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Media Infiltrations: Obama's Social Security Fine Print  The Wall Street Journal June 25, 2008 Commodity-Prices Scapegoats The Wall Street Journal June 3, 2008
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Chronicle of the Conspiracy
Join us as we discover, document, expose and challenge the bad people, the bad institutions and the bad ideas that stand in the way of wealth creation -- and show you how to fight back!
Saturday, February 15, 2003
THE TIMES COMES AROUND... ALMOST Today's lead editorial in the New York Times builds upon yesterday's, taking an even stronger stand on the need to disarm Iraq, using military force if necessary. Unlike yesterday's, however, this one finds no side-issue with which to take a gratuitous slap at the Bush administration (which has been taking all along the position the Times has now taken). That's progress. Maybe next week the Times will show the integrity to give credit where credit is due.Posted by Donald L. Luskin at 2:17 PM | link
Friday, February 14, 2003
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"There are legitimate reasons to confront Iraq. Imagining a full-blown Baghdad chapter of Al Qaeda is not one of them.
"...Every day brings mounting evidence that Baghdad is refusing to cooperate in its own disarmament and concealing vital information about its illegal development of biological and chemical weapons and prohibited missiles. That is behavior that even reluctant members of the United Nations Security Council acknowledge could justify military action. There is no need for the administration to jeopardize its own credibility with unproved claims about an alliance between Iraq and Al Qaeda."
Huh? "Even reluctant members of the United Nations Security Council"? How about even the New York Times! Oh... well... harrumph!... we're all hawks now! But that doesn't mean that the Bush administration, who patiently, carefully, forgivingly, moved the New York Times to that position in the first place -- moved them kicking and screaming to a position which they now so nonchalantly take -- has earned the slightest credibility with them for its efforts.
Can you imagine how George Bush and Colin Powell must feel when they read stuff like this? If they read it at all anymore...if they bother to feel anything about the New York Times. If they do, they must be saying to themselves, "Oh well, what the hell... as long as we're saving the world, I guess we'll have to save these guys too."
Posted by Donald L. Luskin at 2:29 AM | link
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"If the administration gets what it wants, within a decade — or perhaps sooner — the United States will have budget fundamentals comparable to Brazil's a year ago. ...and things will spiral out of control."
Last week it was just President Bush who was "out of control." Krugman warned Greenspan that "...financial reporters have started to realize that Mr. Bush is out of control" -- proving that sweeping generalization by citing, unattributed, a quotation from that bellwether of financial reporting, CBS Marketwatch (the second time in a month he's done exactly that, by the way -- wonder what his connection there is... advisory board maybe?). But today it's not just Bush that's out of control -- it's... "things." So today Krugman's quoting no mere day-traders' web-site to try to shame Alan Greenspan into seeing the world his way... today he's invoking no less an authority than the departed spirit of Ayn Rand, quoting her hero John Galt quoting his hero Aristotle: "A is A: non-contradiction."
Well, one thing we can be sure about is that Paul Krugman never contradicts himself. No matter what, he's always sure that the world is coming to an end, no matter which party is in power, no matter how good the good times roll. He's just like the turn-of-the-century Jehovah's Witnesses who built their evangelical religion by predicting that the world would end in 1914, and then when it didn't, they didn't give it up -- they just said, "Well, the world started to end in 1914!"
When I think about Krugman's claim that "the United States will have budget fundamentals comparable to Brazil's a year ago," I'm tempted to spend the night Googling to come up with a litany of differences between the US and Brazil that will make this silly comparison seem like a silly comparison. But what's the point? Who knows exactly what Krugman even meant by that remark, except that it is supposed to evoke images of the end of the world. Or the beginning of the end of the world. Or something. Bad. "Things."
I'm reminded of what Richard Posner wrote of Krugman in his excellent book Public Intellectuals: A Portrait of Decline:
"He was not hired by the Times for his record as a prophet. In a book published in 1990 [The Age of Diminished Expectations: U.S. Economic Policy in the 1990s] he had offered as 'the most likely forecast for the U.S. domestic economy in the 1990s...fairly slow growth, modestly rising incomes for most Americans, generally good employment performance, [and] a gradual acceleration of inflation' to 7 percent. He predicted that by 2000 the United States would "have sunk to the number three economic power in the world," after Europe and Japan, and that the world economy would be less unified than it had been in the 1980s. He published a 'revised and updated' edition four years later, but retained these predictions."
Of course it was all absurdly, hilariously -- perfectly! -- wrong. Every doomsaying word of it. But it's all totally consistent. A is A.
Posted by Donald L. Luskin at 1:46 AM | link
Thursday, February 13, 2003
REALPOLITIK, TOKYO STYLE According to the BBC, Japan has warned it would launch pre-emptive military action against North Korea if it had evidence of a planned missile attack. However, Defense Minister Shigeru Ishiba said "it would be too late if a North Korean missile was already on its way."Posted by Donald L. Luskin at 5:17 PM | link
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Today's story "Sprint Garnered Tax Benefits From Executives' Use of Options" by Ken Brown and Rebecca Blumenstein is typical -- it treats an entirely ordinary accounting event from three years ago as though it were scandalous news. The story begins,
"While Sprint Corp.'s two top executives have lost their jobs and face financial ruin over the use of tax shelters on their stock-option gains, the company itself received big tax benefits from the options these and other Sprint executives exercised.
"Regulatory filings show that Sprint had a tax benefit of $424 million in 2000 and $254 million in 1999 stemming from its employees' taxable gains of about $1.9 billion from the exercise of options in those two years. Sprint, which was burning through cash at the time as the telecommunications market bubble burst, had virtually no tax bill in 1999 and 2000, because of sizable business losses. But the Overland Park, Kan., company was able to carry the tax savings forward to offset taxes in future years.
"Under the complicated accounting and tax rules that govern stock options, the exercises also made Sprint's performance look better by boosting the company's net asset value, an important measure of a company's financial health."
Apparently neither the reporters nor their editors know that every time any employee exercises any stock option, it results in a business expense for the company that granted the options. That expense -- like any other business expense -- reduces taxable net income. Is that a "tax benefit"? Okay -- then it's a "tax benefit" that companies can deduct the expense of buying paper-clips, too.
The fact that options expenses -- unlike most expenses -- are not required to be reported in GAAP financial reports has nothing to do with it: tax accounting is a separate matter. And it matters not a whit that the options may have been involved in some tax shelter -- or not. This supposed revelation from "regulatory filings" is something that every company in America reports matter-of-factly every year in its annual report.
And there's nothing "complicated" about the "accounting and tax rules that govern stock options" -- and nothing, as the article seems to imply, manipulative or even unusual. Naturally, options exercises increase a company's net asset value because the employee who exercises the options has to pay the company for the stock he is buying by exercising.
The article goes on to suggest that Sprint's "complicated" tax matters created a conflict of interests.
"The dilemma facing Sprint and its two top executives over whether to reverse the options shows how the executives' personal financial situation had become inextricably intertwined with the company's interests. In Sprint's case, the financial interests of the company and its top two executives had diverged.
"If the company had agreed to unwind the transactions -- by buying back the shares and issuing new options -- the $100 million in savings would have been wiped out and the company would have had to record a $100 million compensation expense, which would have cut earnings."
Where's the scandal? Yes, reversing the options would have been a compensation expense for the company. But compensation expenses only "cut earnings" in the same neutral sense that paper-clip expenses cut earnings. The company has no more a fundamental divergence of interests with its executives in negotiating such matters than it does with paper-clip companies.
Companies agree to "cut earnings" any time they buy goods and services -- but of course they only do it in order to increase earnings through the use of those goods and services. In fact, the Journal missed a great scandal-mongering opportunity here. How about... "Sprint Sought to Boost Earnings by Buying Paper Clips." Film at 11:00.
Posted by Donald L. Luskin at 10:07 AM | link
Wednesday, February 12, 2003
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"Random musings: Found myself reading an excellent article by Donald Luskin about how The New York Times may not have gotten the Ken Lay story right. As someone who piled on to the Ken Lay pillory armed with the Times' reporting, I found it eye-opening. Luskin has some provocative points to make and I find myself agreeing with him more than not these days. Don't be surprised if he pops up on 'Kudlow & Cramer' in the near future. Maybe he's just too provocative to ignore!"
As those of you who have followed my writings over the years know, Cramer and I have been in a bitter feud since we blew up at each other on TheStreet.com's "Columnist Conversation" blog in June, 2001 -- and I've often been harshly critical since. But this gesture shows a lot of class. And whatever else may have been said, I stand by what I've always believed about Cramer: love him or hate him, his pioneering work in the 1990s created an important new financial media model built around the "practitioner/journalist" -- and to a large extent that work has yet to be equaled elsewhere.
Posted by Donald L. Luskin at 3:01 PM | link
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Posted by Donald L. Luskin at 1:25 PM | link
TOUGH QUESTIONS FOR LAY, AND THE TIMES Smart follow-up questions from a reader on whether the New York Times is being too hasty in letting Enron's Ken Lay off the hook. It's on our letters page.
Posted by Donald L. Luskin at 1:20 PM | link
Tuesday, February 11, 2003
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But read the Times story carefully. This is no correction at all. It's actually a cover-up disguised as self-congratulation, combined with a blast at other newspapers who got the Lay story wrong. Judge for yourself. Kurt Eichenwald's story Sunday reports that Lay was a true believer who sought to hang on to his collapsing Enron stock till the bitter end, and only sold his shares because he was forced to in order to meet loan payments -- it's not that he knew that Enron was on the verge of collapse. Eichenwald writes,
"That differs sharply from the story put forward early last year, after many news organizations, including The New York Times, reported that Mr. Lay had sold large numbers of shares as he urged others to buy. Many people seized on those facts as evidence of duplicity, not accounting for other possible explanations."
That's "correcting the record"? All Eichenwald is saying about the Times is that it "reported...those facts." Yes, Lay sold shares. Yes, he urged others to buy. Objective facts. It's the other guys -- the "many people" --who "seized on those facts as evidence of duplicity, not accounting for other possible explanations." You see, all the Times did is report all the news that's fit to print... just "those facts," ma'm.
And what makes it even less a "correcting the record" is the fact that the Times itself reported on these "other possible explanations" in it's own very first story on Lay's stock sales -- yet still treated the stock sales as "evidence of duplicity."
The Times first reported on Lay's stock sales on January 18, 2002 in "Enron's Chief Sold Shares After Receiving Warning Letter" by Richard A. Oppel Jr. and Jonathan D. Glater. The "evidence of duplicity" conclusion is reflected in the headline, and continues in the first two paragraphs:
"Documents disclosed yesterday indicate that Kenneth L. Lay, the chairman and chief executive of Enron, disposed of stock within days of receiving a letter warning of accounting problems at the company.
"That letter, from Sherron S. Watkins, a senior employee, ignited an investigation by Enron's outside law firm, which concluded that the accounting issues could be embarrassing. As part of that inquiry, Mr. Lay met with Ms. Watkins."
Later in the story, Lay's stock sales are contrasted against his bullish public statements of support for the stock
"As Mr. Lay was apparently reducing his own stake in Enron, he was sounding optimistic in public. 'As I mentioned at the employee meeting, one of my highest priorities is to restore investor confidence in Enron,' Mr. Lay wrote in an e-mail message to employees dated Aug. 21. 'This should result in a significantly higher stock price.'"
The possibility that the stock sales were connected with the repayment of loans is mentioned extensively in the story, but is offered only as an explanation for why the sales had not been publicly reported -- not as a factor mitigating the "evidence of duplicity."
"Mr. Lay did not report selling the stock, but a lawyer for Enron disclosed earlier this week that some shares had been used to repay a previously undisclosed loan from Enron. Enron has declined to discuss details of the repayment, but it seems likely that the shares purchased then were used to repay the loan...
"Under rules of the Securities and Exchange Commission, corporate officials are required to disclose sales of their company's stock by the tenth day of the month after the sale. But there is an exception when the shares are surrendered to the company to repay a loan."
The next day, January 19, 2002, Oppel wrote another story, this one headlined "Despite Warning, Enron Chief Urged Buying Of Shares." The story begins,
"More than a month after an Enron vice president warned that the company might be an 'elaborate accounting hoax,' Kenneth L. Lay, the chairman, used an online chat to urge employees to buy Enron shares, a transcript of the session shows.
"Mr. Lay, who apparently disposed of some Enron stock himself within days of receiving the warning, assured employees in the chat session that the company's leaders 'were convinced both by all of our internal officers as well as our external auditor and counsel' that its finances were legal and appropriate."
This story mentions not a word about the possibility that Lay had sold stock to pay back loans. Instead, it takes a thematic detour to devote hundreds of words to the connections between Enron and the Bush administration -- and then it's back to the "evidence of duplicity":
"Documents released this week by the House committee laid out a timeline that indicates that within days of receiving Ms. Watkins's warning about Enron's finances, Mr. Lay was disposing of some Enron shares.
"But in the chat session, Mr. Lay argued that the stock was a good buy, and he suggested that employees 'talk up the stock and talk positively about Enron to your family and friends.'
"He also told employees that the third-quarter financial results were 'looking great.' Three weeks later, Enron disclosed that it lost $618 million in the quarter and that it was writing down $1.2 billion of its net worth partly to reflect the reversing of some of its complex deals."
Two days later, on January 21, 2001, Oppel is back with another story headlined "Enron Chief Says His Sale Of Stock Was To Pay Loans." It begins,
"Kenneth L. Lay, the chairman and chief executive of the Enron Corporation, repeatedly used millions of dollars in Enron stock to repay loans made to him by the company last year as Enron shares declined in value, his lawyer said today.
"The lawyer, Earl J. Silbert, said in a telephone interview that Mr. Lay had put up shares of his Enron stock as collateral for other investments, which he said he could not identify. As the value of Enron stock plummeted last year, he said, Mr. Lay anticipated that lenders would demand additional collateral.
"So Mr. Lay's decision to dispose of Enron shares late in the year reflected a need to raise cash, not a concern about the health of Enron, and was not tied to a warning about the company's finances made by an Enron vice president, Mr. Silbert said today. He added that the majority of the transactions related to the credit had occurred before August. Three months later, Enron restated earnings and began its spiral into bankruptcy."
So if there was any kind of "correcting the record," it was this story -- filed over a year ago, only three days after the first story about "evidence of duplicity." The closest Oppel comes to a formal correction, however, is this lame paragraph near the end of the story:
"The recent disclosure that Mr. Lay returned some stock to the company to repay a loan has fueled concern that he was exiting his position as he was encouraging others to buy."
Natch, no mention that the "concern" that had been "fueled" was that of the New York Times.
So Sunday's "correcting the record" is nothing of the sort. It's revisionist history at best, a cover-up at worst -- posing as though the Times stuck to objective facts all along while others drew unwarranted conclusions about non-existent crimes. And it's not even news: it's not based on new information at all -- just stuff that the Times itself reported a year ago.
So why now? Who knows what makes the Times write what they write when they write it? Maybe it's because Ken Lay's personal fortune has now been so utterly decimated that he has become sufficiently non-plutocratic for the Times to find him worthy of sympathy. Eichenwald wrote Sunday,
"In one year, Mr. Lay has been transformed from a centimillionaire with huge stock holdings to a multimillionaire whose wealth is mostly tied up in hard-to-sell assets."
As the Times would say, "Remember the Neediest!"
Update: Robert Musil's take.
Posted by Donald L. Luskin at 8:51 PM | link
SOME BLOGS MORE EQUAL THAN OTHERS Stop worrying about income inequality, and by all means stop worrying about blog inequality. Yes, it's true that 20% of the blogs get 80% of the visitor traffic. But according to Clay Shirky, it's not a conspiracy of plutocrats. It's a natural outgrowth of the dynamics of social networks:
"In systems where many people are free to choose between many options, a small subset of the whole will get a disproportionate amount of traffic (or attention, or income), even if no members of the system actively work towards such an outcome. This has nothing to do with moral weakness, selling out, or any other psychological explanation. The very act of choosing, spread widely enough and freely enough, creates a power law distribution."
Posted by Donald L. Luskin at 5:58 PM | link
POUNDING KRUGMAN Matthew Hoy takes Paul Krugman's column today on Europe and Iraq and pounds it into fine dust. Nice work.
Posted by Donald L. Luskin at 1:43 PM | link
Monday, February 10, 2003
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Things like this are all about getting a compelling headline, and not much more. It's already working. Reuters had two different versions today, both made to order for the statement's sponsors: "Economists Blast Bush Tax-Cut Proposal" and "Bush Tax-Cuts Come Under Fire from Economists." It adds up to the mental impression of "experts agree!" -- an impression which is meant to manipulate you into suspending your own judgment and admitting, "who am I to disagree?"
But what does it really mean that 400 economists would sign this statement?
- For one thing, it means that at least 21,600 economists did not
sign the statement. There are 22,000 members in the
American Economic Association
-- that should be a conservative estimate of the number of economists in the
United States. 400 is only 1.8% of them. Even Paul Krugman didn't sign
it!
So how about this for a headline: "98.2% of Economists Don't Sign Statement Opposing Tax-cuts!"
- Statements like this -- basically petitions -- don't just organize
themselves. These things should never be assumed to represent groundswells of
public sentiment -- "the economist street," as it were. All that's going on
here is: some PR firm hired to generate some headlines went around and
gathered as many signatures as they could.
Anyone can do that. In fact, for the last week the US Treasury has been circulating a statement for economists to sign supporting the Bush tax-cuts; I know that because I was asked to sign it -- and I gladly did. It's just a matter of days until that statement grabs its share of the headlines. And once again -- "experts agree!"
-
Economics
isn't an objective science, so this statement -- or its opposite, for that
matter -- shouldn't carry even the weight of a dubious claim such as "four out
of five dentists recommend Crest." I know lots of economists who
specialize in lots of different fields within the overall discipline -- some I
would trust to know what they are talking about, and some I wouldn't.
For example, 1991 Nobel laureate William F. Sharpe of Stanford
University is someone I've worked with over the years -- he's one of the
10 Nobelists who signed the statement. His development of the Capital Asset
Pricing Model is one of the towering achievements of financial economics; he's
developed real-world investment strategies that have been consistent
market-beaters; he's a crackerjack computer programmer, a successful
entrepreneur, one hell of a charming guy, and not a month goes by that I don't
refer to my inscribed copy of his classic textbook
Investments. But I haven't the slightest reason to think that his
opinion on the efficacy of Bush's tax-cuts is any better than that of my
dentist.
So how about other economists more specialized in policy matters who also signed the statement, like Nobelist Robert M. Solow of MIT? All I can say is that since at least 1975 Solow has been fighting the tax-cutting revolution that flowered into Reaganomics and launched one of the greatest periods of growth and prosperity in American history. That he would sign a statement like this is no news at all, and his view on this subject has no more credibility now than it had a quarter century ago.
So if you support the Bush tax-cuts, don't lose heart. There's nothing here that should make you question what you know is the most powerful pro-growth policy initiatives since the presidency of Ronald Reagan. So what if 400 economists oppose it? Soon there'll be another statement signed by 401 economists who support it. And our economists can beat up their economists. So there!
Posted by Donald L. Luskin at 10:33 PM | link
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Here's testimony to the Congressional Democratic Policy Committees by Republican Bruce Bartlett of the National Center for Policy Analysis -- cutting through the Rubinomical Gordian knot of deficits, debts, interest rates and taxes. You should savor the whole thing, but here's the heart of the matter...
"...I have trouble believing that the federal budget deficits projected by President Bush in his 2004 budget will have more than a trivial impact on interest rates. As a share of GDP, they will peak at a rate half as high as that achieved in the 1980s, and half that existing in Japan today, where interest rates are actually negative.
"Furthermore, many of the tax initiatives proposed by President Bush will unquestionably raise private saving by both households and businesses. The proposal to expand tax-deferred saving accounts is the most obvious example. It is worth keeping in mind that from the point of view of interest rates, $1 of increased saving is the same thing as $1 of increased federal revenue. If a tax cut brings forth an equal amount of private saving to offset the revenue loss attributable to the tax cut, there should be no impact on interest rates at all. (Conversely, a tax increase can sometimes reduce saving by more than the revenue it raises, thus causing interest rates to rise, not fall.)"Some analysts argue that even if deficits do not raise interest rates, they still deplete national saving and thus will reduce productivity and living standards. This assumption is based on national income accounting, wherein government deficits are assumed to be negative saving. It's important to remember that it is merely an assumption, which tells us nothing about the impact of a tax change on economic behavior, such as saving, investment and labor supply.
"Without a change in interest rates, there is no mechanism for reducing the private sector's use of saving. In other words, you cannot turn an accounting identity into something that affects the economy unless there is some price change that alters economic behavior. To say otherwise is to believe that debits somehow cause credits and vise verse. This is obviously not the case.
"Moreover, the assumption that deficits necessarily constitute dissaving assumes that the spending or tax cuts that give rise to the deficits constitute nothing but pure consumption. This may or may not be true. I would argue that tax cuts of the sort that President Bush has proposed can be viewed as investments in our nation's productive capacity. I believe that they will pay dividends not only in terms of higher growth and living standards, but also in terms of federal revenue. A larger economy will expand the tax base and offset some—not all by any means—of the static revenue loss. If we only get back enough revenue to pay the interest on the government bonds issued to cover the revenue loss, it would be a good deal."...I am sure that those in my party who railed against deficits all those years felt very good and righteous about the position they took. But it was a losing position. For that reason, I am more than happy to see the Democratic Party take up the issue of deficit spending as its principal fiscal issue. I hope you take it to heart and vote against every tax cut that comes through Congress and propose tax increases instead. At the end of the day, it will only add to the Republican majority."
Posted by Donald L. Luskin at 1:36 PM | link
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Posted by Donald L. Luskin at 9:48 AM | link
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I surely don't mean to snare Andrew -- whom I generally see a comrade in arms -- in a "gotcha." But I must point out that just two week ago he was rhapsodically celebrating some of the compassionate conservatism elements in Bush's State of the Union address -- AIDS, Africa, addiction treatment, the environment, and so on. Come on, Andrew: all these good things are expensive -- but they just happen to be the ones that you like.
And that's true for everyone, isn't it? Everyone's against more government spending -- except on the stuff that they happen to like. So just where should Bush cut? In the age of the hanging chad, in which every special interest's interests -- just like yours -- are absolutely crucial, just whose ox should Bush dare to gore?
Posted by Donald L. Luskin at 1:26 AM | link
SELL THE BOTTOM Bloomberg.com's Caroline Baum nails the perpetually bearish New York Times for its front-page doom-and-gloomer about employment and the economy, printed the very morning that better-than-expected jobs numbers were to be released. Thanks to my informant "Irrational Exuberance" for pointing to this.
Posted by Donald L. Luskin at 12:36 AM | link
Sunday, February 09, 2003
MONETARY DEFLATION MUST BE OVER It's in the comic strips now. Too mainstream to be a continued threat.Posted by Donald L. Luskin at 8:54 PM | link