Tuesday, March 07, 2006

The O.K. Corral On K Street Project

Bill Moyers has written some wonderfully hard-hitting jeremiads, along with some great reform ideas. But after going to pains to paint himself as a pure non-partisan truth-teller, he undermines his arguments by splicing a few of his own political preferences into his deconstruction of the antidemocratic status quo. To wit:

...the deregulation of the banking, securities and insurance sectors which led to rampant corporate malfeasance and greed and the destruction of the retirement plans of millions of small investors; the deregulation of the telecommunications sector which led to cable industry price gouging and an undermining of news coverage; protection for rampant overpricing of pharmaceutical drugs; and the blocking of even the mildest attempt to prevent American corporations from dodging an estimated $50 billion in annual taxes by opening a PO Box in an off-shore tax haven like Bermuda or the Cayman islands. In every case the pursuit of this legislation was driven by big money.

Well, the deregulation of banking, securities and insurance created a more flexible playing field that has produced wealth by creating new efficiencies; rampant corporate malfeasance and the implosion of all those 401(k)'s was the fault of a ring of spectacularly corrupt executives, but where's the causal connection? Enron, Worldcom, Tyco, and Adelphia didn't include a banking, securities or insurance business among them. Other structural defects may be blamed for enabling all the Lays' and Scrushys' crimes, like the all too hype-happy financial journalists, the brokers incentivized to issue "buy" recommendations and the poor saps who were dumb enough to ignore those incentives and take the brokers seriously, and most of all the lazy and/or Scrushily immoral boards of directors who failed in their duty to their shareholders to poke and prod into their business's dealings with persistent, sharp questions. Any director, large investor, or broker could have read Andy Fastow's plain-as-day assertions on the S-1s that the company has such-and-such off-balance sheet partnerships, and started making phone calls: who are these partners, what are the terms of the partnerships, why are they off the balance sheet?

The deregulation of the telecommunications sector led to long distance service being made available at 3.9 cents a minute or twenty dollars a month flat, and incredibly low rates for many international calls. I fail to see the corruption of democracy in that. It might have helped promote democracy by allowing lots of Ukrainians and Georgians (and Iranians...?) to spend a lot more time chatting with their American cousins and college student children and learning more about the freedoms we in America take for granted.

Rampant "overpricing" (otherwise known as "recouping investment") of pharmaceutical drugs is directly responsible for "rampant" funding of research and development of new pharmaceuticals to provide the next generation of medicines, and the next. There are tremendous problems with pharmaceutical costs - which we might address primarily by tweaking tax and business incentives to shift incentives more toward research and development spending and away from advertising and distribution, so we can translate costs into new medicines more efficiently - and by a nationalized program to help people pay for their drugs. For all its problems, something like Medicare Part D is basically a good idea - too bad it has been such a hack job in the details.

Striking the right policies on business taxation between nations is tricky and important, and sometimes a U.S. company really does reduce its tax burden just by staffing a few secretaries in a low-end suite in the Bahamas - but the big picture is not so black and white. As someone I work with related to me, his company's products are designed in part by engineers in Singapore; are made in China, with components from around Asia; and about half are sold in Asia. Why should it have been required to remain a U.S. corporation, when it is so international in nature? The system has still been abused - witness the "amnesty" tax break window for transferring foreign income into the U.S. - but let's try to fix those abuses, or the Congress-lobbyist incest that enables those abuses, instead of decrying all off-shore corporate tax strategy as corrupt.

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