Last week, Democrats in Congress were shocked — shocked! — by reports Karl Rove, President Bush’s political advisor, was considering how the current war on terrorism would affect next fall’s midterm elections.

What makes the Democrats’ indignation so amusing are the lengths they have gone to to make the other major news story of the last month — Enron — benefit them politically.

In the wake of the Enron fiasco, two myths have been propagated, neither of which is supported by facts but rather by attempts to bend Enron around partisan policy positions.

Myth #1: The Enron fiasco demonstrates why we need campaign-finance reform.

The truth is the Enron fiasco demonstrates the intent and effect of campaign financing are both misunderstood and overstated.

As soon as the White House reported that Kenneth Lay, head of Enron, had called both the Treasury and Commerce secretaries and been rebuffed, the consensus was campaign-financing buys you access but not results. That’s all well and good — certainly not the cesspool of corruption Senator’s McCain and Feingold would have us believe. But on a more fundamental level, these reformers misunderstand the purpose of most campaign contributions.

There is no question Republicans received more money from Enron and its executives. So what? Campaign-finance reformers would have you believe this simply means Republicans are more easily swayed by campaign-finance money.

It is an argument similar to that used against opponents to McCain-Feingold. The New York Times regularly editorialized (both in editorials and news stories) that Republicans opposed campaign-finance reform because of the money they received.

What both arguments ignore is ideology. Republicans favor free markets and deregulation. Such conditions benefited Enron, so it was only natural they gave more to Republicans. (As a counterexample, labor unions support Democrats because Democrats favor more regulations related to workers.) Similarly, concerns about the impact campaign-finance reform would have on free speech rights led to Republican opposition to McCain-Feingold — an especially principled stand since Republicans would be in far better shape than Democrats if soft money were established.

Enron also reaffirms the obvious truth that politicians care much more about votes than money. Consider the NRA or Sierra Club. Both are examples of ordinary citizens exercising their right of assembly and petition, and most politicians dare not oppose them. Why are these groups of “little guys” so powerful? It’s not the money. Rather, it is the millions of members in each organization that vote based on one issue. When cabinet members said “no” to Kenneth Lay, a few hundred people were displeased. When congressional members say “no” to the NRA or Sierra Club, millions are put out.

Myth #2: The government should have bailed out Enron investors.

Some Democrats have been suggesting the administration should have intervened to bail out those invested in the company. However, such a strategy would have been pure folly.

The American economic system — the most successful in history — is fueled by calculated risk. If a company merely operates according to the status quo, it will never make a profit because imitators will offer the same service at lower prices. Prices will continually lower until the service is offered at cost.
But if a company develops a new product or service, patent laws give them an exclusive window in which to sell the product for profit. When the patent expires, competition drives the price down to at-cost levels. The desire for profit drives innovation, and we all benefit.

But innovation is not an easy road. It takes massive amounts of money — which comes from investors. If a new product or service succeeds, the profit is shared among all the investors. If the product or service fails, the loss is shared as well. However, losses are especially damaging because the invested money — which could have been invested elsewhere — is lost forever. Innovation is the casualty.

In short, we want to encourage sensible risk and discourage extreme risk. The most effective method is letting unsuccessful companies fail. You can be certain investors will not invest in a company taking the risks Enron did — and our economy will benefit. Had there been a government bailout, it would only have been a matter of time till another company wasted millions of investment dollars and investors came to Washington on their knees.

It’s tough medicine, but it is incredibly effective and essential for an efficient economy.

It is looking more and more certain that Enron executives broke the law — and they must be punished to the furthest extent of the law. In the meantime, our economy will survive any short-term shock. Politicians, on the other hand, must resist the temptation to make the fiasco into something it is not and permanently damage either our First Amendment protection or our economic system.

Benjamin Thompson ([email protected]) is a senior majoring in political science.