The Washington Post editorializes that "there is a danger in" the convictions of former Enron executives Kenneth Lay and Jeffrey Skilling

National Review, June 19, 2006

* The Washington Post editorializes that "there is a danger in" the convictions of former Enron executives Kenneth Lay and Jeffrey Skilling. Impressionable people might be led to believe that the corporate-accounting scandals were the work of a "few bad apples," and that "putting those apples in jail" is a sufficient solution.

The problems were more systemic than that, the Post argues, noting that 250 companies had to restate their earnings in 2002. The Sarbanes-Oxley law was therefore necessary. The difficulty with this argument is that the market, and prosecutors, were on the case before new regulations were enacted. The existing system--capitalism plus laws against fraud--included at least partial solutions to the problems it generated. If additional systemic reforms were necessary, they did not have to take the form of added regulations. Cutting the dividend tax helped to make accounting fraud less likely by encouraging corporations to pay out their profits. Sarbanes-Oxley, on the other hand, has had much more mixed results. Every month a new study documents the large deadweight losses it has imposed on the economy. To leap from the scandals to Sarbanes-Oxley was an expensive non sequitur.