Thursday, December 5, 2013

It's called Representative Government for a reason

This idea is something I've advocated for a while.  I don't claim it's unique to me, and someone else may well have proposed it long ago, although I've not heard about anyone doing so.  It would solve a number of problems, and perhaps even point the way to our collective future.

First, just a little background:

The Congress of the United States is composed of two bodies...the Senate and the House of Representatives.  It is sometimes said that those exist because the English government, which many colonists knew, had a House of Commons and a House of Lords.  Assuming that has at least an element of truth it might explain why terms in the Senate are longer than those of the House.  It might also explain why there are two restrictions on function included in the Constitution.  Only the Senate is allowed to approve treaties, albeit by a 2/3 majority, and only the Senate is allowed or required to confirm Presidential appointments...both of which were things thought of as being "Lordly" level duties.  Perhaps as a trade off, only the House can initiate revenue bills.

In any case, that's not the complete reasoning behind the structure.  As Federalism was being hammered out, the smaller States wanted to be equal, and in the Senate they are.  However, the big States felt that based upon population they should have more representation, thus the proportional distribution of House seats.  It may or may not be a perfect system, but it makes some sense and it can work when properly implemented.

Now, however, the whole system is screwed up.  The cost of running for election is so high that few common people could ever do it, and it takes raising huge sums of money.  That, in turn, requires two things.

First, a candidate must effectively quit working at whatever job he/she has to become a full-time candidate/fund raiser to run for office.  Obviously that cuts down the field significantly.  Given that the 2014 races are already in full swing, it's pretty easy to see that the ordinary candidate must take at least a full year off from a regular job, and few could ever afford that.  The result is that the pool of candidates is often trimmed to the rich, and they do not have a corner on intelligence or good ideas.  In fact, I would argue they have no idea how the rest of the people actually live...and recent comments have tended to support that notion.

Second, to raise money candidates accept donations from lobbyists and others with a strong agenda.  Most of this money comes from the rich and powerful, and that money completely distorts the idea of Representative Government.  House and Senate seats are openly for sale, and the so-called 1% can effectively buy them.  Heck, I'm surprised Wall Street hasn't found a way to make money by doing that.  Maybe there will be House Futures traded soon, and short selling a Senate seat in a swing state could be a big investment.

So, how do we remove the distorting influence of money in politics?  Actually, it's easier than you might think, and it would pass Constitutional muster.

A candidate for Federal Office can only accept campaign donations from people eligible to vote for that office.

There it is, plain and simple.

Now, for some details.  Let's say you live in Oregon.  You could contribute to candidates for your House district, for anyone running for one of Oregon's Senate seats, and for the President.  That's it.  Even if you have money to burn, you can't contribute to somebody running in Arizona or Maine or Maryland.  Why should you?  They don't represent you, they represent their own districts and least they're supposed to.  It's true they might have great ideas, but that's not the point.

Without outside money, they answer to no one but the people who elect them, and that is the way it ought to be.  They should be considering legislation based upon "is this the best thing for my constituents" not "what is best for the Wall Street people who support my campaign."

Now, someone is going to object, saying that the big money will just be funneled through local donors.  Nope, there's an easy fix for that too.

Let's say somebody on Wall Street wants to give money to a candidate in Oregon.  Since they don't live in the state or that district, they can't.  So, they give money to "Bill" and he then contributes.  Sounds simple.  However, under this proposal, Bill must declare that money as income...and he must pay income taxes on it.  Also, the candidate must report the donation.

So...Bill, who makes $50,000 per year in his job is suddenly going to pay taxes on that plus the $350,000 that some bank gave him to pass through.  Bill's not going to like that.  Also, someone is going to be looking at the donor list and ask the obvious question:  "Where did Bill get that kind of money to donate?"  Bill's going to end up in court, explaining where the money came from, facing some sort of "money laundering" charge, and the Wall Street folks are going to be in similar trouble.

A couple of other subtle details that cover other situations.

Notice carefully the wording of the proposal.  It says "PEOPLE."  That means only People, not corporations and not other groups like PAC's or unions.  It means the candidate is running to represent the People.  It doesn't matter if the company operates within the state or district, they're still not allowed to donate.  It doesn't matter if the union is comprised solely of people who live in the district or state, they're not allowed to donate as a group.  They are, however, free to donate as individuals.  The candidate can represent them.  The candidate should not be expected to represent the Union or PAC.

Now, one last observation.  The proposal says "people eligible to vote.  You don't have to be a registered voter, nor do you have to vote in the election in question.  I suppose we could also specify what happens with people who live in the district or state but aren't eligible to vote...namely undocumented immigrants or possibly convicted felons who have lost voting privileges.  Personally I'm almost inclined to simply ignore those folks because they generally aren't a huge influence in the first place...but if somebody wanted to include that provision that's fine with me.

In short, this would do two things:

It would take money out of politics, mean the cost of elections would plummet and common folks with a nice supply of common sense might be able to run for office again, and

It would remove the power of money from elections, preventing the rich from buying the Congress they want.

In the end, I think it would bring us much closer to the intent of the Constitution...that we have a government "of the people, by the people, and for the people."  What we have right now certainly isn't.

Monday, December 2, 2013

Economics for Challenged People

Economics is generally considered a Social Science.  That means that like Political Science it attempts to identify rationale thoughts and ideas which, because they involve people, must automatically include irrational actors.  While various economic schools of thoughts have mathematical models of what should happen, or what might happen, or what could happen, there are always stray situations that cause prediction errors.

However, like many other fields of human endeavor, there are players in this game that make predictions based upon questionable data and then cling to those predictions even after years of having been proven wrong.  Economists attempt to predict the future...or explain the present...using examples from the past, and it often seems that the past was somehow different....just enough to matter.

However, some people in positions of power, continue to believe that things that have never happened before will suddenly happen now, apparently because they would like them to happen.  So, let's look at a couple of ideas and see why they are fundamentally flawed.

The first thing we need to understand is that a government, and I'm speaking of the Federal Government, is not the same as a household or business.  Because people know the "rules" for their household they often attempt to apply them to the government, and it just doesn't work.

A household has a set amount of income.  It may vary from month to month, and it might even change dramatically as a wage earner gets a new job or loses a job, but it is a set amount.  They cannot conjure additional money, so they have what they have and can only supplement that by borrowing.

Borrowing is not necessarily a Bad Thing.  Borrowing makes it possible to purchase a home or perhaps an automobile that would otherwise be impossible.  However, borrowing is not without danger.  You are expected to pay back the borrowed amount plus some interest, and there are penalties if you don't.

The rules for the Federal Government are different.  The income (Revenue) is variable and can fluctuate wildly.  The overall state of the economy has a huge effect, and the Government has only limited ways to affect that.

The most direct control is through the establishment of tax rates, and clearly those are a political issue.  There is an element of Science involved, but politics will trump science every time in this discussion.  For example, history has demonstrated multiple times that our economy has operated well when tax rates on the rich were high, much higher than today.  That may seem counter-intuitive, but it's true.

In any case, the point I really want to discuss is something else, so for the moment I'll just leave that where it is and look at the most fundamental question.

In Bad Times government revenue falls.  Since the whole economy is faltering people don't buy as much, more people are unemployed, and therefore tax revenue falls.  As a result, the government is spending more than it takes in.

There are always two schools of thought about how to fix this.  The options are simple:

  • Cut spending to match the lower revenue available
  • Borrow to continue spending at the current level, or even expand spending to support recovery

This seems simple, especially if you're working with the household model.  If a wage earner loses their job they immediately cut all unnecessary spending.  No more eating out, no movies, no vacation, and such.  That's the household model.

However, the Government model works differently.

Let's suppose you like the first option.  It is certainly true the Government can cut spending, and probably should regardless.  However, the impacts are not as clear cut.

When the Government cuts spending it means that less product is being purchased and the Government has fewer employees.  While the costs for those things go down, so does the tax Revenue.  Every employee who was laid off is no longer paying taxes...because they have no income.  So...cutting spending also means cutting Revenue.  In addition, whatever products the government was buying supported more jobs, and those people will quickly be laid off also, compounding the effect.

That doesn't happen in the household model.  You have the same income, albeit smaller, regardless of how much spending you cut.

Now, not only does cutting spending have that revenue effect, it also, ironically, increases spending!  All those people who aren't working are now going to be showing up for unemployment benefits, food stamps, and perhaps even "welfare."  The Government is now paying more to keep people unemployed...but getting nothing for it.

So...when you cut some money from government spending, you don't realize all that cut.  You increase your other expenses and decrease your revenue.  The unemployment you created also impacts the entire economy meaning companies that make consumer goods are seeing softer demand and are less likely to hire new people or maintain current production levels.  Cutting government spending has a multiplier effect that ripples through the entire economy.

Okay, if cutting spending seems bad, it's easy to think that increasing spending would be worse.  The government is borrowing to spend money it does not have, and that can't possibly be good, right?

The answer is Yes...and No.  I'm going to over-simply a little, but the idea should remain clear.

First, borrowing is going to go up.  That's true.  For the moment we'll park that idea...but I promise to return to it.

Now, if spending is increased here's what happens.  The government gets "something."  During the Great Depression, unemployed people were put to work building public works projects.  Today the easiest place to have a big gain is in "infrastructure"...which means doing the maintenance we've put off since forever.  Replacing faulting and failing bridges, improving road surfaces, rebuilding crumbling buildings, and similar things are projects that put people back to work AND yield a tangible result.  We could also restore some funding for education and return more teachers to the classrooms.

All those people who are now working not only have money to spend...which helps the overall economy...but they're also paying taxes!  That means a portion of what the government is spending is coming back in revenue.  That same multiplier effect works here too, with people who now have jobs eating in restaurants, attending movies, and spending on consumer goods.  Other people get to keep their jobs and maybe some additional folks are hired, taking them off of unemployment and allowing them to pay taxes too!

So...things get better.  More people are working, more people are paying taxes, and the economy operates closer to capacity.  Life is better.

Now...what about that borrowing?

The time to pay down the accumulated debt is when you have a surplus, not when you're broke.  In 2000, the Federal Government actually was operating with a surplus.  The economy was stable and we were actually paying down the debt.  It wasn't growing, it was shrinking!

Since that time things have changed.  While the changes are many, complicated and interrelated, there are three things that stand out as the major issues.  Again, in no particular order:

  • The banking system collapsed, primarily due to risky business practices that were not regulated
  • We entered into two wars without bothering to provide money to pay for them
  • We cut the tax rates, especially for the rich

In short, we decided to collect less Revenue at the exact same time we decided to spend more, carefully keeping the war costs out of the budget so they wouldn't show what was really happening.

Like it or not, those are the FACTS.

Now, when you hear someone say the solution to the problem is to cut governmental spending, consider the truth about how that impacts the current situation.