The government's War on Business (You're next)

mises.org ^ | 9/6/02 | william anderson

[from occupied ga]

The War on Business

by William L. Anderson

[Posted September 06, 2002]

With the recent guilty plea of former Enron executive Michael Kopper, it seems that the floodgates are now officially open in the government’s war against American business. Democrats are demanding something just short of summary executions, while Republicans and President George W. Bush are trying to outdo the Democrats in their anti-business rhetoric, and the mainstream news media outlets are playing the role of Joseph Goebbels in helping to stir the whole pot of hysteria.

From Ted Rall and the New York Times on the left to Fox News, the Washington Times, and Robert Novak on the right, people are being told that U.S. business officers and owners are crooks, charlatans, and threats to a free and decent society. Of course, the public is responding predictably, as pollster after pollster reports that Americans approve of arrests and more arrests of these alleged miscreants.

Unfortunately, this set of affairs has nowhere to go but downward, as the government’s assault on business is going to have devastating effects, not only upon the individuals being arrested and charged with near crimes against humanity but also upon the future business environment in this country. However, many of the accused probably are guilty of little more than misreading the market or trying to keep their company’s stock prices high against impossible odds (and protect themselves against a herd of class-action lawyers looking to sue when those prices inevitably fall).

Furthermore, as Novak pointed out in a recent column, high-profile arrests mean favorable publicity for U.S. prosecutors. According to Novak, James Comey, Bush’s new U.S. attorney in New York City, will try to follow in the footsteps of Rudy Guiliani, the former New York U.S. attorney who parlayed his prosecutions of Michael Milken and Leona Helmsley into the mayorship of that city, and now makes speeches at 75 grand a pop.  Writes Novak,

"Comey has not pleased Republican lawyers by insisting that accused corporate executives who had surrendered voluntarily be manacled and perform a well-photographed perp walk. However, the spectacle was enjoyed by the prosecutor’s boss: George W. Bush."

There is no doubt as to what Comey and his cohorts are attempting to do. By making it nearly impossible for anyone accused of “fraud” and other such crimes to receive a fair trial, or by piling on indictments--some of which are for activities that actually are legal according to U.S. law--dozens of executives will be forced to plead guilty and go to prison, often for “crimes” they never committed.[i]

At this point, I need to pause to answer the questions that many readers certainly will be asking: How can someone actually defend fraud?[ii]  Furthermore, if people commit fraud, should they not have to go to jail for it?

Neither I nor any of my like-minded colleagues who write on these pages endorse the commission of fraud on any scale in any organization, be it business or government. However, before we sharpen our guillotines to lop off the heads of the accused, perhaps we should try to make a determination of how we define that word. Fraud, one would think, goes to intent, and, in the case of criminal law, means the presence of mens rea, or “a guilty mind.” In other words, in order to call something fraud, one must have intended to commit it in the first place.

For example, assume that I sell my old car to Joe. When I had it, the car ran well and I had no reason to suspect it would do otherwise. A day after Joe buys it, however, a belt breaks, or there is some other malfunction that costs him a bundle to repair. The question arises as to whether or not I have defrauded Joe. Had I known something was about to blow and did not inform him at the time of purchase in response to his questions, then I may be guilty of fraud.

But what if Joe comes to my house, asks me my selling price, then pays it on the spot without asking questions? If he did not ask about defects, am I obligated to tell him, anyway? (St. Thomas Aquinas outlined a similar situation in which a merchant sells wheat to starving villagers. Is he obligated to let them know more wheat is on the way? Aquinas said no, although he added it would be more virtuous of him to inform the peasants of the coming shipments.)  It is obvious that, although it would have been nice of me to inform Joe of the car’s troubles, I did not defraud him, since he had shown no interest in asking about the defects.

In the case of corporate executives, the issue is a bit dicey, but it is still possible to make sense of what might be fraud and what is not. For example, if the matter involves the gray areas of accounting, including the various categories in which one records assets and liabilities, often it is difficult to ascertain whether or not fraud has occurred, and one needs to apply the mens rea standard.

Unfortunately, the U.S. Supreme Court has slowly but surely worn away the protections of mens rea, which has been a boon to ambitious prosecutors. As Paul Craig Roberts has pointed out in his book The Tyranny of Good Intentions, large numbers of Americans each year go to prison for violations of laws or regulations of which they either were ignorant or disobeyed without any iota of criminal intent.

Yet, intent goes to the heart of the matter. Assume that I am driving my car carefully down a city street (at the speed limit) when a child suddenly and without warning jumps in front of me. I then hit the child and he is killed. That boy is as dead as he would be had I kidnapped and murdered him, yet in the former case,  I killed him without any criminal intent, while in the latter case I would have committed a depraved act.

Any fair-minded person would object if a prosecutor charged me with first-degree murder for the first illustration, yet that is precisely what has been occurring in criminal justice in the United States, and especially in the federal system. For example, a number of people have gone to federal prison for violations of environmental law despite the fact that (1) they did not harm the environment, (2) they were acting in good faith, having received state permission, and (3) they were unaware of violating federal statutes until after the fact.

This latest anti-business jihad being conducted by various federal agencies is likely to follow the example of environmental prosecutions, in that many people are going to be prosecuted for what are alleged technical violations of financial regulations in which either there are “gray area” issues or the violation occurred without criminal intent. Both Congress and the White House, however, are trying to outdo one another in the category of who can demonize business executives most loudly, especially with critical congressional elections coming this fall.

When one includes ambitious federal prosecutors in the mix, along with a statist, lap-dog news media that operates as little more than a conduit for illegal leaks from prosecutors, it is not difficult to see just how poisonous the present atmosphere has become to any fair application of justice. What supposedly passes for a civilized court system in which one is “assumed innocent until proven guilty beyond a reasonable doubt” has turned into something akin to mob rule.

Furthermore, one should also ask the question of whether or not some of these cases actually belong in civil instead of criminal court. Over the last several decades, Congress has slowly but surely given over its lawmaking powers to judges and bureaucrats. On top of that, lawmakers have been moving situations that once were reserved for civil courts into the arena of criminal law.

Take the recent “insider trading” case with ImClone, for example.  Even if we assume that the company’s executives (and Martha Stewart) sold their stock on the open market knowing that the bad news regarding the Food and Drug Administration would quickly depress the stock’s value, that ultimately is something that should be decided in the civil arena. If the purchasers of those particular shares of stock believe they have been defrauded, civil law gives them ample opportunity to seek redress in the same way that Joe could sue me if I were to defraud him in selling him my old car.

Making such issues criminal matters is harmful in many ways. First, it deflects the true direction of harm. Instead of real individuals having been hurt, we have the state “claiming” harm to the “community.” As Austrian economists such as Ludwig von Mises and Murray Rothbard have long pointed out, however, “community” is a fictitious entity. Only individuals can be hurt. By forcing the issue into criminal court, resources that might have been used to give redress to the victims of fraud are now being used by prosecutors and defense attorneys, and if the individual charged is found guilty, the government often seizes that person’s property, making it impossible for the actual victims of fraud to be compensated at all.

Second, the expansion of criminal law becomes a tool of tyranny. When more and more activities are criminalized, in the end it means more ruined businesses, destroyed families, and increased financial burdens upon taxpayers, as they must pay for the expanding prison population. The United States already incarcerates more people than any other nation on the face of the earth (approximately two million, one-fourth of all the world’s prisoners), and the majority of them are in jail for non-violent offenses.

Because Congress and state legislatures have greatly increased the number and scope of the coercive tools used by the prosecution to gain convictions, we have also seen an increase in the number of innocent people going to prison.[iii]  Given the current public outcry over the alleged business scandals, politically motivated prosecutors are working overtime to bring cases against hapless executives, many of whom at worst are guilty of technical violations of regulations and at best were operating in good faith, given the business conditions when they made their fateful decisions. And the present political climate ensures that most of these executives, guilty or not, do not stand a chance of receiving a fair trial.

No doubt, many “ordinary” people have applauded the recent “perp walks” that federal prosecutors such as Comey have forced upon arrested executives in attempts to further humiliate them. No doubt, many “ordinary” people have been angered at some of the heavily publicized alleged misdeeds of these executives, who supposedly have looted their own companies for their own gain. No doubt, many “ordinary” people have approved of “throwing the book” at those who are being charged.

What these folks do not realize, however, is that if prosecutors can roll wealthy and prominent people, illegally leak grand jury testimony with no fear of being prosecuted themselves, and conduct poisonous campaigns in the press that all but guarantee those currently in the dock cannot receive a fair hearing, then there is no limitation at all to state power. A government that can jail the rich and well-known at will and confiscate all of their assets is a government that can do the same thing to “ordinary” people--and at a lower cost to government officials. If people really want a prosecutorial state with no limitations, they will have their wish granted--and lose whatever precious freedoms they may still have. That is nothing less than a deadly bargain with the Prince of Darkness himself.

---

 

William Anderson, an adjunct scholar of the Mises Institute, teaches economics at Frostburg State University. Send him MAIL.  See his Mises.org Articles Archive.

 

---

[i] For example, it is legal for businesses to use non-U.S. banks, but prosecutors often will charge people with “money laundering” in an attempt to increase the number charges in order to ensure an increased likelihood of guilty pleas.

[ii] My recent defense of Martha Stewart brought a number of hostile e-mails to my computer in which people accused me of defending fraudulent behavior.

[iii] As Paul Craig Roberts has noted, many people plead guilty even if they are innocent, since they lack the resources to fight the modern prosecutor, who often do not care themselves whether or not the accused is guilty or innocent.

[from occupied ga]

This sort of thing is just one example of how the federal government (and it's accomplices in state and local governments) have converted what was once a free country into a police state.

Not that I expect any of the bushbots who pollute FR with things like "a day in the life of King George II" (gush gush) to understand this, or even disapprove of it if they do understand it, but hopefully not everyone feels that the election of a Republican liberal statist was the answer to the evils caused by the previous Democrat liberal statist.

[Cold Heat]

Believe it or not, there is a great deal of concern for this issue in the Bush admin.

It is difficult to say publically because dems are running attack ads like the one against Hutchinson accusing him of voting for tax breaks to be given to Enron. They are unsurpassed when it comes to public manipulation. They are equal with the Islamacist's and Hitler.

[Cold Heat]

Small Business Focus: The Devil's in the Details
Release Date: 09/06/2002

by Jack Faris

Legendary New York Yankees manager Joe McCarthy joked that he once dreamed of dying, and on arrival in heaven, was asked to assemble a baseball team. Naturally, he called up such greats as Cy Young and Babe Ruth. They were unbeatable.

Then, the day came when his heavenly stars were called to face the Devil's team. McCarthy, knowing his players were the best, told the Devil he didn't have a prayer of winning.

"You're right," said the Devil, "but I've got all the umpires."

Here on Earth, the superstars of small business slug away daily on Main Street. They're great players, tirelessly hitting home runs for the nation's economy.

They have few rivals. According to the U.S. Small Business Administration's Office of Advocacy, small firms dominate several sectors of the American economy. For example, 99.9 percent of all construction firms are small, as are 99.6 percent of enterprises in professional, scientific and technical services. Add 99.3 percent of health care and social assistance firms for good measure.

They're the best players. But their strongest opponent, the federal government, has all the umpires. While the small-business sector generates nearly three-fourths of net new jobs, complying with regulations costs them 60 percent more than their big-business counterparts. Their cost just to meet federal rules is nearly $7,000 per employee.

It's no surprise then that most small-business owners are tired of being hassled by the regulator-umpires. NFIB research found that the federal government was considered the primary culprit by virtually half of those surveyed. Forty-four percent called regulation a serious problem.

But just a few days ago, something happened that should help level the playing field. President Bush stepped into the game, called time-out, and told the umpires to play fair. Officially issuing Executive Order 13272, the president demanded that federal agencies, when writing new rules and regulations, implement policies that protect America's small businesses.

Although the Regulatory Flexibility Act has been in the rulebooks for 25 years, federal umps have ignored its requirement to consider the impact on small firms before they regulate.

They often "don't care that the law is on the books," the president said when he unveiled his small-business plan earlier this year. That plan includes an initiative to "tear down the regulatory barriers to job creation for small businesses and give small-business owners a voice in the complex and confusing federal regulatory process."

The feds may have all the umpires, but the man who controls the rulebook clearly intends to challenge any bad calls. The Executive Order sets regulation-writing policies and directs SBA's Office of Advocacy to train agencies to measure the regulatory damage on small firms, and review proposed rules before they're published. What's more, the bureaucrat-umpires will now have to report annually on their compliance.

Small-business owners are encouraged by this effort, but they'll keep a wary eye on the federal umpires. They've learned that when dealing with the government, the Devil is always in the details.

[from occupied ga]

Believe it or not, there is a great deal of concern for this issue in the Bush admin.

You are one of several people who have recently put forth the thesis that the Bush administration is going along with statist, unconstitutional things because of the political climate. I strongly disagree.

Have you heard of the principle of Occam's razor? Briefly put, it says that the most simple explanation is most likely the correct one. If it walks like a duck, quacks like a duck, looks like a duck, and craps like a duck, it is very likely a duck. Likewise if the Bush signs bills like a liberal statist, refuses to rescind EO's on gun control like a liberal statist, refuses to put the brakes on the alphabet soup of agencies who sole purpose is to remove our freedoms like a liberal statist, then he is a liberal statist.

[from occupied ga]

But just a few days ago, something happened that should help level the playing field. President Bush stepped into the game, called time-out, and told the umpires to play fair. Officially issuing Executive Order 13272, the president demanded that federal agencies, when writing new rules and regulations, implement policies that protect America's small businesses.

Good news if it's followed. Do you have a link to the text of the EO?

[Cold Heat]

If it walks like a duck, quacks like a duck,

Sorry to mess up your opinions with the facts, but Bush is a businessman. He has and will do nothing that would be harmfull. He is trying to improve the climate.

You must have some other issues because you are dead wrong on this.

[Cold Heat]

Negative on the EO. I would call or E-mail your congress critter to see if he/she will send you the info.

This was in the news a few weeks ago. The dems attacked him for supporting more business welfare.

[RWG]

America's small businesses...what is the definition of a small business? An attorney just informed me that the definitions have been shifting from what the average citizen thniks a small business might be. He said 5,000 and above employees was a small business. For those with smaller workforces the definitions go to micro and such.

[Cold Heat]

BTW! The way I view it is that Bush, like all of us who have been burned in the market due to lies on the balance sheet is really and truly pissed. Even his relatives got ripped off.

These lies are predominately due to Clinton era largess in the accounting field which is largely leftist and a democrat stonghold.(along with trial lawyers)

This is Clintons and the democrats doings. Bush is trying to reverse it and regain confidence in the markets. Accounting reform has been trditionally blocked in the Senate, where we have never had a majority to break a fillibuster.

[PGalt]

Anderson sets up your typical strawman arguments with car analogies to buttress his thinking, and then he delivers the bomb...

Second, the expansion of criminal law becomes a tool of tyranny. When more and more activities are criminalized, in the end it means more ruined businesses, destroyed families, and increased financial burdens upon taxpayers, as they must pay for the expanding prison population. The United States already incarcerates more people than any other nation on the face of the earth (approximately two million, one-fourth of all the world’s prisoners), and the majority of them are in jail for non-violent offenses

Liberal, anti-freedom, criminal-enabling talking points...disgusting.

[from occupied ga]

Sorry to mess up your opinions with the facts, but Bush is a businessman. He has and will do nothing that would be harmfull. He is trying to improve the climate.

What facts would those be? You're the one without any facts. You have only stated your opinion - no facts.

Here are some facts for you. We have Bush signing the education and farm bills - two socialist pieces of legislation if ever there were. We have Bush's refusal to arm the pilots until presented with a veto proof majority in the senate. These are facts.

[Cold Heat]

Yah, sure! Should have vetoed the farm bill and education over some congressional largess that was surely despicable but could not be corrected due to a lack of votes to change it. The vetoes would have been overridden and the political damage certain.

Why don't you blame him for global warming and the stock market like the rest of the Bush haters around this forum.

Why don't you claim the war is about oil or bailing out his old man's mistakes.

I'll be lurking around to respond to that too.

[palmer]

Why is the government in the fraud protection racket at all any more? I realize there is a long history of government doing this, but with information age ideas like EBay (sellers rate buyers, buyers rate sellers, fraudulent ratings generally get cancelled out), there should be no need for government enforcement after the fact.

[from occupied ga]

Should have vetoed the farm bill and education over some congressional largess that was surely despicable but could not be corrected due to a lack of votes to change it. The vetoes would have been overridden and the political damage certain.

My my my how naive you are. What "political damage"? How would vetoing two pork laden rapes of the American public hurt Bush? His supporters would have cheered. His enemies would still hate him, but those conservatives in the middle would have come more into the Bush/Republican camp. As it is, his core supporters still love him (you can see their mindless droolings on the "day in the life..." thread). His enemies still hate him - he can't give enough of other peoples' money away to out squander and out plunder a Democrat. Core Democrats will always hate a Republican, no matter how socialistic he is. And those conservatives who were hoping for a change from the plunder and squander mentality in Washington are alienated. The political damage was done by Bush not vetoing those two bills.

Why don't you blame him for global warming and the stock market like the rest of the Bush haters around this forum.

I think "global warming" is a complete fraud perpetrated by socialists to try to expand government power (it's woking pretty well so far) and the stock market problems are due largely to government regulation and the fed.

Why don't you claim that Bush walks on water, raises the dead, changes water into wine? These are no more false than the claim that he is a conservative.

[Cold Heat]

I liked the education bill, except for the lack of vouchers.

The farm bill was in fact a congressional boondoggle. Full of pork and french fries. I believe it was signed to appease certain congress critters for a yes vote on other issues in the house and Senate. It is likely that they screwed him. The situation has changed since.

There is no way any one person is going to be happy with the results of a congressional session. At present the margins are so close as to be meaningless. The dems are successful in getting there crap attached to half way decent legislation.

The Ed bill was carved up when dickhead switched parties and the bill was rushed through the Senate. Controls and testing that the dems fought tooth and nail did get through for the most part. If ed doesnot improve I suspect a major overhaul of the dept. will finally take place.(assuming Bush gets 4 more and we get the Senate back.

For the most part, he has done well on domestic issues. I give him a B, considering the heavy opposition. Government must now go into a economy mode to get out of deficit and pay for the WOT. We shall see.

[Cold Heat]

My my my how naive you are.

Apparently you did not study Bush's record as governor prior to the election. I did and he is not surprising me.

He was known as being flexable but firm and a deal maker with the democrats.

No surprises. I expect the veto pen to warm up a little, now that attempts to negociate have been shot down by Dasshole.

[from occupied ga]

Apparently you did not study Bush's record as governor prior to the election

What difference does his record as governor of Texas make? It's his performance as president that is of concern now.

[Cold Heat]

What difference does his record as governor of Texas make? It's his performance as president that is of concern now.

LOL! Now who is naive?

[tacticalogic]

Over the last several decades, Congress has slowly but surely given over its lawmaking powers to judges and bureaucrats.

Gotta love the New Deal.

[from occupied ga]

Now who is naive

Taking his record a governor into account is like paying attention to campaign promises. It's what he does now that is relevant, not what he said or did in the past