Regarding Enron: The Smartest Guys in the Room
I saw the documovie Enron: The Smartest Guys in the Room at a local theater last night. Overall the film was very good, and I highly recommend seeing it. The film does a good job at examining the corporation itself, as well as illuminating the wider impact that the company had on the nation, including it’s contribution to the California energy crisis and it’s contributions to energy deregulation policy. The documentary also examined the close personal ties between the Bush family and Enron executives.
Most of all, though, the film showed just how many different institutions were really involved in the rise and fall of Enron, and how this corporation was able to profoundly mislead Wall Street and hundreds of major financial institutions to the tune of billions of dollars, and how the ability of Enron to do this exposed major shortcoming of our entire economic system.
While the film was very good overall, it still failed to make a few significant fundamental points.
There was a lot of criticism of Enron’s practices from an ethical or moral standpoint, however the film actually failed to give a full economic denunciation of some of Enron’s practices. In addition, even the critics of Enron continued to use the terms “earned money” and “made money” when discussing the incomes of Enron executives.
This really makes clear how deeply rooted misunderstanding of economics is in our society.
The very problem with Enron is exactly the fact that its executives were not earning or making money, what they were doing was acquiring money that they had not earned.
That is, fundamentally, the issue. If they had actually “made” the money then there wouldn’t be a problem; the problem was that they were transferring money to themselves that they had in fact not earned.
Despite the fundamental importance of this point, even the biggest critics of the Enron executives still said things like “these men were making millions of dollars, while the company was swimming in debt”, or things of that nature. No, they weren’t “making” millions, they were “taking” millions.
The film also failed to appropriately explain how Enron profited from the California energy crisis. There was a moral criticism of Enron’s role in contributing to the California energy crisis for profit, but what they failed to explain was the fundamental economic principles that Enron was violating in order to generate profits.
One way that Enron got money from the California energy crisis was that they induced blackouts by shutting down power plants in order to drive up the price of energy. This isn’t creating value, this is actually destroying value. What Enron did was profit from value destruction, a fundamental violation of the principles of economics.
As an “energy trader”, what Enron basically did was they bought energy at a low price when there was plenty of energy “on the market”, and then they created an energy shortage, at which time they sold energy at a higher price.
Enron wasn’t actually creating value in this process; they were destroying value by contributing to the crisis. All economic systems, from capitalism to communism, are predicated on the assumption that compensation is related in some way to value creation. Getting paid to make things worse, of course, is no way to develop a successful system.
Enron employees and executives actually legitimized their practices to themselves because of their fundamentalist “free-market” ideology. From the very beginning Enron’s business model was based on market manipulation and the use of fuzzy accounting to push numbers around on paper and “make money” without actually creating value. The California crisis was just the most extreme manifestation of their market practices.
Jeff Skilling was shown during several interviews stating that ideas and risk create value. This shows just how little he actually understands economics, and to what extent he and Ken Lay were able to manipulate their way to millions of dollars because, fundamentally, the leaders of all of our major financial instructions from Wall Street to banks have bought into these same beliefs. It is important to note that Key Lay has a PhD. in economics.
Risk does not create value. Sometimes it is necessary to take risks in order to develop new ways to create value, but risk itself does not create value.
On the whole, though, as was said, Enron: The Smartest Guys in the Room, is a very worthwhile production that illuminates the story of one of the most aggressively right-wing corporate institutions of our time.
The most revealing aspect of watching this film in the theater, however, was the fact that it was only showing in one theater in the tri-county major metropolitan area, and there was only one other couple in the theater at the time. Some friends of mine had seen it the week before, the first week it played here, and they said that they were the only ones in the theater at the time.
While this is a documentary that should be playing on prime time television, the reality is that only a handful of people will ever watch it. The story of Enron and the other corporate scandals is a complicated one. This film at least puts the story into popular format, but when no one is interested in learning about the problem, even when it is presented in popular format, is there really any hope of solving the problems?