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Home Publications Blogs Beat the Press The Prosecution of Arthur Anderson Did Not Reduce Employment in the Accounting Industry by 28,000

The Prosecution of Arthur Anderson Did Not Reduce Employment in the Accounting Industry by 28,000

Monday, 11 March 2013 22:01

Andrew Ross Sorkin's piece arguing against the prosecution of large banks and other large companies might have led readers to believe that 28,000 people were out of work as a result of Arthur Anderson's bankruptcy, following its prosecution. Of course this is not true.

There is no reason to believe that the demand for accounting services fell as a result of Arthur Anderson's prosecution. While the people who had been working at Arthur Anderson lost their jobs when the company folded, the companies and individuals who were doing business with Arthur Anderson still needed accountants after the firm went out of business. This means that they would have turned to other firms with their business.

The firms who got the business lost by Arthur Anderson presumably hired more accountants and support staff to meet the additional demand. On net, there was probably little net change in employment in the accounting industry.

This point is important since banks and other large companies may try to make the same sort of argument as Sorkin to lead people to believe that there is a public interest in not holding them accountable for their crimes because it would lead to job loss. This is not true.

Comments (9)Add Comment
written by TominWis, March 12, 2013 12:15
Why prosecute any crimes? Prosecuting doctors who commit malpractice will lead them to lay off the innocent people who work in their clinics. Prosecuting appliance manufacturers whose products burst into flames will lead to job losses at the plant or the back office. Prosecuting restauranteurs who poison their customers will put waiters and bussers out of work. Or is it only large companies that should be spared?
written by James, March 12, 2013 12:20
First, we have had too big too fail for years and they benefit enormously as a form of subsidy and implicit guarantees.

Now, non-financial institutions want to enjoy the similar benefit and call themselves, "Too Big To Prosecute."

Is there any emprical evidence or case studies when a significantly large concentration of head-counts in one firm and that subsequently out of business and the net-change to that industry employment is negligible.
Other Big 4 Firms Picked Them Up
written by muysuave, March 12, 2013 4:41
Indeed, the remaining Big 4 accounting firms picked up most of those who left Arthur Anderson.
written by JSeydl, March 12, 2013 4:52
I don't know what happens to ppl when they make it big. There must be some Seriousness Virus that takes over the body. After all, Sorkin used to be a pretty reasonable journalist...

Although he did say we should go after the ppl at the banks rather than the banks -- whatever that means.
written by dick c, March 12, 2013 7:12
What!? I'd think a total willingness to prosecute businesses screwing their customers would lead to a greater general trust in whatever industry. That should then lead to greater use of that industry. As it is, I wouldn't trust a bank as far as I could throw it. I rank them well below used car dealers.
Why Regulation and Prosecution Doesn't Work
written by Last Mover, March 12, 2013 7:19
Corporations don't rob people. People rob people. The only way to stop a bad person with a corporation is to arm a good person with a corporation. It's the American economic standard of competition.
written by watermelonpunch, March 12, 2013 4:45
TominWis posted my first thoughts on this moronic assertion.

I think the way unemployment is being used to bully, scare, and manipulate people with misinformation & total nonsense is shameful as well is blatantly stupid.
Why the surprise?
written by Perplexed, March 12, 2013 8:40
Economists continue to refer to the real estate crisis as a "bubble." Kind of an innocuous child's play-toy I guess. They also claim to love counterfactuals. But 5 + years into the crisis, I haven't seen any estimates or studies of how much of the magnitude of this "bubble" was only made possible by the funding provided by fraudulently selling mortgages with no underwriting standards as properly underwritten mortgages. This is no different than the selling of any counterfeit good as the actual goods that are made to a different standard (the selling of cheap low-quality bolts as high-strength grade 8 bolts comes to mind as an example). This is a common problem in many industries that is known to have the potential for disastrous results. Why is there a different standard applied to the same type of fraud in the financial industry?

If the funding from fraudulent mortgages had not been provided, wouldn't that have limited the the size of the "bubble"? Would it have even limited it to the size of something manageable by the financial system? By continuing to refer to the crisis as a "bubble," economists participate in the cover-up of the damages caused by fraudulent activity instead of shedding light on how much the fraudulent activity added to the damages that might have been radically diminished by controlling fraud. Words & definitions matter. Now were being presented with arguments that controlling and prosecuting fraud by whatever means necessary is counter to interests; and we're actually discussing this as if it were plausible.
CPA Firms Lack Limited Liability of Corporations
written by FoonTheElder, March 18, 2013 10:57
The difference between public accounting firms and large corporations is that PA firms are not allowed to have limited liability like most corporations.

That means that all firm owners are personally on the hook for settlements against the firm. This is what causes a CPA firm to go out of business.

It only takes a couple of big lawsuits to bring down most accounting firms. http://articles.philly.com/199...rm-offices

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About Beat the Press

Dean Baker is co-director of the Center for Economic and Policy Research in Washington, D.C. He is the author of several books, his latest being The End of Loser Liberalism: Making Markets Progressive. Read more about Dean.