in Marginalia

Lewis on defending the boom

“It is deplorable that some executives fiddled their books and stole from companies. But their behavior was, in the grand scheme of things, trivial. Less than trivial: expected. A boom without crooks is like a dog without fleas. It doesn’t happen. Why is that? Why do periods of great prosperity always wind up being periods of great scandal? It’s not that it happens occasionally. It happens every time. The railroad boom makes the Internet boom look clean. The Wall Street boom of the 1980s, the conglomerate boom of the 1960s, when they came to an end, had their evil villains and were followed by regulatory zeal that appears to have had exactly zero effect the next time the stock market went up.

Is it possible that scandal is somehow an essential ingredient in capitalism? That a healthy free-market economy must tempt a certain number of people to behave corruptly, and that a certain number of these will do so? That the crooks are not a sign that something is rotten but that something is working more or less as it was meant to work? After all, a market economy is premised on a system of incentives designed to encourage an ignoble human trait: self-interest. Is it all shocking that, when this system undergoes an exciting positive transformation, self-interest spins out of control?

Of course, it is good that the crooks are rounded up. We all can move on feeling as if justice was done, and perhaps the next time around fewer people will succumb to temptation. But in the meantime it’s worth asking: how did the crooks get away with it in the first place? Where were the bold regulators and the fire-breathing journalists five years ago, when it actually would have been a little brave, possibly even a little useful, to inveigh against the excesses of the boom? Where in the stock market of five years ago was Eliot Spitzer? (Fully invested with Jim Cramer, who wrote the book about how to use the media to juice one’s own portfolio.) Where was the press? Egging on the very people they now seek to humiliate. The very people who are now baying so loudly for blood were in most cases creating the climate that rewarded corrupt practices.

Around the time the Enron scandal broke last October, there was a good example of just how effortlessly the celebration of the 1990s became a retribution of the 2000s. As gleefully reported by Forbes magazine, Fortune magazine was about to go to press with a cover article for its November 26 issue about the post-9/11 economy in which “the smartest people we know” were consulted. As it happened, one of those people was Kenneth Lay, the chairman and chief executive of Enron Corporation. The issue was laid out, with Lay’s picture right there on the cover when the Enron scandal broke. You might think that would pose a big problem for Fortune magazine, but if it did, the magazine didn’t show it. Using a nifty 1990s piece of photo-editing software, the editors were able to erase Ken Lay. Fortune published on schedule and, ignoring all the flattery it had lavished on Enron over the past few years, piled right onto the scandal. It took only a few months before two of Fortune’s writers had sold their Enron book for $1.4 million.

Good for them, I say. We all have to earn a living. But the next time some editor, or regulator, or politician seeking re-election, begins to shriek about the iniquities of the boom, someone needs to turn to him and ask: where were you when it was happening? And if the answer happens to be, “Making the boom work for me,” the best thing you can do is forgive him for it. Really, it wasn’t such a bad way to spend your time.”

— Michael Lewis, In Defense of the Boom first published in October 2002 issue of The New York Times Magazine and anthologized in a 2009 book he edited entitled Panic: The Story of Modern Financial Insanity

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