The S&P 500 and NASDAQ indexes fell back to their 1998 levels today. Taking inflation into account, they are back around 1997 levels. That is, as judged by the stockmarket, the boom of the last five years was an illusion. Along with the news that the gigantic WorldCom fraud goes back at least as far as 1999 this calls for some interesting reflections in the blame game. First, as Jason Soon points out, George Bush is well and truly off the hook for this one, though not for some earlier misdeeds. Political blame must be assigned to Clinton, Gore and the Congressional leaders of the day. Special mentions in this respect must go to Phil ‘Special Interest’ Gramm and ‘Holy Joe’ Lieberman. Gramm led the way in freeing corporate interests from those pesky regulations, while Lieberman was the leader defender of dodgy accounting practices, such as the non-expensing of stock options.

But the real point of interest is in the relationship between bubbles and frauds. A lot of commentary has suggested that the fraud epidemic is the result of the lowering of standards that always takes place in a boom. But now it looks as if the fraud came before the boom, or at least before the height of the boom. Importantly, it was only in the last few years of the boom that any positive benefits (reductions in poverty, higher real wages for middle-income and low-income workers, substantial reductions in crime) flowed through to ordinary people. If the gains of the last five years are lost, working-class Americans will be left little better off than they were in the 1960s, but the top 20 per cent will still be immensely better off.

A political aside: To the extent the 1990s boom is discredited, this must be bad news for Gore’s status as Democratic nominee-presumptive. I’d say that this in turn is good news for the Democrats and bad news for Bush.

Postscript: 4 July: White House Defends Bush’s Actions as Corporate Executive Apparently, the paperwork was lost in the mail.