The greatest editorialist of our age, Joseph Rago of the Wall Street Journal, is at it again. Mr. Rago profiled two investors in Philadelphia who are resisting government pressure to admit that they did something wrong when trading in the electricity marketplace. The investors’ case is that everything they did was transparently legal. The feds don’t care—if they apply pressure, they want a settlement.
Joseph Rago, you may recall, won the 2011 Pulitzer Prize for Editorial Writing, on the strength of ten exposes of Obamacare in the year it became law, 2010. Mr. Rago isn’t a household name, even though he called the comprehensive fiasco of Obamacare just as it came into being, did so on the pages of the biggest newspaper in the land, and collected the tippy-top honor for it. He makes Tom Friedman and friends look like something warmed-over.
At any rate, Rago is killing it in this profile of the Philly businessmen. The fools in the story are the employees of the Federal Energy Regulatory Commission, who by definition are the least competent people in the energy industry. The sages are the Philly traders, who have to explain to the regulators that they do not grasp their own rules. Sometimes it is hard to admit that one is wrong. Thus are the feds pounding the table for a face-saving settlement.
It’s a comedy, even if the businessmen are fighting to avoid paying some bucks, and possibly for a corner of their reputation. Then again, being held liable by second-raters is technically an honor.
What’s sad is that this is an old story. Franklin D. Roosevelt’s presidency was full of petty games of this sort. First were those set up by the cretin Ferdinand Pecora. Pecora was the Congressional counsel who compelled J.P. Morgan to sit in dock in 1933 and get berated for paying no income taxes in the previous two years.
Morgan responded with extreme exactitude that he had lost millions of dollars as the government treated the economy to the Great Depression in those years. Morgan reported his income position following the letter of the law, and the tax liability on the government forms came up zero.
Pecora did not contest these points. His case was a moral (to traduce a venerable word). Morgan should have paid income taxes, Pecora declared, perhaps by hiding some losses so that it would appear that some money had been made. After all, the nation needs JP Morgan to pay taxes.
We are apt to forget how clueless FDR was over his whole presidency about two big things: why the Depression happened and what to do about it. The main function of the Pecora spectacle was to buy the newcomer in the Oval Office time to figure out what to do in the depth of the Depression. The worst year of that horrible event, let us recall, was not one of President Herbert Hoover’s four years, 1929-32, but FDR’s first year, 1933—the year Pecora spent fulminating.
Next in the rogues gallery was the pettifogger Robert H. Jackson, who had lead roles in the U.S.’s failed cases against industrialist Samuel Insull for fraud and Andrew W. Mellon for tax evasion.
The latter case remains one of the most disreputable actions that the United States has ever brought against one of its citizens—let alone one of its leading citizens. It was clear that Mellon’s taxes had been prepared just as Mellon said when he responded to the government’s complaint: He had “always been scrupulous to give the government every benefit of the doubt in making up my tax return.”
A grand jury declined to indict Mellon, despite the prompting from on high. Jackson and associates pressed on with a civil trial. Everyone, including in the government, agreed that Mellon had done nothing wrong.
But legal tax avoidance can suggest, falsely, illegal tax evasion. A weak mind can entertain such an elision. This was the grounds for continuing the case. The plan was to misrepresent Mellon’s legal avoidance activities as evasion.
The trial found that Mellon had not evaded taxes illegally. Jackson should have quit his profession in a show of honor, or faced disbarment. Instead, FDR elevated him to the Supreme Court.
Amazingly, Mellon, in all his gallantry, never wavered the whole while in his efforts to complete his gift to the nation’s capital that was the National Gallery of Art. And yet in truth, this institution on the Mall should be disbanded, its collections directed to the properly cultural parts of the country—which is to say, any place that is not Washington, DC.
All these trials and compelled testimonies were highly public affairs in the 1930s, buying FDR time to cultivate the impression that he was acting vigorously to address the economic crisis. The year after FDR won reelection in 1936, unemployment stood at some quaint level north of 15%. Six years into the New Deal, in 1939, FDR’s own treasury secretary, Henry Morgenthau, said: “We have never made good on our promises. We have never taken care of them. We have said we would give everyone a job that wanted it.”
The Obama era is now recapitulating the FDR years in terms of the broken promises, the manufactured distractions, and the scapegoating. In the absence of definitive recovery from economic crisis come baseless, grandstanding charges against “malefactors of great wealth,” as FDR put it. The tribulation which the Philadelphia businessmen are going through reflects the spasm of envy and self-justification that puffed-up regimes of Democratic governance experience when they fail.