Finding single causes for stock market movements is a mug's game but one that there are always lots of mugs to play. Today's newspaper headlines and news show leads unanimously declare that the cause of yesterday's big Wall Street rally was plain to see: Congressional conferees had agreed on new laws to rein in corporate fraud, and investors were ecstatic. USA Today bizarrely added a second cause, viz., the arrest of members of the Rigas family for alleged looting of Adelphia Communications.

The consensus explanation assumes that investors yearn for greater federal regulation of corporate finance and bought on the good news that Congress had responded to their desires. What is not explained is the sharp decline over the two preceding weeks. At the market's close on July 5th, the Dow stood at 9379.50. Over the following weekend, President Bush came out in favor of strong anti-fraud legislation, and momentum built rapidly for passage of the strongest possible measures. Pro-regulation investors should have been delighted and rushed to snap up bigger stakes in the soon-to-be-reformed securities market. Here is how they showed their delight:

If anything is blindingly evident, it is that Washington's sudden solicitude for their needs unnerved investors far more than had the dubious accounting at Enron, Worldcom, Global Crossing, etc. The malfeasance of a half dozen or so corporations affects only a minute fraction of the economy. Malfeasance by the government affects everyone everywhere.

Elsewhere I've offered my own theory that the market decline represented a revaluation of stocks to take into account the prospect that, under government pressure, dotcom-era boldness will give way to a low-risk/low-reward mentality. That is a legitimate fear, but the July 24th rally, if it doesn't turn out to have been transient bargain hunting, may show that investors, having looked at what the politicians have served up, are getting over a portion of their initial fright.

Congress has thrown a tantrum under the guise of passing a law, and its actions will do a fair amount of harm, but it hasn't knocked the pins out from under the free enterprise system. CEO's are going to have to devote more time to green eyeshade issues that ought to be left to technicians, but businesses will adjust by putting their best strategists into positions with fewer distractions. Bill Gates' surrender of his CEO title points the way for others. Similarly, financial statements will become murkier, and they will be audited by firms with reduced capabilities. It wouldn't surprise me if, ten years from now, a third of the Fortune 1000 audits were in the hands of what are now second-tier firms, while the Big Four concentrated on international audit work, selected domestic clients and the provision of nonaudit services. Those developments will make published corporate data less useful, but they will still be good enough for securities analysts to tease meaning out of the dross. And, of course, there will be lots more litigation, until the plaintiffs' bar fatally overreaches and is reined in by its own version of the Securities Act of 1933. Abuse eventually runs into checks and balances.

The media's instant analysis of what moves the market is the product of liberal mythmaking. I suppose, however, that we should be careful not to state the obvious too loudly. Perhaps, if we all assure the congresscritters that they have done exactly what we want and we now brim with confidence in the economy's future, they will murmur self-congratulations, then roll over and go to sleep, leaving businessmen to get back to producing wealth instead of fearfully defending it.

The past ten months haven't been fun for those who spell "America" with a "k". Instead of falling into a confused panic after the attacks on the World Trade Towers and the Pentagon, the United States has acted more like a superpower than at any previous time in its history. It overthrew the Taliban regime in Afghanistan, halfway around the world, with barely a flick of its hand, and very few doubt that it will soon do the same to Saddam Hussein's tyranny in Iraq. Despite the fact that its military budget is at its lowest ebb since before World War II, America has demonstrated overwhelming military superiority over its potential enemies. At the same time, it has abruptly adopted the traditional attitude of superpowers toward attempts to constrain its freedom of action, rejecting limitations on its right of self-defense (the ABM treaty), its authority to be the judge of its own conduct (the International Criminal Court) and its economic flexibility (the Kyoto treaty). Uncle Sam, after nearly a decade of nodding humbly to the wisdom of his betters, lending his troops to fight for objectives chosen by everyone but himself, and apologizing for the past sins of the Western world, all at once is the to-be-appeased rather than the perpetual appeaser.

Some anti-American leftists have reacted to these unpleasant developments by becoming strident to the point of self-parody, e. g., Noam Chomsky, John Pilger and Robert Fisk, others by growing yet more condescending toward the barbarous Yankees, e. g., sundry Eurocrats. In the latest issue of Foreign Policy, soft-Marxist sociologist Immanuel Wallerstein (author of such classics as The Essential Wallerstein) takes a different path. The U.S. may look strong, but, he informs us in an essay titled "The Eagle Has Crash Landed", that appearance is an illusion:

The United States in decline? Few people today would believe this assertion. The only ones who do are the U.S. hawks, who argue vociferously for policies to reverse the decline. This belief that the end of U.S. hegemony has already begun does not follow from the vulnerability that became apparent to all on September 11, 2001. In fact, the United States has been fading as a global power since the 1970s, and the U.S. response to the terrorist attacks has merely accelerated this decline. To understand why the so-called Pax Americana is on the wane requires examining the geopolitics of the 20th century, particularly of the century's final three decades. This exercise uncovers a simple and inescapable conclusion: The economic, political, and military factors that contributed to U.S. hegemony are the same factors that will inexorably produce the coming U.S. decline.

The potted history that follows makes one wonder about the standards of the distinguished universities that have hosted Dr. Wallerstein during his academic career (he is currently at Yale) and the quality of Foreign Policy's fact checkers. To describe World Wars I and II "as a single, continuous '30 years’ war' between the United States and Germany" with global hegemony at stake may be no worse than idiosyncratic reductionism (the United States was not an initial belligerent in either conflict and might never have entered them if Germany and its allies had been cleverer and more restrained), but the author is equally eccentric on simple matters of fact. He tells us, for instance, "When the war ended in Europe on May 8, 1945, Soviet and Western (that is, U.S., British, and French) troops were located in particular places—essentially, along a line in the center of Europe that came to be called the Oder-Neisse Line. Aside from a few minor adjustments, they stayed there." If only! The Oder-Neisse Line is the border between Germany and Poland!

Item, "Vietnam became such a powerful symbol because Washington was foolish enough to invest its full military might in the struggle." Again, if only! At their height, U.S. soldiers in Vietnam were one-twentieth the number assembled to fight the Second World War. Military expenditures, mostly not for Vietnam, peaked at less than nine percent of gross domestic product (8.6% in 1968) - below the highs of World War I (13.2% in 1919), World War II (36.1% in 1945) and the Korean War (10.9% in 1952) [source]. In the end, the U.S. lost in Vietnam not because it couldn't afford a greater effort but because it did not want to make one.

Item, "The [Vietnam] conflict was extremely expensive and more or less used up the U.S. gold reserves that had been so plentiful since 1945." Does Dr. Wallerstein imagine the the U.S. financed the war by selling gold? In any event, most of the post-war decline in the government's gold stock (from 700 million to 395 million ounces - about 300 million remained when President Nixon closed the gold window in 1971) took place between 1949 and 1965 (that is, before the major U.S. involvement to Vietnam) and was owing to the policy of allowing foreign banks to exchange dollars for gold at an increasingly favorable rate. The war was not cheap, but most of the cost was covered by shuffling funds from elsewhere in the military budget. The high for wartime expenditure (8.6% of GDP) was not much above the figure for 1963 (8.0%), the year preceding the arrival of American forces, and less than that of the peacetime years 1955 through 1958 (8.8% to 9.4%).

Item, "Since the late 1960s, members of this triad [the United States, Western Europe, Japan] have been nearly economic equals, each doing better than the others for certain periods but none moving far ahead." For the past 20 years, the United States economy has consistently outperformed both Europe's and Japan's. In current size, the European Union as a whole has a slightly larger gross domestic product than the United States, so that that two can be considered equals (Japan's economy is much smaller), but, in terms that are important for power politics, the U.S. holds a large edge, because the smaller scale of its welfare state leaves more money free for military and political uses.

Not surprisingly, an analyst whose grasp of the data is weak puts strange glosses on history. Dr. Wallerstein's fundamental thesis is that American "hegemony" rested on a tacit agreement with the Soviet Union to preserve the status quo. On its own, the U.S. could not do very much, as shown by the stalemate in Korea and defeat in Vietnam. Even in lesser arenas, it failed.

In 1983, U.S. President Ronald Reagan sent troops to Lebanon to restore order. The troops were in effect forced out. He compensated by invading Grenada, a country without troops. President George H.W. Bush invaded Panama, another country without troops. But after he intervened in Somalia to restore order, the United States was in effect forced out, somewhat ignominiously. Since there was little the U.S. government could actually do to reverse the trend of declining hegemony, it chose simply to ignore this trend—a policy that prevailed from the withdrawal from Vietnam until September 11, 2001.

The phrase "in effect forced out" elides the reason for the American retreats, which was not lack of means but lack of will. It would be fair to say that an extreme reluctance to take casualties greatly limited the effectiveness of the U.S. armed forces in the years after Vietnam, but that self-inflicted constraint did not reflect the realities of power.

The collapse of the Soviet Union (which Dr. Wallerstein sees as an ultimate consequence of the "student revolts" of 1968 - like many radicals of his generation, he fancies that world history pivoted on that trivial spasm) deprived its nominal rival and secret collaborator of ideological legitimacy and thus completed the transformation of America into "the powerless superpower".

The United States was stunned and puzzled by the sudden collapse, uncertain how to handle the consequences. The collapse of communism in effect signified the collapse of liberalism, removing the only ideological justification behind U.S. hegemony, a justification tacitly supported by liberalism’s ostensible ideological opponent. This loss of legitimacy led directly to the Iraqi invasion of Kuwait, which Iraqi leader Saddam Hussein would never have dared had the Yalta arrangements remained in place. In retrospect, U.S. efforts in the Gulf War accomplished a truce at basically the same line of departure. But can a hegemonic power be satisfied with a tie in a war with a middling regional power? Saddam demonstrated that one could pick a fight with the United States and get away with it. Even more than the defeat in Vietnam, Saddam’s brash challenge has eaten at the innards of the U.S. right, in particular those known as the hawks, which explains the fervor of their current desire to invade Iraq and destroy its regime.

"A tie in a war with a middling regional power"? Outnumbered five to one on the ground, the U.S.-led forces reduced the Iraqi army to rubble in just over four days of combat, with fewer than 500 men killed, wounded and missing. On the other side, at least 60,000 enemy soldiers were taken prisoner. The total killed and wounded may have been as high as 100,000. Some tie! That General Schwarzkopf did not roll into Baghdad and depose Saddam was the result of political miscalculation: President Bush thought that Saddam would fall without further pushing and that the U.S. could thus avoid messy entanglements in postwar Iraqi politics. Saddam demonstrated that an enemy of the United States can survive only on American sufferance, not perhaps the most heartening lesson for our other ill-wishers.

Dr. Wallerstein's tale of American impotence continues with the Balkans and the Middle East. Both furnish good evidence of past American sloth in politics and diplomacy, but the military record is just the opposite. When the U.S. finally did go to war against Serbia, it accomplished an historical first, winning the Kosovo campaign from the air, without sending in a single U.S. infantryman.

Whatever else historians may decide, the attacks of September 11, 2001, posed a major challenge to U.S. power. The persons responsible did not represent a major military power. They were members of a nonstate force, with a high degree of determination, some money, a band of dedicated followers, and a strong base in one weak state. In short, militarily, they were nothing. Yet they succeeded in a bold attack on U.S. soil.

Bold attacks against unprepared targets are what terrorists do best. As a serious blow to U.S. capabilities, September 11th was nugatory. As a psychological strike, it was devastating - to its perpetrators. The U.S. had essentially ignored al-Qaeda for years, despite its bombings of American embassies and ships. Within a few months after 9/11, Osama bin Laden's organization had lost its territorial base; its top leaders were dead or in hiding; its finances were disrupted; and its fighters killed, captured or dispersed. Its remnants may be able to strike again, but, over a period of ten months, the only action for which they have claimed responsibilty is an isolated bomb blast in Tunisia. The "major challenge to U.S. power" lies in rooting out the infrastructure of Islamofascist terrorism, not in coping with a militarily formidable foe.

But hawk interpretations are wrong and will only contribute to the United States’ decline, transforming a gradual descent into a much more rapid and turbulent fall. Specifically, hawk approaches will fail for military, economic, and ideological reasons.

Saddam Hussein’s army is not that of the Taliban, and his internal military control is far more coherent. A U.S. invasion would necessarily involve a serious land force, one that would have to fight its way to Baghdad and would likely suffer significant casualties. Such a force would also need staging grounds, and Saudi Arabia has made clear that it will not serve in this capacity. Would Kuwait or Turkey help out? Perhaps, if Washington calls in all its chips. Meanwhile, Saddam can be expected to deploy all weapons at his disposal, and it is precisely the U.S. government that keeps fretting over how nasty those weapons might be. The United States may twist the arms of regimes in the region, but popular sentiment clearly views the whole affair as reflecting a deep anti-Arab bias in the United States. Can such a conflict be won? The British General Staff has apparently already informed Prime Minister Tony Blair that it does not believe so.

And there is always the matter of “second fronts.” Following the Gulf War, U.S. armed forces sought to prepare for the possibility of two simultaneous regional wars. After a while, the Pentagon quietly abandoned the idea as impractical and costly. But who can be sure that no potential U.S. enemies would strike when the United States appears bogged down in Iraq?

Didn't we hear all that in 1991, as we prepared to invade Iraq, and again last year, before the "resilient" Taliban crumbled in Afghanistan? The difference between 1991 and today is that Iraq's military is much weaker. As defense analyst James S. Robbins summarizes:

The army has been down a rough road since the heady days when it was described as "fourth largest in the world." Today its numbers have been reduced by two-thirds, and morale is shaky. Saddam's level of trust in his troops is reflected in that fact that for an army unit to move it must receive redundant orders from its own chain of command, from the Baath party representative (similar to a Soviet-era commissar) and the intelligence officer. And while on the move, army units may not carry ammunition. As an added guarantee, officers know that their families will be tortured or executed should they desert or mutiny.

America also fields a smaller army than in 1991, but it is has a bigger technological edge than before. Our former Arab allies may offer less support than last time, but only a little of their support is needed, just enough to get an army into the theater. Anything can happen in war, but some things are a lot less likely that others. One of the least likely is that, once an American offensive gets under weigh, that Baathist regime will last long enough for any unfriendly nation to have time to launch harassing attacks elsewhere in the world, nor is it obvious who would have both the motive and the resources to do that.

In the realm of economics the pipe leaves yet fuzzier residue. Dr. Wallerstein calls the U.S. economy "relatively weak". Relative to what he doesn't say, but it is not weak in relation to the costs of the current war. In the last year of the Clinton Administration, the government spent less on the military, as a percentage of GDP, than in any year since 1940. Doubling the military budget, which is far more than the most fervent hawk demands, would put the burden on the economy back to about where it was during the early period of the Reagan buildup and well below the level that the country tolerated for 30 straight years from 1942 through 1972.

The rest of his economic discussion consists of a prediction that Japan will rebound from its decade-long stagnation, as proven by its construction of a faster supercomputer than any built in the U.S. That's pretty thin evidence, but, since Washington has for years been trying to foster a Japanese recovery, one wonders why success in that endeavor would be a setback for American policy. Japan is, after all, probably the most pro-American of the major non-English-speaking countries.

Washington remains politically isolated; virtually no one (save Israel) thinks the hawk position makes sense or is worth encouraging. Other nations are afraid or unwilling to stand up to Washington directly, but even their foot-dragging is hurting the United States.

Yet the U.S. response amounts to little more than arrogant arm-twisting. Arrogance has its own negatives. Calling in chips means leaving fewer chips for next time, and surly acquiescence breeds increasing resentment. Over the last 200 years, the United States acquired a considerable amount of ideological credit. But these days, the United States is running through this credit even faster than it ran through its gold surplus in the 1960s.

"Ideology" is a rather grand name for arguments about strategy, and, again, we have heard all this before. Prior to the campaign in Afghanistan, the U.S. was similarly "isolated", with all of Europe and Araby cautioning against attacking the Taliban. Once the fighting began, though, many of the critics were rushing to send assistance and get a share of credit for the victory. America's very strength makes it easy for allies to be refractory. They know that we can dispose of most difficulties on our own, so that their foot-dragging is not in fact "hurting the United States" and can be safely indulged.

The direct political consequences of the world revolutions of 1968 were minimal, but the geopolitical and intellectual repercussions were enormous and irrevocable. Centrist liberalism tumbled from the throne it had occupied since the European revolutions of 1848 and that had enabled it to co-opt conservatives and radicals alike. These ideologies returned and once again represented a real gamut of choices. Conservatives would again become conservatives, and radicals, radicals. The centrist liberals did not disappear, but they were cut down to size. And in the process, the official U.S. ideological position—antifascist, anticommunist, anticolonialist—seemed thin and unconvincing to a growing portion of the world’s populations.

As a result, he avers, "true conservatives began to assume control of key states and interstate institutions", their crowning achievement being "the creation of the World Trade Organization to enforce free commercial flows across the world’s frontiers".

So, is the U.S. losing on the ideological front because "true conservatives" are now giving way to anti-globalists throughout the rest of the world? If Dr. Wallerstein thinks that, he doesn't say so. The most conspicuous political trend of the past 20 years has been in the opposite direction: Large segments of the Left have moved steadily rightward, leaving the true gauchistes all alone. It would not be unfair to paraphrase Dr. Wallerstein: "The Left remains politically isolated; virtually no one (save The Guardian) thinks the leftist position makes sense or is worth encouraging." On the other hand, the parallelism isn't perfect: No one is "afraid or unwilling to stand up to Leftism directly".

Dr. Wallerstein's vision of America in decline is, then, sheer delusion. This is not to say that it is impossible for us to lose the war against the terrorists. As I have suggested elsewhere, we can defeat ourselves. But if we don't do that, the Eagle will be soaring for quite a long time to come.

We are doomed, one fears, to a steady diet of scolding about the International Criminal Court, similar in tone and inferior in intellectual content to the quadrennial nagging of soccer fanatics. In today's Wall Street Journal, an earnest female named Samantha Power tells us how the ICC can be a useful tool to further America's foreign policy interests. The name "Samantha" calls to mind a silly television show of many years ago. The pseudo-realpolitik of Samantha's essay [I won't use her surname, which doubtless embarrasses her] is equally a work of fantasy.

After a quick dismissal of apprehensions concerning the deployment of the court to harass Americans - cases can be brought only if "a panel of eminent international judges" approves, so what's to worry about? - she offers two examples of how the ICC regime would have promoted our aims in the past, had it only existed then.

Example one is Iraq. In 1988 Saddam Hussein put down a Kurdish revolt with particular brutality, including the use of poison gas. The United States did nothing, partly because the State Department still saw Saddam as a valuable counterweight to the Iranian mullahs. But, avers Samantha, an International Criminal Court would have indicted leading Iraqi politicians.

Saddam's genocide against the Kurds would certainly have earned him and his top officials indictments. If U.S. forces had ventured to Baghdad in 1991 - or if they were to reach the Iraqi capital this year - they would carry a list of indictees prepared by a panel of independent judges.

Note the assumptions that what gives credibility to a trial is the auspices under which it is performed rather than the fairness of the procedures and that the U.S., more solicitous of defendants' rights than any other country on Earth, is a less credible sponsor than an ersatz court whose judges will probably include representatives of tyrannies with no concept of due process.

The trials would also rid postwar Iraq of many of its most ruthless officials,a purge that would spur the development of the rule of law. The U.S. role in law enforcement would have all the more standing because the U.S., too, had accepted court jurisdiction.

Yes, she appears to be quite serious. To her mind, post-liberation Iraqis will not recognize that Saddam was a tyrant unless an international tribunal tells them so, and a democratic Iraq will be unable to remove his noxious associates from public life without foreign judicial assistance. Oh, and the forces that expelled the despot and his cohorts will lack "credibility" if they have not agreed to allow their own affairs to be judged by those same foreign judges. <ROFL>

Let's ponder for a moment what really would have happened had a group of busybody jurists handed down indictments against Iraqi officials in 1988. With hindsight we know that the policy of propping up Iraq against Iran was a disastrous mistake, but that was not so evident before the invasion of Kuwait. It is scarcely likely that the State Department would have suddenly altered its views in response to the ICC's declaration that there was probable cause to try Saddam and his lieutenants for genocide. Instead, it would have perceived that action as an obstacle to good relations with Iraq and would have felt compelled to oppose it, at least through informal channels and perhaps by seeking to persuade the U.N. Security Council to block the prosecution. The net effect would have been to reinforce Saddam's conviction that the U.S. could not afford to interfere with whatever he might do to regain the "lost province" of Kuwait. Worse yet, high-profile American declarations on his behalf would weakened public support for abrupt intervention against him. The Congressional vote authorizing the use of force to liberate Kuwait was close enough as it was.

. . . . when the ad hoc U.N. court came into existence in 1994, two years into the Bosnian war, it deterred no one. How could it? Ad hoc tribunals are slapdash creations that have to raise money, hire staff, establish rules, and earn credibility. All of this takes time - time that murderers exploit. While the court issued indictments during the war, the Serbs knew that Western troops were unwilling to risk casualties by making arrests. The massacres continued, the war criminals were feted at peace talks in Western capitals, and the toothless U.N. court came to symbolize Western apathy.

Slobodan Milosevich would have been deterred by a permanent international court? It would be more plausible to argue that the absence of assured trial and punishment was an important factor in leading him to surrender power in a relatively peaceful fashion after his failure in Bosnia. Suppose, though, that the ICC had existed then. Would Western governments have been any less "unwilling to risk casualties by making arrests"? There were many reasons why the West intervened slowly and hesitantly in the Balkans. The need to wait for the establishment of a court to deal with Serbian war criminals was not one of them.

With the permanent International Criminal Court o more than a week old, it is far too early to assume it will become the virulently anti-American institution that Administration officials fear. The best way for the U.S. to guard against this is to reserve self-fulfilling judgment and work with the court to supply advice on personnel and procedures.

The hidden premise is that virulent anti-Americanism is the product of hurt feelings and lack of good advice, basically the fault of America. Does that make sense? If the court officials truly are reasonable, fair-minded folk who bear the United States no ill will, they know quite well that there will never be an occasion for a good faith ICC prosecution of any American citizen. Our courts are quite adequate to deal with our own criminals. If that is the case, why should the ICC turn against us simply because we ignore a body that has no reason to be concerned with us? If, on the contrary, the court's officials are imbued with the prejudices so common among Second World intellectuals, will kind, submissive words make them more rational?

Whether or not it proves to be "virulently anti-American", the ICC can do a great deal of harm to U.S. interests. Punishing war criminals is a good thing, but it is not the fulcrum of our - or anybody else's - foreign policy. Our government's first duty is to keep Americans safe, not to remedy the deficiencies of the rest of the world's polities (many of which would need no American help in humanitarian endeavors if they had not effectively disarmed). There are more crimes against humanity in the world than even a "hyperpower" can deter or punish, and tracking down criminals is not the most vital role of American power.

The ultimate objection to U.S. cooperation with the International Criminal Court is that a single purpose tribunal, however rational and well-intentioned, is an absurd mechanism for setting our country's foreign policy priorities. There will be atrocities that agitate the court but that the U.S. has overriding reasons not to pursue and those that are intolerable to Americans but of no interest to the court. And there will be times when other matters take precedence over international police work. To pretend otherwise will render our own power less effective and do nothing for the people whom the ICC is ostensibly intended to help.

Eurocrat Chris Patten wants us all to know that he really likes America and cringes when he "hear[s] Europeans attacking the United States and Americans in terms that would be condemned as outright racism if they were leveled against any other country or its people". We are to understand that he has only our best interests at heart when, in today's Washington Post, he tells us what a terrible mistake it is to refuse to join the International Criminal Court. Implicit in his reassuring words, however, are pretty clear reasons why U.S. rejection is the right idea.

Mr. Patten's complaint is that America is "refusing to take yes for an answer". "The United States was fully engaged in the Rome Conference that prepared the ICC. It sought all sorts of assurances, and it got them." He then list four such "assurances": to wit, the ICC won't supersede national courts, won't enforce laws made ex post facto, will initiate investigations only after a preliminary determination that there is "a reasonable basis for action" and can be blocked from prosecuting a case by a vote of a majority of the United Nations Security Council.

Actually, these "assurances" are much watered down from what we backward Americans consider essential to a just legal system. The ICC reserves the right to determine whether national courts have done a satisfactory job of prosecuting offenders. If they haven't, it can step in. The prohibition against ex post facto prosecutions applies only to acts committed before July 1, 2002, when the treaty establishing the court came into force. The definitions of "crimes" can be altered in the future with retroactive effect. Something done on July 2, 2002, that violated no existing ICC statute could later be characterized as a crime and prosecuted. The requirement of "a reasonable basis for action" imposes little restraint on an entity that combines the functions of prosecutor and judge. And the Security Council's veto of prosecutions is small comfort so long as the Council is dominated by nations with dubious records on human rights. It is certainly unlikely that the United States could, without exerting heavy diplomatic pressure, gather the votes to halt action against one of our citizens or against, say, a citizen of Israel accused of "practicing the crime of apartheid" against Palestinians.

As a backup to his list of "assurances", Mr. Patten has a second argument: that the U.S. has "nothing to fear from this court" because it doesn't engage in crimes against humanity. Addressing specifically the question of ICC prosecution of American soldiers serving in U.N. peacekeeping missions, he purrs,

The ICC is intended to deal with international tragedies like Rwanda. U.S. troops almost always behave in an exemplary way -- as do European ones. The United States is itself quite capable of dealing with the few cases (such as the My Lai massacre) in which its soldiers fall below their own high standards.

If Mr. Patten truly believes that, one wonders why he regards U.S. acceptance of ICC jurisdiction as a big deal. The only reasons that he advances are that (i) if the U.S. doesn't embrace the court, other countries will think that it is, in Samuel Huntington's words, "becoming the rogue superpower", and (ii) the dispute over the status of American troops will adversely affect the U.N.'s peacekeeping capability.

The second argument is a makeweight. If American participation is essential to peacekeeping missions and if there is no practical need for the ICC to worry about transgressions by American troops, shouldn't the U.N. give way on this point of purely theoretical principle? In fact, why should soldiers of any nation in a U.N.-commanded force be subject to discipline by an outside body? An army that can't keep order in its own ranks is a sorry excuse for "peacekeepers".

Mr. Patten's more substantive argument rests on a contradiction. He concedes that the charge of U.S. roguery is "a bum rap which ignores America's huge contribution to international order", but he imagines that the people who believe such an absurd caricature will rethink their views if the U.S. adheres to the ICC. After ignoring our "huge contribution to international order", they will be appeased by a mere legalism? Among them are, let us recall, those whom Mr. Patten hears "attacking the United States and Americans in terms that would be condemned as outright racism if they were leveled against any other country or its people". The attackers represent a major, often majority, segment of opinion in most of the ruling political parties of Europe. They will undoubtedly populate many positions of authority within the ICC. Yet Mr. Patten would have us trust in the good faith and rationality of these irrational America-haters.

Why anti-Americans would like a new forum for attacking the United States is obvious. The motives of ostensible friends of this country, who deny that it would ever do anything that would bring it to the bar of international justice, are harder to discern. One disturbing possibility does, however, cross my mind.

Mr. Patten has made it clear on other occasions that he does not like the State of Israel, an animosity not uncommon among pro-American Europeans. One near certainty is that the ICC will at some point begin "indicting" Israeli political figures for "crimes against the Palestinians". So long as the United States stands outside the "court", however, effective prosecution will be inhibited by the prospect that Israel will, with America's tacit blessing, rescue any victims of ICC kidnappers. If, on the other hand, the U.S. were a signatory to the ICC treaty, we would, in our law abiding way, feel compelled to discourage armed intervention against the court. Thus the stage would be set for what many ICC advocates unquestionably yearn for: the destruction of the Israeli political system under the aegis of international law. I don't know for sure that Chris Patten foresees or desires that outcome, but it is foreseeable, and the U.S. has no reason to take any steps to bring it nearer to fruition.

For reasons that I've expatiated before, I don't object to holding Republicans to much higher ethical standards than Democrats. Still, it is hard not to shake one's head as liberal commentators, who by and large thought that Whitewater, where thousands of people lost millions of dollars in what was clearly a corrupt enterprise (regardless of Bill and Hillary Clinton's degree of personal complicity in the corruption), and Mrs. Clinton's strangely profitable commodities trades (facilitated by a notoriously sleazy trader) were "no big deal", strive to raise an uproar about George W. Bush's untimely filing of an SEC disclosure report 12 years ago. The facts, which have long been public knowledge and were an issue in the President's first campaign for Governor of Texas, have been usefully recounted by Byron York ("The Facts About Bush and Harken"), and readers can judge for themselves how damning vel non they are.

As usual, liberals regard innocence as no defense. Former economist Paul Krugman displays Clintonian skill at lying without saying anything literally false: "An internal SEC memorandum concluded that [Bush] had broken the law, but no charges were filed." The implication of Professor Krugman's typically overheated rhetoric is that the SEC staff found that Mr. Bush "had broken the law" by engaging in illegal insider trading. What it really found was the opposite: that he had not sold on the basis of inside information. The breach of law consisted only of failure to report the sale on time, a minor, rarely punished offense.

While this brouhaha is nothing more serious than a Democratic effort to conjure up an issue for November, it raises a question that is worth pondering. Let us suppose, as a "thought experiment", that Mr. Bush had known, thanks to information learned in his position as a corporate director, that the price of Harken Energy shares would soon decline and had unloaded them for that reason. That action would have been illegal, but it would have been a most curious sort of crime, one from which, it can be reasonably argued, the putative victims would have benefited.

By disobeying the law and offering shares for sale, someone in Mr. Bush's hypothetical position tends to push the stock price downward, in the direction that reflects his special knowledge. If he is law abiding and retains his holdings, he effectively supports a higher price than a fully informed market would pay. Thus his "victims", the investors who buy shares at the moment when he is selling or not selling his own, are better off, i. e., pay less for the stock, if the seller breaks the law than if he follows it. A most peculiar crime, indeed!

It was only in 1968, in the famous Texas Gulf Sulphur case, that the Supreme Court unequivocally adopted the position that insider trading violated any existing law and not until years after that that Congress defined the offense. The leading case before Texas Gulf Sulphur had reached the opposite result. In 1933 Massachusetts' Supreme Judicial Court, then the most prestigious state court in the country, ruled, in Goodwin v. Aggasiz, that insiders could legally buy or sell on the open market even if they "had certain knowledge, material to the value of the stock, which [other investors] did not have".

The first great governmental crusader against insider trading was John F. Kennedy's SEC chairman, who condemned the practice on the ground that ordinary investors would lose confidence in the securities markets unless they had "relatively equal access to material information". Since "relatively equal access" is an impracticable goal, the proxy for it has been to deny the better informed the right to make use of their superior knowledge. The incoherence of that policy, making the market more efficient by keeping it less well informed, is shrouded in a haze of moralistic rhetoric.

Texas Gulf Sulphur itself is a good illustration of the fatuousness of both moral and economic objections to trading on inside information. Texas Gulf Sulphur discovered a major mineral deposit but did not announce its find immediately. Instead, it kept the information secret while it negotiated leases of mineral rights at lower prices than the landowners would have demanded if they had known the same facts as the company. During this period of silence, several corporate officers bought Texas Gulf Sulphur stock. The sellers of that stock got lower prices than they would have asked if access to information had been equal but higher ones that would have existed in the absence of the officers' purchases. Eventually, the discovery was announced publicly, the stock price soared, and the SEC brought suit to vindicate the rights of the "defrauded" sellers.

There were two uses of inside information here. First, Texas Gulf Sulphur took advantage of its knowledge of the mineral discovery to obtain leases at favorable rates. Then corporate insiders, knowing about the leases, bought stock at favorable prices. If the latter action deserved legal condemnation, the former seems objectionable, too, yet most people would regard it as simple business acumen. Buyers and sellers of real property act on inside information so routinely that we scarcely notice what they are doing. If they were forbidden to do so, the real estate market would collapse into near immobility.

The one possible distinction between the real estate market and the stock market is that real estate investors typically spend money to acquire their nonpublic data. Texas Gulf Sulphur, for instance, incurred the costs of exploration. If it could not hope to profit from that investment, it would never have done any exploring, in which event neither it nor the landowners would have been better off.

One can argue that Texas Gulf Sulphur earned its insider profits, while its officers just stumbled across theirs. On the other hand, it is officers and other insiders who guide the corporate activity that produces profits. If they can expand their personal stake in the company at opportune moments, that is an incentive to find more corporate opportunities. Rewarding them in that way has advantages over alternatives such as bonuses and grants of stock at below-market prices. The latter methods of compensation take wealth from the shareholders and transfer it to management. Insider trading transfers ownership from people who were going to give it up anyway to those who have rendered a valuable service to the corporation. It also puts the insiders' own money on the line if, as sometimes happens, their information is wrong. (The geologist's report that led Rudolphe Aggasiz to purchase Homer Goodwin's stock turned out to be wildly optimistic.)

Insider trading appears, then, to be at worst harmless and at best beneficial. We have, however, been assuming that banning or allowing it does not affect the timing of the release of information to the investing public. Discussions of the topic frequently start from the opposite premise: that insiders who cannot make use of information for their own benefit will release it more rapidly. If that assumption were true, it might justify restricting insider trading, but it is not very plausible.

Texas Gulf Sulphur was a case in which keeping information secret was essential if the company's shareholders were to benefit from it. Announcing the discovery to the world before mineral leaseholds had been secured would have made the leases much more expensive and diminished profits, to the shareholders' detriment. This need for secrecy gave the company's officers time to accumulate shares, but the desire to accumulate shares did not inspire the creation of a secret.

More commonplace types of market-moving information are takeover announcements and earnings surprises. In neither case would be be absurd to say that, if insider trading were legal, managers might be tempted to delay making data public in order to adjust their personal portfolios, but other considerations strongly counter that tendency. Takeovers are usually presaged by rumors and stock movements (a sign that, whenever a coming event is known to a large number of people, laws cannot prevent some of them from utilizing what they know). It is almost always in the best interests of the parties to act swiftly, before arbitrageurs run up the target's price and make the transaction more expensive.

As for earnings surprises, management generally is inclined to hasten the release of good news and postpone admitting bad news, regardless of insider trading rules. A virtue of legal insider trading is that negatives would tend to leak out, as insider sales put downward pressure on the stock price. Earnings reports are, in any event, governed by fairly rigid schedules that limit management's ability to delay their release.

There are, it should be noted, indefensible forms of insider trading, where corporate officers seize opportunities that rightfully belong to their company. Such would have been the case if Texas Gulf Sulphur's insiders, instead of buying stock from other shareholders, had bought mineral leases from landowners, then sold them to the company for personal profits. Long before the Texas Gulf Sulphur case, the law had condemned that kind of conduct as a breach of the officers' duty to the owners of the business.

In summary, there is one colorable argument against insider trading: It may now and then delay the public release of material information. Against that must be set the practice's benefits to the investing public. In the great majority of cases, where information would come out at about the same time with or without trading restrictions, purchases and sales by insiders move the stock price in the "right" direction, despite their failure to disclose the rationale for their actions, and insider profits are at least as good a way to reward management performance as any of those now commonly employed. From the ordinary stockholder's point of view, these benefits come at no real cost. Denying profits to insiders puts no money into the small shareholder's pocket, and he, like everyone else, is a beneficiary of the improved market efficiency resulting from the introduction of inside information into the market.

As long as insider trading is against the law, those who engage in it ought to be punished, but this is one of those instances in which "the law is an ass". Insider trading goes beyond classification as a victimless crime; it is postively victim-friendly.

Update, 7/10/02: The original posting linked to an earlier, less complete article on President Bush's involvement with Harken Energy. A fuller review of the facts reveals that I was too kind to Professor Krugman. According to publicly available documents, the SEC staff found that George W. Bush had not engaged in insider trading or broken any other law. Contrary to what I had thought, it paid no serious attention to his late filing of SEC Form 4. Hence, the professor uttered not a "Clintonian" lie but unadorned falsehood.

SEC documents relating to Mr. Bush's sale of Harken Energy stock have been posted on the Center for Public Integrity's Web site. Set 1 includes the commission staff's memorandum setting for its conclusion that no insider trading took place and a number of related documents. Set 2 consists of less significant items (mostly background on the company's situation and SEC requests for information).

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