Posts Tagged ‘Richard Nixon’
“The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic”*…
Jennifer Pahlka— the founder and long-time leader of Code for America, the former US Deputy Chief Technology Officer, the author of Recoding America, and the cofounder and board chair of the Recoding America Fund— has dedicated her life to improving governance and government services. Here, she reflects on a core lesson that she has learned…
I got into government reform sixteen years ago, though I didn’t think of it as reform at the time. I thought of it as just trying to make a few specific things work better. Since then I’ve worked at the local, state, and federal levels, on benefit delivery, on national defense, on a handful of things in between. I’ve worked alongside a lot of people whose own paths in this work have run the gamut. Collectively we’ve seen a lot. I think we’ve learned a lot about what we often call the operating model of government.
But the government we have — the operating model it runs on, the rules and structures and assumptions that shape how it hires, procures, and delivers — was built for a world that no longer exists, and the distance between that world and this one is growing. We are approaching the kind of moment when that gap stops being a management problem and becomes a true legitimacy crisis. (Many will say that moment has already come.) It’s time to start asking whether the theory of change most of us have been operating under — incremental improvements off a pretty poor baseline — was ever going to get us to a government capable of meeting fast-changing needs. It hasn’t yet, and if we don’t do something differently, it won’t.
Kelly Born at the Packard Foundation recently shared with me a framework called the Three Horizons, originally developed by Anthony Hodgson and adapted widely in systems-change work. In it, Horizon 1 is the currently dominant system. It’s functional enough to persist but failing in critical ways, especially for people with less power. Horizon 3 is the future system you’re working toward, already visible in patches of practice that embody different values and different ways of working, but far from the norm. Horizon 2 is the turbulent middle where change agents work.
But the key insight is that not all Horizon 2 work is the same. Some H2 innovations genuinely create the conditions for the new system to emerge. Call those transforming H2, or H2+. Others, however inadvertently, extend the lifespan of the failing system by relieving the pressure that might otherwise force structural change. Call those sustaining H2, or H2-. Both feel like reform, but they have very different long-term implications.
H2- work is attractive because it usually produces real value in the short run. H2+ work can take a long time to pay off, and the path is rarely clear. In a stable environment, you can get away with a lot of H2-. In an environment where the underlying system has become truly untenable, the difference between the two starts to matter a great deal. I think that’s where we are now…
[Jen describes a few projects that illustrate patterns that play out over and over in the category of H2-, the work that sustains the status quo…]
… The H2- work I’m describing has been done in good faith by people. I am one of those people. Code for America, which I founded and where I spent more than a decade, is in important respects capacity substitution. USDR, which I also helped start, is as well. The healthcare.gov rescue (which I didn’t actually work on but tried to provide moral support for) was the rescue-and-rebuild cycle. For much of the past fifteen years, the H2- path was arguably the right call. When there was no political space for structural change, demonstrations were a good way to build the evidence base and develop the field.
I think we are in a different moment now. This moment is defined by disruption. I count three kinds.
Contingent disruption — pandemics, climate events, geopolitical shocks, financial crises — is unpredictable in its specifics but very predictable in its category: large, fast-moving, high-stakes demands that fall disproportionately on government. COVID was not an anomaly. The next version won’t look the same.
The most recent disruption to federal government, however, was political. Whatever the cost of its methods, DOGE made the brittleness of the current operating model impossible to ignore and created political openings for structural arguments that previously had no traction. The reform field did not create this moment. But it can shape what comes out of it.
AI brings structural disruption. This is a transformation already underway in the material conditions of work, economy, and administration. AI creates dramatic change in both the needs and conditions government must respond to and the ways in which it can respond at the same time. Yes, I certainly mean a social safety net not nearly fit to handle the levels of unemployment that are likely coming our way, and yes, I mean possible upsets in the balance of power between agencies and the vendors they rely on, but that’s barely scratching the surface.
AI is not only an exogenous shock that government will have to absorb. It is also moving the bar on what counts as acceptable service in the first place. People are already using AI to understand their medical bills, navigate insurance denials, and draft appeals for benefits they were wrongly denied. Soon they will expect to apply for SNAP or file their taxes by uploading a paystub and answering a few plain-language questions, not by filling out even the best-designed web form. The forty-page PDF used to feel intolerable. The well-designed web form will start to feel that way too, and faster than the last transition did.
And service delivery is only the most visible piece. The same expectation shift is going to hit regulation, permitting, enforcement, how quickly an agency can respond to a new problem, how a legislature decides whether a law is working. If a small team with the right tools can map a regulatory regime in a week, the timelines we have now, in which rulemaking takes several years–or even multiple presidential terms–become indefensible. If an advocate can stress-test a policy against thousands of edge cases before it gets enacted, the standard for what counts as due diligence in lawmaking starts to move. The bar is rising on the whole surface of what government does, not just on the forms people fill out.
Not everyone wants this shift to happen. Public sector unions have secured laws in several states forbidding the use of AI in service delivery, won contracts requiring union consent before autonomous vehicles can operate, and pushed legislation mandating staffing levels that the work no longer requires — as my colleagues Robert Gordon and Nick Bagley have documented. The concern for workers caught in this transition is legitimate. But blocking government’s transformation while the world around it moves on is not a strategy for protecting those workers. It exacerbates public frustration with government, weakens the case for investing in it, and leaves the people who most depend on public services with a system increasingly unfit to serve them.
So the gap we have been measuring, between what government delivers and what the public considers a basic level of competence, is widening from both ends at once. The system is straining to clear the old bar at the same moment the bar is rising.
In this environment, the benefits systems that struggled to scale during COVID will be asked to scale again. The regulatory processes that can’t move quickly will be asked to respond to developments they weren’t designed to anticipate. The civil service system that can’t attract the people it needs now will need to attract people with skills that didn’t exist a decade ago.
If I had to pick, it’s AI that drives this disruptive moment. But I don’t have to pick. You could just as easily imagine climate shocks, or the next pandemic, or an escalation of the current war. Truly, some combination of all the above is not that unlikely. Reasonable people may disagree about the size and shape of the disruption AI will bring, but betting against disruption generally seems deeply unwise at the moment.
If you buy that argument, then we must acknowledge that a reform field largely dedicated to H2- work is not what the moment calls for. In a stable environment, H2- work that buys time for a failing system might be much-needed, and might be a missed opportunity for transformation. In an environment where disruptions of all kinds are accelerating, it becomes a compounding liability. Extending the lifespan of a brittle system just means the system eventually fails more spectacularly. More people get hurt. More people look for alternatives to democracy.
That doesn’t mean we need to throw everything out and start over. For the reform ecosystem, it means existing actors need incentives to align their work toward structural transformation, new actors with adjacent expertise need to be welcomed into the fold (especially advocates and lobbyists, given how little influence muscle the field has today), and connections need to be made both upstream and downstream of where we’ve been focused. It means articulating competing H3 visions from a wide range of ideological and practical perspectives and debating them among, including the project that sparked this line of thinking, which Kelly funded and FAI and New America are currently working on. It means designing funding and partnership structures that reward structural ambition while staying grounded in meaningful near-term progress. Funders and grantees share responsibility for creating the conditions under which a diverse set of actors can aim higher by working together, and connecting the dots upstream.
For this to work, it can’t be a zero sum game. Government capacity is wildly neglected in philanthropy despite its high leverage. (Good luck naming an issue philanthropists care about that doesn’t benefit from increased government capacity.) Could the field stop doing some H2- work? Sure. That would free up some existing resources for more H2+ work, which has been too little of the field’s mindshare and resources to date. But that is not the path forward — it wouldn’t get us where we need to be. We need more resources, full stop. We need to make the case to philanthropy for greater investment in the entire field (that’s part of what Recoding America Fund is trying to do) and make the case to government leaders, including electeds, to invest in better plumbing, so that the investment in H2+ work isn’t coming at the expense of the essential life support…
[Jen outlines some of the key principles that animate H2+ efforts, then ponders “doing different things differently”…]
… I realized early last year that while I’d spent the bulk of my career trying to drag government into the Internet Era, that work has to change now. We are entering a new era, and if those of us who fought the last fight don’t adapt to the conditions and expectations of this one, we’ll make exactly the mistake the people who resisted internet-era ways of working made. We’ll become the blockers — the ones holding on to old ways of working because that is what we are used to and that is what we are good at.
None of which means rescue work should stop, or that demonstrations are worthless, or that capacity substitution isn’t helpful and needed. Some H2- work, done deliberately and named honestly, is best understood as experimentation: we’re running it inside the failing system precisely because that’s where we’ll learn what a new operating model has to do. That’s a different kind of work from rescue that produces learning incidentally, but both can be valuable.
But the field needs a shared frame clear-eyed enough to ask, with each investment: does this move the system toward H3, or does it prolong H1? That question should be driving how resources, talent, and attention get allocated now, not because the prior work was mistaken but because the moment is different and the cost of extending the status quo is too high. There will have to be work that sustains the status quo, but what tradeoffs are we willing to make?
But insisting we ask the question does not mean that answering it is easy: there is no objective set of criteria that distinguishes one from the other. What may look like H2+ to some may seem like H2- to others, and part of that depends on your particular vision of that third horizon (more on that in the coming weeks.) Some may see work as contributing to a transformation, and therefore H2+, but towards an undesired H3 state. Grappling with how to answer this question is work we all need to be doing…
… Some things haven’t changed. The community is still full of good, smart people with enormous insight into a very difficult problem. We’ve just run out of time to do it the way we’ve been doing it. A brittle system that gets propped up through manageable shocks will eventually meet a shock it can’t survive, and we are moving into a period where the shocks are neither manageable nor hypothetical. Every H2- intervention that returns the system to “good enough” is now a bet that good enough will hold. It’s a bet I no longer think we can afford to make.
The window for H2+ work has not been open like this before. It will not stay open indefinitely.
Eminently worth reading in full.
What DOGE coulda, shoulda been: “A Three Horizons Framework for Government Reform,” from @pahlkadot.bsky.social.
* Peter Drucker
###
As we face forward, we might recall that it was on this date in 1970 that President Richard Nixon formally authorized the commitment of U.S. combat troops, in cooperation with South Vietnamese units, against North Vietnamese troop sanctuaries in Cambodia.
Secretary of State William Rogers and Secretary of Defense Melvin Laird, who had continually argued for a downsizing of the U.S. effort in Vietnam, were excluded from the decision to use U.S. troops in Cambodia. Gen. Earle Wheeler, Chairman of the Joint Chiefs of Staff, cabled Gen. Creighton Abrams, senior U.S. commander in Saigon, informing him of the decision that a “higher authority has authorized certain military actions to protect U.S. forces operating in South Vietnam.” Nixon believed that the operation was necessary as a pre-emptive strike to forestall North Vietnamese attacks from Cambodia into South Vietnam as the U.S. forces withdrew and the South Vietnamese assumed more responsibility for the fighting. Nevertheless, three National Security Council staff members and key aides to presidential assistant Henry Kissinger resigned in protest over what amounted to an invasion of Cambodia.
When Nixon publicly announced the Cambodian incursion on April 30, it set off a wave of antiwar demonstrations. A May 4, protest at Kent State University resulted in the killing of four students by Army National Guard troops. Another student rally at Jackson State College in Mississippi resulted in the death of two students and 12 wounded when police opened fire on a women’s dormitory. The incursion angered many in Congress, who felt that Nixon was illegally widening the war; this resulted in a series of congressional resolutions and legislative initiatives that would severely limit the executive power of the president.
– source
“When the gods want to punish us, they answer our prayers”*…
… So, the estimable Rana Foroohar suggests, American business leaders should be careful what they wish for…
For months now, I’ve been watching with alarm how many top business leaders in the US are buying the line that Donald Trump II would somehow be just like the last time around — loud, but laissez-faire. It was so depressing to see some of America’s top CEOs giggling as the former president joked at his recent Business Roundtable event in Washington. Trump said that he’d polled waitresses and caddies (presumably at Mar-a-Lago) about removing taxes on tips and they were in favour. Sure, there were reports of some grumbling about hardline tariff talk, Trump’s inability to stay on point and his general blow-hardness. But for the most part, tax cuts, deregulation and an utter lack of imagination about political risk seems to be driving business sentiment around him.
It’s not just American business that has the blinders on. I did a Lunch with the FT [gift link] with Lloyd’s of London chief executive John Neal, and I was amazed that when I asked him to think about his top US political risks, he spoke first about Joe Biden’s money printing — rather than the risk to, say, the rule of law under Trump. When I pressed him on the Trump risk, his biggest worry seemed to be the differing policies of the two candidates around things like electric vehicle production, and the decision risk that this might introduce for companies.
Really folks? Let’s have a refresher course on Trumpian economics.
In 2016, Trump talked tough about Made in America and helping working people, but most of his economic policies (aside from tariffs on China) were basically business as usual. He rolled back regulation and lowered taxes on big corporations. Much of the money went to stock buybacks, not Main Street investment. That buoyed short-term stock prices, which were also helped along by low interest rates.
But, it’s VERY unlikely we would see the same phenomenon in a second Trump administration. His tenure marked the apex of financialised growth, which is now largely tapped out. As the Federal Reserve’s End of an Era paper from June 2023 laid out, more than 40 per cent of real corporate profit growth between 1989 and 2019 came from the secular fall in interest rates, and corporate tax rates being cut. That’s what has propelled so much growth in equities in recent years.
Today, the S&P is by some measures more overvalued than it was when the housing bubble burst. In this environment, it’s difficult to see equities rising even if the Fed were to begin cutting rates in the face of a recession. It’s much more likely they’d fall, despite any new Trump tax cuts. And that is the more benign scenario. A more likely possibility is that we’d get a harder-edged, even more insular, xenophobic and paranoid version of Trump this time around.
For starters, few of the more moderate business types that served with him the first time would be willing to come into a second administration given the January 6 2021 Capitol riots and Trump’s ongoing election-loss denial. Some smart people in the business community have concerns about his propensity for fiscal profligacy at a time when rising US deficit levels are worrying investors. It’s fascinating to me that people think about Biden when they think about debt, rather than Trump. Biden’s White House has made record fiscal investment, sure, but it is investing in the real economy, while Trump’s legacy was a classic Republican formula of boosting asset markets with financialisation.
Add to that the prospects of a 10 per cent tariff on imports across the board, and 60 per cent levy on China. This goes to what has been one of the biggest problems with Trump’s trade and economic strategies from the beginning — a tendency to blame China and employ tariffs as a standalone solution to the big, complex problem of slower secular growth and growing inequality in the US. Not that Trump seems to think in such nuanced terms. The fact is that America’s economic and political problems are only partly about the failings of globalisation and the neoliberal trading system in particular. They are also about a lack of investment at home, in basic infrastructure, skills and education, as well as core research and development.
I haven’t seen anything yet that makes me think that Trump or anyone in his orbit has a plan for a multipolar world, or any sense of how to manage complex supply chain de-risking or the politics of friendshoring. And yet, 10 or 60 per cent tariffs depending on the locale would require some kind of reshoring approach. None of that will square with an asset boom, but rather quite the opposite…
A warning to business leaders supporting Trump, from @RanaForoohar @FT.
(Image above: source)
* Oscar Wilde
###
As we study self-interest, we might recall that it was on this date in 1972 that an 18-1/2-minute gap appears in the tape recording of the conversations between U.S. President Richard Nixon and his advisers regarding the recent arrests of his operatives while breaking into the Watergate complex.
Still, the tapes were damming. The White House released the subpoenaed tapes on August 5. One tape, later known as the “Smoking Gun” tape, documented the initial stages of the Watergate coverup. On it, Nixon and Haldeman are heard formulating a plan to block investigations by having the CIA falsely claim to the FBI that national security was involved.
It’s a measure of how different those times were from ours that, once the “Smoking Gun” transcript was made public, Nixon’s political support practically vanished: the ten Republicans on the House Judiciary Committee who had voted against impeachment in committee announced that they would now vote for impeachment once the matter reached the House floor.

“Thou art a monument without a tomb, / And art alive still while thy book doth live / And we have wits to read and praise to give”*…
400 years ago this month, seven years after Shakespeare’s death, his friends John Heminge and Henry Condell published The First Folio, containing 36 of Shakespeare’s plays, (an endeavor which they financed with a bequest that he had left them).
Although 19 of Shakespeare’s plays had been published in quarto before 1623, the First Folio is arguably the only reliable text for about 20 of the plays, and a valuable source text for many of those previously published. Eighteen of the plays in the First Folio, including The Tempest, Twelfth Night, and Measure for Measure among others, are not known to have been previously printed.
It is considered one of the most influential books ever published. Of perhaps 750 copies printed, 235 are known to remain, most of which are kept in either public archives or private collections. More than one third of the extant copies are housed at the Folger Shakespeare Library in Washington, D.C., which is home to a total of 82 First Folios.
It is also, as Alicia Andrzejewski and Carole Levin explain, one of the most stolen…
Late at night on July 13th, 1972, an unknown person entered the University of Manchester’s Library and violently smashed the plate glass top of an exhibition case, stealing the contents. Inside was one of the most famous, most valuable books in existence: the library’s near-perfect edition of one of Shakespeare’s First Folios. This theft is the most mysterious of all the stolen First Folios. More than fifty years have passed, and this First Folio—one of the 750 printed in 1623 and of the estimated 232 known copies across the globe today—is still missing.
This year, 2023, marks the 400th year anniversary of the printing of Shakespeare’s First Folio, deemed one of the most significant books in the English language, “a coveted treasure,” to quote Eric Rasmussen, an expert on the First Folios and author of The Shakespeare Thefts: In Search of the First Folios. Without the First Folio, we would not have many of Shakespeare’s most famous plays, the half that were not printed in his lifetime, including The Taming of the Shrew, Macbeth, Twelfth Night, and The Tempest. In collecting and printing these plays, Shakespeare’s two close friends and fellow actors, John Heminge and Henry Condell, validated that plays are more than entertainment—they have literary value.
The First Folios still in existence are mainly housed in public institutions—their significance is underscored by their rarity, as copies are almost never available for sale, and the most recent one sold in 2020 for almost ten-million dollars. Even in the seventeenth century, when the First Folios were first printed, they were only available to elite members of society: earls, lords, knights, admirals, and the occasional lawyer. To this day, ownership is limited to, and a fetish among, the super wealthy. Because of their elite status, Rasmussen speculates that, of the copies that cannot be located, most “have probably been stolen.”
For some, as Rasmussen suggests, the First Folio is coveted because of its monetary value, an object to steal and eventually attempt to sell. Three First Folios were stolen in the 20th century alone, including the Manchester Library’s copy, and the thieves in the latter two cases are characters as strange as some of those in Shakespeare’s plays, the heists as thrilling as some of his plots. The thefts we describe, and the desires that inspire them, speak to Shakespeare’s foothold in Western civilization—the reverence and awe so many people have for him, that imbue the First Folio with an almost religious power…
Some of the most brazen heists of a historic volume: “Shakespeare’s First Folio has been Stolen Many, Many Times,” in @CrimeReads.
* Ben Jonson, “To the Memory of My Beloved the Author, Mr. William Shakespeare” (in the First Folio)
###
As we linger on literary larceny, we might recall that it was on this date fifty years ago that then-President Richard Nixon made his famous declaration of character:
On Nov. 17, 1973, President Richard M. Nixon held a news conference before Associated Press managing editors in Orlando, Fla., in which he defended himself against a number of allegations. Most of the questions related to the Watergate break-in, which had become even more of a scandal a month earlier with the “Saturday Night Massacre.” Other questions focused on reports that he had cheated on his tax returns.
The Nov. 18 New York Times outlined President Nixon’s many assertions, concluding that the president had acquitted himself well: “The president seemed composed and on top of the subject throughout the session, faltering perceptibly only during the discussion of his taxes. In contrast with some of his recent appearances he did not berate his critics or his political enemies.”
The best-remembered part of the news conference came as the president defended himself against claims that he had illicitly profited from his years in public service. “I made my mistakes, but in all of my years of public life, I have never profited, never profited from public service — I earned every cent,” he said. “And in all of my years of public life, I have never obstructed justice. And I think, too, that I could say that in my years of public life, that I welcome this kind of examination, because people have got to know whether or not their president is a crook. Well, I am not a crook. I have earned everything I have got.”
The news conference did little to end questions over Mr. Nixon’s honesty. His declaration “I’m not a crook” was used against him — and the line would forever be associated with the Watergate era.
In April 1974, the Internal Revenue Service ordered that the president pay more than $400,000 in back taxes for making improper deductions. And the Watergate investigation continued to uncover misconduct. In August 1974, with the House Judiciary Committee having recommended impeachment and the release of a “smoking gun” tape showing that he had approved a cover-up, the president resigned…
“Nixon Declares ‘I Am Not a Crook’”
“I profess in the sincerity of my heart that I have not the least personal interest in endeavoring to promote this necessary work, having no other motive than the public good of my country”*…
“Scott Alexander” (also here) throws his hat into the Presidential ring…
The American people deserve a choice. They deserve a candidate who will reject the failed policies of the past and embrace the failed policies of the future. It is my honor to announce I am throwing my hat into both the Democratic and Republican primaries (to double my chances), with the following platform…
There follow eleven bold ideas, for example:
Ensure Naval Supremacy And Reduce Wealth Inequality By Bringing Back The Liturgy
The liturgy was a custom of ancient Athens. When the state needed something (usually a new warship) it would ask for volunteers among its richest citizens. Usually one would step up to gain glory or avoid scorn; if nobody did, the courts were allowed to choose the richest person who hadn’t helped out recently. The liturgist would fund the warship and command it as captain for two years, after which his debt to the state was considered discharged and he was given a golden crown. Historians treat the liturgy as a gray area between voluntary service and compulsory taxation; most rich Athenians were eager to serve and gain the relevant honor, but they also knew that if they didn’t, they could be compelled to perform the same service with less benefit to their personal reputation.
Defense analysts warn that America’s naval dominance is declining:
Only 25 per cent of America’s 114 commissioned surface combatants (cruisers, destroyers, and littoral combat ships) are less than a decade old. By comparison more than 80 per cent of China’s 141 destroyers, frigates, and corvettes have been commissioned in the past decade. In the same time period, the United States commissioned 30 surface combatants . . . The nearly 600-ship Navy of the late 1980s deployed only 15 per cent of the fleet on average. Today, with fewer than 300 ships, the US Navy deploys more than 35 per cent to service its global missions, contributing to a material death spiral.
So America is short on warships. But it is very long on rich people with big egos. An aircraft carrier would cost the richest American billionaires about the same fraction of their wealth as a trireme cost the richest Athenian aristocrats. So I say: bring back the liturgy!
The American rich already enjoy spending their money on exciting vehicles – yachts for the normies, rockets for the more ambitious, Titanic submersibles for the suicidal. Why not redirect this impulse towards public service? Imagine the fear it would strike into the hearts of the Chinese when the USS Musk enters Ludicrous Mode in the waters off the Taiwan Strait, with Elon himself at the wheel. And does anyone doubt that Elon – usually careful to avoid taxes – would jump at the chance to do this?
…
Legalize Lying About Your College On Resumes
Colleges trap Americans in a cycle of burdensome loans and act to reinforce class privilege. I have previously advocated making college degree a protected characteristic which it is illegal to ask people about on job applications. But this would be hard to enforce, and people would come up with other ways to communicate their education level.
So let’s think different: let’s make it legal to lie about your college on resumes (it is already not technically illegal to lie on a resume, but companies can ask for slightly different forms of corroboration which it is illegal to lie on). Everyone can just say “Harvard,” and nobody will have any unfair advantage over anyone else.
…
More modest proposals: “My Presidential Platform,” from @slatestarcodex.
* Jonathan Swift, A Modest Proposal For preventing the Children of Poor People From being a Burthen to Their Parents or Country, and For making them Beneficial to the Publick
###
As we savor the sad salience of satire, we might recall that on this date in 1935, Huey Long, Louisiana Senator and past-Governor (and inspiration for Robert Penn Warren’s All the King’s Men), was shot in the Louisiana state capitol building; he died 30 hours later. Called a demagogue by critics, the populist leader (“every man a king”) was a larger-than-life figure who boasted that he bought legislators “like sacks of potatoes, shuffled them like a deck of cards.”
And on this date in 1974, President Gerald Ford offered his disgraced predecessor, Richard Nixon, “a full, free, and absolute pardon for all offenses against the United States which he, Richard Nixon, has committed or may have committed or taken part in” during Nixon’s Presidency.
“Things gained through fraud are never secure”*…
… Still, the damage done to the defrauded is too often too real. A unsettling report from the front lines of financial accounting…
The level of corporate earnings manipulation is similar to that of past pre-recessionary periods, according to research by professors at the University of Missouri and Indiana University.
Their finding is based on the M-Score, a screening model that catches fraud in corporate earnings reports. Messod Daniel Beneish, a professor at the Indiana University Kelley School of Business, created the M-Score in the 1990s. The “M” stands for manipulation, and the measure is also sometimes referred to as the Beneish M-Score.
Based on known examples of past financial misreporting, the M-Score combines eight ratios on a company’s balance sheet to assess its fraud risk. A higher M-Score means a company is more likely to be manipulating its earnings.
“It allows us to assess fraud risk in real time,” said Matt Glendening, an accounting professor at the University of Missouri. “The advantage of using a measure such as the M-Score is that if you use actual instances of accounting fraud, not all cases are caught, especially the less severe cases. And also, there is a delay between the misreporting period and the time at which the fraud is actually revealed.”
One notable M-Score success came in 1998, when a group of Cornell students used the M-Score to flag Enron as having an elevated fraud risk. This was three years before the public learned that the company was inflating its profits, resulting in what was then the largest corporate bankruptcy in history and several executives going to jail.
…
Corporate earnings are traditionally manipulated either by overstating revenues or understating expenses. How companies do this varies, but it could include recognizing sales revenues early or understating inventory.
“There are all sorts of capital market pressures on firms to maintain stock price, maintain earnings growth,” Glendening said. “There could also be some compensation incentives at play.”
In 2019, Beneish expanded the M-Score, creating a new measure that goes beyond individual companies to the economy as a whole. With the help of Glendening and two other co-authors, Beneish created the aggregate M-Score, which now compiles the M-Scores of 2,004 companies to measure the likelihood of earnings manipulation across the economy. Earlier in 2023, the aggregate M-Score was at its highest level in 40 years.
“Accounting manipulation matters for the economy at large,” Glendening said. Companies use other business’ earnings data to inform hiring, purchasing, and production decisions. “What we are finding is that the level of aggregate misreporting is very similar to what we’ve observed in pre-recessionary periods.”
Ask not for whom the bell tolls: “This little-known accounting measure is ringing an economic warning bell,” from Kai Ryssdal (@kairyssdal) and Andie Corban on @Marketplace.
See also: “Corporate Fraud” (source of the image above)
* Sophocles
###
As we look more closely, we might recall that it was on this date in 1974 that the House Judiciary Committee voted to recommend that America’s 37th president, Richard M. Nixon, be impeached and removed from office for a variety of offenses that arose from the Watergate Affair. Several days later (August 5), as the full house discussed the trial, the “Smoking Gun” tape was released, demonstrating that Nixon was in fact involved in the cover-up. His political capital destroyed, Nixon resigned– in a nationwide television address– on August 8, effective the next day.










You must be logged in to post a comment.