>>From the standpoint of social welfare, we have a huge amount of telecom bandwidth that we need to use.<<

But Brad, surely this is the point. 'social welfare' and 'optimal market clearing' are two (in the Cartesian sense) clear and distinct ideas. And not necessarily inteconnected ones at that. That's why there's been so much fuss about the validity of the market model on-and-off over the last couple of centuries.

From where I'm sitting economists would do well to follow Wittgenstein in his self-imposed ethical silence and talk about what, following the rules of the game they have established for themselves, they are competent to talk about as economists (ie the latter) while leaving the former to what could be termed the 'tastes and preferences' established through democratic, social, family processes about which economists as economists have little to say.

I think it is worth pointing out that WorldCom and its senior team are accused of doing some pretty nasty things.

This isn't just a case of overbuilding, but a case of needing to get rid of a bad actor who faked results and caused havoc thereby (and let's be honest, whose fake results in part drove -- or at least were used to justify -- some of the very telecom overbuilding the economy is now being forced to digest).

Allowing execs to puff up results, sell securities to the public under false pretense, get filthy rich on incentive options in the meanwhile -- all in a balls-to-the-wall strategy where the losers are debt holders and other equity holders left holding the bag in case things go awry -- only to have all the Company's sins washed away in bankruptcy court, simply is NOT the way a market economy is supposed to work.

-Motts

P.S.: The meaning of the juxtaposition of this item with the one about audio downloading should not be lost on anyone. My point: there is PLENTY of pent-up demand for bandwidth, but it is locked up in the courts and in Congress right now.

Talking about "WorldCom" as an entity is a mistake, here. Saying that "WorldCom" shouldn't be allowed to profit from its chicanery just doesn't make sense. WorldCom execs shouldn't be allowed to profit from it, no. But that's irrelevant to the question of how the company will be disposed of. WorldCom shareholders probably shouldn't be allowed to profit from the chicanery of the managers they employed, no. But if bankruptcy hands control of the company to the bondholders, they won't.

Demanding the dissolution of the company for the sins of its managers isn't sensible.

"Social welfare" might also require that companies that follow the law not be bankrupted by companies that break the law. WorldCom would likely not have reached its size and scope if its accounts had been presented fairly. Surely concerns of economic efficiency are not the only ones in this case.

That said, the sooner the WorldCom's status can be resolved, the better. Delay isn't really in anyone's interest.

"Demanding the dissolution of the company for the sins of its managers isn't sensible."

Posted by Mike Kozlowski at October 24, 2002 07:12 AM

I agree. The problem is, can we realistically punish the managers sufficiently, to deter such behavior in the future?

Given that high-level corporate fraud can easily net upper managers many millions, so that one success can allow retirement in luxury, what penalties would be sufficient?

Barry

"Demanding the dissolution of the company for the sins of its managers isn't sensible."

I adamantly disagree. On the contrary, it is probably the only way to teach everyone involved with the company not to look the other way when corruption is running rampant. I can see no other way to accomplish the task. Also, how does one really make a pure distinction between a company and its top managers?

I understand, David, and I actually agree with you (my previous post was a badly written attempt to point out the problem).

I feel that it is an unreasonable punishment, but rendered necessary by an unreasonable world.

In a more reasonable world, we'd put most of such management and directors into prison for a very long term (> 20 years), or execute them.

The basic problem is that successful fraud by upper management can allow them to retire to a life of luxury. Even if they get caught, they'll still profit. They'll have the odd million or so stashed, to live on after they do their 2-3 in a minimum-security prison.

Working off a theory of rational criminality, where potential criminals evaluate the risks and rewards, leads me to believe that the penalties to management for fraud have to be very severe, to have a deterrent effect.