Accountability for Whom?

This article appeared on Nation​al​re​view​.com, October 3, 2002.
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The stock market keeps falling. It wasn’t supposed to be that way: Congress supposedly fixed the economy when it made corporate executives certify under oath their companies’ financial statements.

Naturally, legislators took full political advantage of the corporate scandals. “Put a few of these crooked CEOs in jail, prosecute them and pursue them endlessly,” demanded Rep. Peter DeFazio (D‐​Ore.).

Yet the market’s reaction suggests that businessmen are not the only people who need to be held accountable. Indeed, even before Congress acted, the market held companies such as Enron and its auditor, Arthur Andersen, accountable by essentially destroying them.

So Congress should look for other parties to hold accountable. For instance, there’s organized labor — which has joined the political class in the feeding frenzy against business. AFL-CIO president John Sweeney claimed that his members were the best means of protecting workers in the middle of the “corporate crime wave sweeping the country.”

Alas, there has been a union crime wave in progress for years. Department of Labor records, reports Peter Cleary of the American Conservative Union, “show that various labor union officials have been indicted for corruption, fraud and financial misdeeds at a rate of 12 new indictments and 11 convictions every month for the past four years.”

In particular, there is unions’ legendary misuse of members’ pension funds. Consider ULLICO, a financial‐​services company run by union executives to invest pension monies. A lawsuit by the National Right to Work Legal Defense Fund marshals powerful evidence that ULLICO’s board mismanaged its assets and then engaged in self‐​dealing at the expense of the workers whom it was supposed to be protecting. “This is exactly what Enron did,” notes Dan Cronin of NRTWLDF.

Then there’s the Bridge, Structural and Ornamental Iron Workers Union, whose accountant, Frank Massey, recently pled guilty to covering up millions in spending on food and drink, much of it labeled as “educational and publicity expenses.” Several BSOIWU officials have also pled guilty, and former president Jake West awaits trial.

Even worse, however, is Congress’ behavior.

If there are books that are misleading, deceptive, and fraudulent, it is those of Uncle Sam. Just ask the Office of Management and Budget, which in February said this year’s deficit would run $106 billion, but five months later declared that it would be $165 billion.

Last year OMB predicted that Uncle Sam would enjoy a surplus of about $5 trillion over the coming decade. Now, says Washington, it will be less than a trillion dollars.

Look at the federal government’s official numbers and you’d think it owes $3.5 trillion — or $6 trillion if you include intragovernmental debt. Actually, it’s about $36 trillion. Social Security flaunts a fraudulent trust fund and ignores a $13 trillion unfunded liability, benefits which have been promised but for which no funding exists. Medicare’s unfunded liability is $17 trillion.

This sort of dishonesty is rampant. To avoid having to comply with budget caps that it voted on itself, Congress routinely juggles the books.

For instance, Congress has long declared certain expenditures to be “off‐​budget.” Like last year’s $15.3 billion bailout of the railway workers’ retirement fund.

Also last year Congress bumped the military’s first paycheck of the year, long disbursed, back into FY 2000 in order to free up more money to spend under the 2001 spending caps. Legislative leaders similarly tried shifting Supplemental Security Income and veterans’ compensation payments due the previous October (FY2001) to September (FY2000) — after having previously shifted the outlays in the other direction. Only objections by Sen. Phil Gramm (R., Tex.) blocked that scheme.

Last year Congress put the budget for the decennial census into an “emergency”-spending bill. Thus, these routine, expected, and inevitable outlays did not count against the spending caps.

After decades of this kind of behavior, one can imagine the status of Washington’s books. CNN’s Jonathan Karl points out that an Office of Management and Budget assessment of 26 agencies gave 22 the lowest possible mark.

Last year the General Accounting Office found $17.3 billion in “unreconciled transactions,” that is, cash that seemed to have simply disappeared. That’s almost five times WorldCom’s misstated $3.8 billion in earnings.

Even that pales in comparison to the $33 billion which Congress collected last year by extending by two weeks the final deadline for making quarterly corporate tax payments. Doing so shifted the cash from the past, and forgotten, fiscal year to the then current one, allowing more spending under the budget caps.

And while companies actually can’t spend what they don’t have, that has never limited Congress. Tom Schatz of Citizens Against Government Waste notes that over the last five years Uncle Sam has busted its budgets by $142 billion. Enron, WorldCom, et al., are mere pikers compared to the feds.

Financial misreporting is not the only abuse, however. The new corporate reform bill targeted obstruction of justice and evidence shredding. Yet four years ago the Justice Department destroyed 400 boxes of documents tied to a pending lawsuit; three years ago, charged one employee, the Immigration and Naturalization Service head ordered the erasure of embarrassing e‐​mails.

But don’t expect Congress to discipline errant officials. Certainly not if they are legislators. Reported the Washington Post, as corporate officials were preparing to certify their companies’ results: “In contrast to their campaign to crack down on crooked businessmen, lawmakers are increasingly choosing to overlook alleged transgressions by their own colleagues.”

The occasional honest government official, especially in a moment of weakness (or upon leaving office) admits the obvious. Ronald Reagan’s first OMB director, David Stockman, declared in 1985 that Washington increasingly employed “accounting gimmicks, evasions, half‐​truths and downright dishonesty” in its budget numbers. Even then, he argued, were those officials subject to the same rules that applied to private business, many “would be in jail.” That applies much more so today — imagine federal officials having to certify the accuracy of their books.

Still, compounding outrageous economic mismanagement with flagrant, sanctimonious hypocrisy would be easier to accept if Congress wasn’t busy enriching the very same companies that it has been denouncing for destroying the economy. Ignore the ubiquitous pork, through which legislators move taxpayer funds around in an attempt to convince those same taxpayers to vote for them.

Rather, focus on corporate welfare. Last year legislators slopped an incredible $90 billion into the federal trough for the largest, most profitable enterprises in America. That’s a third more than just four years before.

Even before the latest scandalous farm bill, costing $190 billion over the next decade, and billions more just voted in special drought relief, Uncle Sam was pouring tens of billions into American agribusiness. There are advertising subsidies through the Market Access Program for the likes of Gallo Wine and McDonald’s hamburgers and regulatory and tax preferences to encourage use of ethanol.

The Commerce Department exists for little more than subsidizing business. Hi‐​tech companies join with exporters and fisheries in looting taxpayers. Independent agencies, such as the Export‐​Import Bank and Overseas Private Investment Corporation, add another $1 billion a year — and helped finance Enron in past years.

Ready cash flows to major oil and energy companies; in April the Senate voted to give away as much as $40 billion to natural gas investors by setting a floor for production on Alaska’s North Slope. The housing‐​industry benefits from hundreds of grant, loan, and guarantee programs. Every form of transportation collects federal cash. The Small Business Administration makes sure that the benefits flow down to corner liquor stores.

Indeed, at the very time that Congress was debating its crackdown on corporate America, an Internet ad was circulating promising access to federal grants. It declared: “Anyone thinking about going into business for themselves, or wanting to expand an existing business should rush for the world’s largest “one‐​stop‐​money‐​shop” where free business grants to start or expand a business is being held for you by the federal government.” Free to everyone but a taxpayer, that is.

Yes, let’s put “crooked CEOs in jail.” But let’s toss in a few crooked politicians too. Then maybe the market bulls will return.

Doug Bandow

Doug Bandow is a senior fellow at the Cato Institute and a former special assistant to President Ronald Reagan.