Sometimes the people charged with enforcing laws can’t bring themselves to admit that the laws aren’t working.

For instance, during Prohibition, the time of gangsters, speakeasies, and Al Capone, the government appointed a commission with the Orwellian name of the “National Commission on Law Observation and Enforcement” to see how the system was working. In short, the commission wrote that Prohibition was not working, but refused to call for repeal. One wit summarized its views this way:

Prohibition is an awful flop.
We like it.
It can’t stop what it’s meant to stop.
We like it.
It’s left a trail of graft and slime,
It don’t prohibit worth a dime,
It’s filled our land with vice and crime.
Nevertheless, we’re for it.

This piece of history came to mind last week while listening to a congressional hearing on the fourth anniversary of the Sarbanes-Oxley Act, referred to as “Sarbox,” which sets standards for public companies with an aim to boost investor confidence following the Enron and WorldCom accounting messes. Christopher Cox, chairman of the Securities and Exchange Commission, testified that Sarbox “Is not perfect in every respect. But the vast majority of its provisions are net contributors to the nation’s economic health. And those parts of SOX that aren’t working as well as they should — notably Section 404 — can be made to work better through better implementation.”

Well, the vast majority of the Washington Nationals may be great baseball players, but if they can’t bring in the runs, the team isn’t going to win. And it’s the same with Sarbox. That Section 404 — which requires costly internal controls and auditor attestation — to which Mr. Cox referred has, according to one economist’s estimate, already cost the American economy about $1 trillion in direct and opportunity costs. And for what gain? More than 700 corporate crimes have been punished and $250 million in ill-gotten gains restored since 2002, all based on pre-Sarbox laws. We didn’t need Sarbox to restore investor confidence in the marketplace, and new foreign issuers of stock have virtually disappeared from the American marketplace, as companies seek out friendlier regulatory environments, such as London.

Discussing the fate of smaller companies, Mr. Cox conceded that they had “greater than anticipated costs” of implementation of the act’s provisions (that Section 404 again), but had also received “significant benefits,” such as greater management attention to internal controls.

Surely, however, if the actual costs exceed the benefits, then Sarbox has destroyed economic value. Why not come out and say so directly?

Mr. Cox reassuringly stated that “it is management’s responsibility to determine the form and level of internal controls appropriate for each company, and to determine the scope of its assessment and testing” and that public accounting firms must “recognize a range of reasonable choices” in how a company chooses to interpret Section 404. That’s all very well until the plaintiffs’ lawyers or the SEC investigators come calling, or the Public Company Accounting Oversight Board’s own auditors conduct their regular (and intense) investigations of auditing firms. In the circumstances, where the standards are in flux and the penalties so severe, both companies and auditors have little choice but to implement the act in the strictest — and most expensive — manner possible. No one wants to “bet the company” trying to save money for shareholders if the costs can be years of litigation and possible jail time.

One hero of the hearing was Rep. Scott Garrett of New Jersey. He told Mr. Cox that under Sarbox, “Honest companies are being punished and the U.S. economy is having to carry the weight.” His forthrightness is refreshing and rare, and we can only hope that other members will join him in supporting Sarbox reform and striving for economic freedom.

One bad idea to ease the burdens on small companies was recently proposed by Senator Kerry of Massachusetts — to have the government make grants to small businesses to help them comply with Sarbanes-Oxley regulations. Mr. Kerry noted that the Government Accountability Office has reported that firms with a market capitalization of $75 million were spending $1.14 in audit fees per $100 of revenue, while firms with a market capitalization of over $1 billion were paying only 13 cents per $100 of revenue. Mr. Kerry said that “if Congress is asking these small firms to take on the costly burden of complying with Sarbanes-Oxley, the least we can do is chip in and help pay for it.”

It’s a nice gesture, and at least it recognizes that Sarbox is causing huge costs for smaller companies, but this corporate welfare for auditing firms won’t solve the problem and will just keep government growing, rather than the economy.The government could pay for smaller firms’ telephones, too. Once one starts down that path, where to end?

So here’s Sarbox at four: Other laws clean up graft and slime, it puts honest people in danger of corporate crime, and lots of auditors waste businesses’ time. Nevertheless, Chairman Cox is for it.

Mr. Factor is chairman of the Free Enterprise Fund based in Washington, D.C.