for the next few years, are going to want their accountants to follow the strictest accounting rules possible. If Standard & Poor's guidelines for one-time expenses are more informative to investors then investors will act on that information. As long as public corporations' books are open to scrutiny and accountants are honest, the system works. The problem with Enron was in how they cooked their books, with the aid of Arthur Anderson.
When I flipped to the second printed page of Krugman, I was overcome with relief. Krugman had not been abducted by aliens. He had not been replaced by a "pod-person"
There it was, in black and white, an attack on President Bush.
So who could possibly be opposed? You'd be surprised.
Harvey Pitt, the accounting-industry lawyer who heads the Securities and Exchange Commission, has clearly been dragging his feet on reform. And his boss, George W. Bush, has declared himself opposed to treating stock options as a business expense. Wouldn't it be nice, just once, to see the Bush administration oppose the interests of a privileged elite?
To be honest, I'm tired. And I've said it already that there needs to be some reform. The government will eventually make changes. But government has a large quantity of inertia, so Krugman shouldn't really be surprised that there is feet dragging.
Also, I'm not sure that all of the nuances of the Enron scandal have been fully revealed or are completely understood yet. Until we have a very clear picture of what happened, we won't know how to prevent it in the future. Lawyers often say that bad cases make bad law. Well, rushed, knee-jerk legislation is often filled with Krugman's infamous loopholes. I think it's better to go slow and do it right, than rush and mess it up.
Finally, it appears that Krugman may be adjusting his columns in an attempt to remove himself from the top of lying in ponds list of most partisan pundits.
But the administration is not alone in its foot-dragging. In fact, perhaps the biggest foot-dragger of all is Senator Joseph Lieberman. Way back in 1994 Mr. Lieberman gave crucial aid to lobbyists trying to head off new accounting standards, which would have forced companies to recognize the cost of options; now he is once again defending the status quo, urging his colleagues to go slow.
Some politicians do see the problem; John McCain and Carl Levin have introduced legislation to reform America's accounting standards. But it seems unlikely that government will fix our dysfunctional accounting rules anytime soon.
Add the negative on Bush to the negative on Lieberman along with the positives of McCain and Levin and this column balances out very nice.
There is power in the blogosphere.