One of the great things about the Web is the ability to find surprising links between seemingly unrelated themes. Combining two recent threads on this blog, here’s a piece linking O.J. Simpson to US accounting scandals.

Andrew Sullivan and others have argued that the epidemic of corporate fraud was confined to the bubble years beginning in 1999. In fact, the biggest and most widespread accounting fraud (a perfectly legal one) was the great options scam which drove the whole 1990s boom. As this article from 1999 shows, the divergence between the accounts reported by companies and those measured by the tax authorities was growing steadily in the years before 1999.

AndrewSullivan responds to the Gregg Easterbrook piece I posted yesterday>

CEO GREED: I’m with Gregg Easterbrook on pursuing the malfeasant CEOs who have essentially robbed shareholders while paying themselves exorbitant sums. Those of us who believe in free markets as the least worst way of organizing economies should be particularly incensed at this duplicity and larceny. But one reason for some restraint on the hype is precisely because so many liberals want to use these crimes as a rationale for enhancing government power over the economy, returning to the failed redistributionism and dirigisme of the past, and junking much of the free market gains of the last two decades. Gregg also fails to talk about bubble psychology as an essential context for these crimes. Such psychology excuses nothing. But it does help us understand why the last two years were particularly bad. On a minor note, am I the only one to object to setnences (sic, JQ) like the following: “Has conservatism reached the point that any development that transfers money to white male CEOs is deemed acceptable?” Why the “white male” interpolation? It’s factually accurate in the vast number of cases, but their gender and race is surely irrelevant to these CEO crimes. Can you imagine the New Republic publishing a similar phrase about “black males” in the context of, say, urban crime? Silly question.

Sullivan’s point about white males is a good one, though it’s surprising how often the whisteblower in recent cases has been a woman.
On the other hand, he’s whistling in the dark about the impact on free markets. Of the past two decades, only the five years from 1996 on produced any real gains for ordinary Americans, let alone the poor. It is precisely this period that now looks like an unsustainable bubble, generated by easy money and ubiquitous fraud.

Joe Stiglitz is the most effective and influential critic of the efficient markets hypothesis and its variants, such as the ‘Washington consensus’. Here is an interview with Salon, also a plug for his new book Globalization and its discontents

Business 2.0 confirms all my prejudices, asking What’s an MBA Really Worth?, and concluding that it’s a waste of $US 100 000 and two years. The article isn’t perfect. For example, it argues on the one hand that the MBA may have screening benefits by signalling that you are bright and ambitious, then questions statistical estimates finding no (statistically significant) difference between MBA’s and non-MBA’s by arguing that the two populations may be different. In fact, if you argue that entering students are more likely to be bright and ambitious, the implication is that the program actually has negative value. Also, it’s argued that MBA’s have too much theory and not enough practical stuff, but, I’d say that the place to get practical experience is the real world. The big problem with most MBA problems is that the theory is a grab-bag without the internal coherence of a discipline-based degree.

A big welcome to Kim Weatherall and Weatherall’s Law. Kim has joined the trend for Australian academics to set up weblogs, and also the minitrend for aqua-themed sites like this one, and that of Jason Soon.

Since I slammed The New Republic last week, it’s only fair to link to this piece by Gregg Easterbrook, rather unimaginatively titled Greed Isn’t Good, but very well-argued. My piece in tomorrow’s Financial Review will cover similar issues – I hope to put up an a bloggerised version (links and all) here, but this may take a while.

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.

David Morgan gets the prize for reporting that Boris Frankel’s title, From Prophets the Deserts Come is a play on the line ‘If from deserts the prophets come”, from A.D. Hope’s classic poem Australia, and bonus points for the fact that this line was used by Geoffrey Serle as the title of his cultural history of Australia.

A Beautiful Mind was a good movie, but I found it disappointing that there was no attempt to get across the real nature of the kind of work John Nash was actually doing. It’s not impossible, as this exposition of the Riemann Hypothesis shows.