Jeff Randall, writing in The Telegraph, makes the following observation:

The "success" of New Labour's economic expansion was a sham, based on a simple formula: spend more than we earn; pass off consumption as investment; wallow in self congratulation. Through the "boom" times of 2003-2007, all of Mr Brown's budgets involved massive borrowing. He told us we were getting richer, while in effect making us poorer.

This was, of course, the modus operandi of another major fraud on the people - Bernie Ebbers's deception at Worldcom. The trick is very simple. Ordinarily, things a business spends are expensed. That means they reduce profit. However, some expenditures lead to ongoing benefit for the company. For example, a new machine might help support business activities for many years to come. These types of expenditure are different to expenses, and accounting recognises this. Instead of reducing profit, they are recorded on the balance sheet and written down over the period that they continue to be useful to the company - often several years.

Bernie Ebbers oversaw a massive exercise in reclassifying ordinary business expenses as capital expenditure. Instead of reducing profits, these costs were piled on the balance sheet; a sort of accountant's "sweeping it under the carpet". And it did indeed delay judgement day, until finally the SEC, perplexed at how Worldcom could be profitable while AT&T was not, asked too many questions. Such frauds cannot work forever, because ultimately either the company runs out of cash or it must account to its investors for the spiralling capital items on its balance sheet.

What's amusing about Worldcom is the comparatively trivial sum of money involved - some $11bn in overinflated assets.

Compare that to Gordon Brown''s toxic economic legacy - a budget deficit of some £160bn in one year and a string of deficit budgets before that during a time of extraordinary economic boom.

Brown was also master of redefining ordinary expenditure as if it were a capital item. He loved to talk about spending in terms of 'investment' in public services when in fact it was actually staff salaries.

Bernie Ebbers is currently serving a 25 year jail term as punishment for his accounting crimes. Brown has been shuffled out of power but remains an MP. When will he get a proper day of reckoning?

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Filed under: Financial management, Politics with tags bernie ebbers, deficit, fraud, gordon brown, telegraph, worldcom