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Thursday, December 26, 2002

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In his New York Times column Tuesday, former paid Enron advisory board member Paul Krugman shows off his erudition by writing,

"I'm a history buff, so the events of 2002 made me think of a historical parallel the English peasant rebellion of 1381. The rebels very nearly took London, but were turned aside by King Richard II, who promised to end the oppression of the common people by the aristocracy. As soon as the danger had passed, however, he made it clear that promises to little people don't count."

The column is about Time magazine's Persons of The Year, the dubious whistle-blowers at Enron, WorldCom and the FBI. Your guess is as good as mine as to precisely what point Krugman is trying to make with his historical citation, other than to make himself look smart. But I couldn't resist spending a few moments surfing the web to find out what this peasant rebellion was really all about.

It didn't take long -- there are numerous accounts available that all say the same thing (for example: 1 | 2 | 3). The peasant rebellion was triggered by the imposition of new higher taxes. That's right, Krugman, taxes. The thing that your "plutocrats" want less of. The thing you want more of. Taxes.

Posted by Donald L. Luskin at 2:26 PM | link  

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Newspapers are supposed to report the news -- facts -- so that people can use those facts when they form their opinions. But where do newspapers get facts? How do reporters know that what they are reporting is true? How do readers know? These questions are most critical in economic and business reporting, where the line between fact and opinion is often blurry, and even the seemingly most objective facts are subject to nuanced definition and interpretation.

Consider this article from yesterday's New York Times business section, "A Career as a Window to the Future" by Claudia H. Deutsch and David Cay Johnston. It's a review of the career of CSX Corporation CEO John Snow, who was recently nominated to be Treasury Secretary. Appearing among many seemingly objective facts about Snow's past performance as an executive is this paragraph:

"CSX, through a variety of legal techniques, also managed to avoid paying federal income taxes in three of the four years from 1998 to 2001, when it earned a total of $934 million in profit, according to data in its reports to shareholders first disclosed by Citizens for Tax Justice, a labor-backed group whose figures are widely accepted. CSX received $164 million more in refunds than it paid during those years, it told shareholders."

What is the "fact" reported here? Apparently it is that CSX paid no taxes in three of the last four years. Properly, the source of the fact is given (Citizens for Tax Justice), and properly, it is noted that this source has possible reason to be biased (it is "labor-backed"). But, improperly, these qualifications are themselves qualified away by the assertion -- as a "fact" -- that Citizens for Tax Justice's "figures are widely accepted." By whom (other than the authors of this article at this moment)?

I, for one, do not accept these figures. The day they were released I debunked them. These figures arbitrarily focus on the amount of taxes physically paid during arbitrary regulatory reporting periods, rather than the much larger amount of taxes accrued on the company's books to be paid in the future when they become legally due. The full reality is that CSX's profits are taxed as fully as anyone else's -- indeed, in that one year of the last four when taxes were physically paid, they exceeded 100% of profits for that regulatory reporting period.

Did the New York Times do any original research into CSX's financial reports to verify or qualify the claims of Citizens for Tax Justice, whom the reporters themselves admit are biased? No, they just reported those claims as facts, and absolved themselves of responsibility as they absolved themselves of hard work -- by noting the source and (sort of) disclosing potential bias. Job done. Time to go home for Christmas, or "remember the neediest," or whatever New York Times business reporters do with all the spare time that is freed up by not having to report facts.

Is there any "fact" at all in this? Yes. The fact is that a particular lobbying organization made a particular claim. The fact is not the content of the claim -- but the fact that they made it. Yet now the content of the claim has been embedded as "fact" in America's "newspaper of record." And mark my words -- it will be reported again over the coming years, over and over and over, passing into a realm of historicity where it is beyond questioning. And the source that will be cited? The New York Times.

Posted by Donald L. Luskin at 9:53 AM | link  

Tuesday, December 24, 2002

UN-FACT OF THE DAY: REUTERS "REELING" ON HOLIDAY SALES    My informant "Irrational Exuberance" notes this little scare-bomb in our Christmas stockings thanks to Reuters. The headline to Emily Kaiser's wire story is "Retailers Face Worst Holiday in Decades," and it reports that US stores are "reeling from a lackluster holiday season that is forecast to be the weakest in more than 30 years." As usual, analysts are quoted, dire consequences are predicted.

The scary impression given is that sales this holiday season will run lower than in the pit of the 1974-1975 recession, when the economy was not only in deep trouble but far smaller than it is today. But in the third paragraph it is finally revealed that exactly what may be the weakest in more than 30 years is not sales, but growth in sales. We're not talking even about negative growth -- just smaller growth than some expected. The analysts quoted are forecasting 1.5% growth in holiday sales, which is defined as "the smallest gain since... 1970" [emphasis added].

Posted by Donald L. Luskin at 12:48 PM | link  

Monday, December 23, 2002

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I remember as a child eagerly awaiting Time magazine's choice of its Man of the Year each year. I believed that there were great men and great events in the world that I needed to know about, and that there was a great arbiter of them -- Time -- that somehow make the great even greater by recognizing them as great.

Does anyone care whom Time names "Person" of the Year now? Do children care, or even notice? Does anyone even read Time anymore? I literally can't recall the last time I did. Yes, I read the hundred or so words they devoted to me a couple years ago when I launched the world's first full-disclosure mutual fund in the autumn on 1999. I seem to remember that Harry Potter was on the cover that week, though not as Person of the Year. That distinction in 1999 went to founder Jeff Bezos, and it perfectly marked the very top in America's frenzied fascination with e-commerce and with Internet stocks such as

And WorldCom. And that brings us to Time's Persons of the Year this year, three whistle-blowing women -- make that persons -- who blew their respective whistles at WorldCom, Enron and the FBI. They're an odd choice, if the goal of this distinction is to recognize people who made a difference. WorldCom's Cynthia Cooper failed in her capacity as internal auditor to prevent WorldCom's accounting fraud, though she did play a pivotal role in detecting it and exposing it after it had already happened. Enron's Sherron Watkins' internal memo on accounting fraud was utterly without consequence in prevention or detection --  its only function was that, when it was detected, it provided yet another juicy tidbit of irony for the press to report on. I won't pretend to expertise I don't have by commenting on Coleen Rowley's efforts to expose inadequacies at the FBI after the terrorist attacks of September 11, 2001.

Time says these persons "reminded us of what American courage and American values are all about." All about making no difference before the fact, and blaming after the fact? All about saying "I told you so"? Those are not American values. Those are media values.

American values are to take the risks that Jeff Bezos took to abandon a comfy career on Wall Street and gamble it all to invent Media values are to proclaim him a great innovator after it's not innovation anymore -- when his company's stock had already risen from $1.50 to $113. After Time certified as the next big thing, its stock fell all the way back to $5.50. But by then, Time and its sister publication Fortune were too busy excoriating executives of companies like and WorldCom for selling their stock at the top to gullible individual investors -- never mind that those investors were gulled by stories in Time and Fortune.

Posted by Donald L. Luskin at 10:50 AM | link