Tuesday, 4 September 2012

Bradley on Enron

Over at EconLib Robert L. Bradley Jr writes on Enron: The Perils of Interventionism. His conclusion is
Enron was essentially a political company, not a free-market one. Ken Lay's creation would be unknown to history were it not for the distorted incentives from the government side of the mixed economy.

For classical liberals, Enron is a case study in support of the separation of government and business. There is egregious rent-seeking, whereby the company worked to shape political intervention for economic advantage. There is bootleggers and Baptist politicking, whereby Enron teamed with nonprofit groups to win support for what was in the company's narrow self-interest.

There is the peril of half-slave, half-free. Partially deregulated markets (such as with electricity in California) created a devil's sand box for profit-making that otherwise would have been absent in a free-market order.

Although an Enron could not have been predicted, it is yet another example of the unintended consequences of interventionism in the field of energy, as well as from the politicized accounting and tax systems that governed all corporations.

And then there is the ultimate consequence from the dynamics of intervention. Historically, the failures of the mixed economy have been an excuse to further politicize the economy. Richard Epstein warned: "The greatest tragedy of the Enron debacle is not likely to be the consequences of the bankruptcy, but from the erroneous institutional reforms that will take hold if its causes are not well understood." The Sarbanes-Oxley Act (2002) and the Bipartisan Campaign Reform Act (2002), enacted with Enron in mind, proved him right.

Both the false narrative and the real story of Enron impart lessons for intellectuals and pundits alike. Sound theory makes complex history intelligible; bad theory blinds us to recognizing what is there for the taking. Enron fooled many people in its active life, and it continues to fool in death. A true understanding of "Exhibit A" deserves to enter into the mainstream of thought.
No the usual way the Enron story is presented.

1 comment:

philip meguire said...

What you quote above tantalises but does not deliver. Please add a reference to a more detailed discussion of how Enron was, in effect, a disguised rort. Once that is clear, it should be much easier to argue that Sarbanes-Oxley was the wrong road to take.