Tuesday, 09 July 2002

I'm starting to look forward to the Clarion reunion with great anticipation, even though some people I especially wanted to see again aren't going to be there. I'm still terribly busy at work, which is distracting me from everything else, but I'm making some headway. All in all, it's a tolerable situation.

This journal is supposed to be about my writing, but today I can't resist political commentary. I apologize abjectly, and urge you to skip the rest of this entry.

George Bush's wrong-headed proposals for reducing corporate fraud are very much in keeping with the attitude he's shown about other things. Just as he seems to be entirely comfortable with people languishing in prison for drug crimes that he got away with, now he wants to raise the penalties for corporate frauds much like the one he profited from.

That shows Bush's character. But it's not why his proposals are wrong-headed.

As with most crime, what deters criminals is not the severity of the punishment, but the probability that it will be imposed. A penalty of 10 years in prison will be no more daunting to someone contemplating bending the rules than a penalty of 5 years in prison, if he thinks there is a 0% chance that the penalty will be imposed.

Your typical CEOs or board members, on the other hand, would absolutely refuse to bend even the tiniest rule one little bit if they thought there was, say, a 20% chance that they'd get caught and have to serve even 10 days in prison.

A lot of the accounting frauds really are close calls, as far as their legality is concerned. There's a wide grey area between clearly legal and clearly illegal. Bush's proposals don't go very far in changing that. The result is the situation remains as it is: a sort of negative lottery, where you get paid moderately large amounts of money for doing ever-so-slightly questionable things, with a one-in-a-million chance that your number will come up and ruin your life. That's just not useful public policy.

Much more effective would be clearer laws and rules, combined with more active enforcement. Much smaller penalties (such as my example of 10 days in prison) would be extremely effective, if they were routinely imposed on people who broke the rules. I suppose 10 years in prison really does ruin your life even more than 5 years in prison does, but to a CEO or a board member, or an auditor, the difference is insignificant--ruined is ruined.