Commentary

Bush on Wall Street

This article orginally apperead in the National Review Online on July 10, 2002.

The president’s speech Tuesday was quickly criticized for being both too detailed and too short on specific details. Regardless of what he said, Bush’s critics were sure to sound tougher and meaner in the aftermath. But they did not sound smarter.

Two sharpies from CNBC remarked that the one thing we learned from the recent congressional grilling about Enron is that congressmen are even more ignorant about accounting than we thought. Brazenly ignorant, in fact.

Most congressmen think like lawyers, which means whoever wins is right. Bush has an MBA, so he shined best when endorsing private initiatives, notably the New York Stock Exchange proposals about making boards of directors truly independent of CEOs. The president’s idea of putting an explanation of executive compensation in annual reports was also clever. Any such substantive improvements never appeal to the political class, of course, because they fail to expand either the government or the scope for lucrative lawsuits.

The president’s strategic error, however, has been to accept his critics’ premises that (1) companies went bankrupt because of shady accounting rather than the other way around, and that (2) stock markets are weak only because of fear of accounting scandals rather than, say, fear of terrorism or lousy profits. The president’s says, “America’s greatest economic need is higher ethical standards.” On the contrary, the greatest economic need is for greater profits. What will it take to turn the stock market around? Greater profits.

Alan Reynolds is a senior fellow at the Cato Institute.