The Freakonomics of Congressional Politics

University of Chicago economist and John Bates Clarke medal-winner Steve Levitt's 2005 bestseller, "Freakonomics," examined many everyday situations from an economist's perspective. So popular and influential was Levitt's book that a recent Wall Street Journal review of yet another economist's book in the same vein, this one dealing with parenting, bemoaned the flood of wanna-be imitators in the wake of Levitt's original work.


There's one topic Levitt omitted from his four-year old work, his treatment of which I would love to read. That is, of course, the economics of Congressional office-holding.


I'm not a PhD in economics, but given how much of it I studied to earn my two business degrees, I might qualify for a minor in it. In any case, in Levitt's absence, let me try to begin reasoning why people run for US Senate and House seats and, more to the point, continue to run and sit.


It seems logical that there are three possible reasons for someone running for a Congressional seat:


1. They have a burning desire to work on and/or influence the resolution to one or a few key issues.


2. They have an ego the size of Texas, and believe they should be the Representative or Senator entrusted with the job of working on all federal issues for their district or state.


3. They expect to make a healthy, risk-adjusted financial return on the time and money they spend running for and holding the seat in question.


The first reason, while quaint, doesn't seem to be true, for long, anyway, anymore. The second reason doesn't rule out the third. Or even the first.


Let's face it- we all pretty much suspect, either explicitly, or implicitly, that it's the third reason that drives most of our US Representatives and Senators most of the time.


How would you determine this? Well, ideally, you'd possess perfect information on answers to the following types of questions:


1. Is the percentage and/or scalar increase in net worth of a Representative or Senator positively related to their time in office?


2. What is the average net return to Representatives and Senators of holding their seat, expressed as the change in their net worth over time, or their income stream, as a function of the stream of payments over time to get and remain elected?


3. Is the average net return to a Representative and Senator better than that of a similarly-aged, educated and IQ'd person in their district or state?


4. Adjusted for education, intellect, and other relevant factors, how does the average growth in net worth for Congressional officeholders compare with the general population?


I'm sure there are more questions that would provide evidence for the hypothesis underpinning my third reason for running for a Congressional seat. But these give a general idea as to how you'd go about quantifying the value and financial impact of holding a Congressional seat.


Just sitting here, reflecting on a conversation about this topic earlier this week, I find it pretty hard to believe most Representatives and Senators don't expect graft, corruption and various second-career lobbying income to more than repay them for the rising expenses of running for and remaining in office.


How could a US Representative possibly afford to spend, every two years, such significant sums of money, if s/he didn't expect to recoup that ongoing expense in some way? Surely, it's not coming from their Congressional salary. Probably not even from their lush, uniquely-federal pension and benefits plans.


No, it has to be something else.


As I mused in this recent post,

"Having seen today's full-time, professional political class in action at the federal level, I believe the Founders would prevent that through term limits, limits on the amount of time during the year in which Congress could be in session, or draconian limits on Congressional pay, with the removal of a pension, in order to reinforce the nature of the offices as service to the citizenry, rather than a lifetime career."

Sometime in the last century, Congress passed itself a pension plan. As a friend of mine opined, they probably justified it with reasoning something like this,

'We have to provide a pension, and competitive pay, so we can (continue) to attract the best people to serve (i.e., make a career out of serving) in Congress.'

Consider, however, the recent demise of former Senate Minority Leader Tom Daschle's aspirations to be Wonderboy's healthcare czar. Daschle forgot to report and pay taxes on hundreds of thousands of dollars of gifts in the form of a car and driver, courtesy of one-time cable mogul and liberal Democratic fundraiser Leo Hendry. It was even reported in the press that Hendry rather crudely put forth his own slate of candidates for hire, including, of course, himself, should his political stooge, Daschle, make it into the West Wing.

Daschle has been lucratively perched in some Washington law firm as a lobbyist, since his ouster from the Senate a few years ago.

See how it works? Coming from hopelessly-poor South Dakota, Daschle didn't even bother to return "home." He quickly settled into the D.C. lobbying landscape and promptly turned his former Senate seat into gold by using his access to former colleagues on the Hill.

I'd love to see Steve Levitt tackle this question. The answer would be, to paraphrase Mastercard, "priceless."

The UAW's Potential Loss At GM

Yesterday's Wall Street Journal ran an article focused on UAW head Ron Gettelfinger's dilemma regarding GM.

In particular, the piece's author, Kris Maher, noted,

"Accepting more concessions could also hurt the union's ability to grow at healthy companies. The UAW has been unable to organize U.S. workers at plants run by foreign auto makers. Accepting more cuts to GM wages and benefits would make organizing elsewhere even more difficult because the union would have little of value to offer nonunion workers, says John Russo, co-director of the Center for Working-Class Studies at Youngstown State University."

This is a rather nuanced but important point. Especially with card check legislation on tap in Congress.

With little to show for decades of representing auto workers, now that the flagship US unionized car maker is essentially dead, Gettelfinger has, indeed, run out of good options.

Outside of bankruptcy, as Holman Jenkins noted in the same issue of the Journal, bondholders can hang tough, betting on Wonderboy's hesitancy to let a court strip the UAW of benefits which the Democratic Party is expected to guarantee.

In bankruptcy, of course, Gettelfinger's union loses its last vestige of pretense at providing anything for workers.

Tough choices, indeed. Maybe Ron should have retired last year.

Congressional Poll

I've written and mused about who runs for the US Senate or House, and why.

Enough of my views. What's yours?

Even though my readership on this blog is small, I'm curious as to which of the responses in the poll at the right best describes your own views.

What Would The Founding Fathers Say About Today's Communications Technology?

My business partner and I recently found ourselves pondering the question that is the title of today's post.

Considering a collection of men including Ben Franklin, Thomas Jefferson and George Washington, one cannot help but believe they would be thrilled at the immense scope of instant, broadly-distributed online communications options available today.

Imagine Franklin twittering. Or Jefferson's daily political blog. What would Sam Adams and Tom Paine have done with freely-available blogging capabilities?

Surely, the founding fathers of the American experiment would be pleased to see such freedom of expression available so ubiquitously.

However, at the same time, I would hazard to guess that they would have tweaked the design of government a bit, in light of such freely-available tools to incite passions in the citizenry.

For example, consider this post from just a year ago. It has probably become the most-searched and -read post on this blog.

If Franklin & Co. were writing the Constitution today, amidst our modern communications technologies, I think that, if they opted for direct election of Senators, they would condition nomination for that office to those who had served in statewide or other elected federal posts, i.e., US Representative, for at least 6-8 years.

Their original intent was clearly to represent the States, not the people, per se, in the Senate. Today's one-issue wonders, such as Patty Murray (a/k/a the mom in tennis shoes) from Washington, or Wonderboy from Illinois, would not have been elected because they would not have met qualifications for the office.

I think the founders would also, were they alive today, impose term limits. They never envisioned a professional political class. In their day, Congress didn't even meet for most of the year. It was a part-time job, and its members had to return home to actually make their living.

Having seen today's full-time, professional political class in action at the federal level, I believe the Founders would prevent that through term limits, limits on the amount of time during the year in which Congress could be in session, or draconian limits on Congressional pay, with the removal of a pension, in order to reinforce the nature of the offices as service to the citizenry, rather than a lifetime career.

With such opinion-shaping power available via free online blogs, inexpensive websites, and the interlinking of cell phones and the internet, I believe the Framers would have sought to provide more buffers for parts of the federal government from the increased influences of immediate, broadscale public opinion on the deliberations of Congress.

The Big Liberal Lie About Renewable Energy

One of the loonier ideas that Wonderboy rode into office last November was this myth of thousands of "green" jobs and a non-carbon-based US energy policy.

The March 5 edition of the Wall Street Journal published an excellent piece by Robert Bryce, managing editor of the Energy Tribune, entitled "Let's Get Real About Renewable Energy."

His point is summarized in this passage early in his editorial,

"By promising to double our supply of renewables, Mr. Obama is only trying to keep pace with his predecessor. Yes, that's right: From 2005 to 2007, the former Texas oil man oversaw a near-doubling of the electrical output from solar and wind power. And between 2007 and 2008, output from those sources grew by another 30%.

Mr. Bush's record aside, the key problem facing Mr. Obama, and anyone else advocating a rapid transition away from the hydrocarbons that have dominated the world's energy mix since the dawn of the Industrial Age, is the same issue that dogs every alternative energy idea: scale.

If Mr. Obama is only counting wind power and solar power as renewables, then his promise is clearly doable. But the unfortunate truth is that even if he matches Mr. Bush's effort by doubling wind and solar output by 2012, the contribution of those two sources to America's overall energy needs will still be almost inconsequential.

Here's why. The latest data from the U.S. Energy Information Administration show that total solar and wind output for 2008 will likely be about 45,493,000 megawatt-hours. That sounds significant until you consider this number: 4,118,198,000 megawatt-hours. That's the total amount of electricity generated during the rolling 12-month period that ended last November. Solar and wind, in other words, produce about 1.1% of America's total electricity consumption."

That's it in a nutshell. Mr. Bryce destroys this myth, now being spread in those stupid wind power commercials on cable television, that renewables are poised to take over the heavy lifting of electric power generation in America any day now.

Consider the following passages from Mr. Bryce's piece,

"And yet, while price reductions are important, the wind is intermittent, and so are sunny days. That means they cannot provide the baseload power, i.e., the amount of electricity required to meet minimum demand, that Americans want.

That issue aside, the scale problem persists. For the sake of convenience, let's convert the energy produced by U.S. wind and solar installations into oil equivalents.

The conversion of electricity into oil terms is straightforward: one barrel of oil contains the energy equivalent of 1.64 megawatt-hours of electricity. Thus, 45,493,000 megawatt-hours divided by 1.64 megawatt-hours per barrel of oil equals 27.7 million barrels of oil equivalent from solar and wind for all of 2008.

Now divide that 27.7 million barrels by 365 days and you find that solar and wind sources are providing the equivalent of 76,000 barrels of oil per day. America's total primary energy use is about 47.4 million barrels of oil equivalent per day.

Of that 47.4 million barrels of oil equivalent, oil itself has the biggest share -- we consume about 19 million barrels per day. Natural gas is the second-biggest contributor, supplying the equivalent of 11.9 million barrels of oil, while coal provides the equivalent of 11.5 million barrels of oil per day. The balance comes from nuclear power (about 3.8 million barrels per day), and hydropower (about 1.1 million barrels), with smaller contributions coming from wind, solar, geothermal, wood waste, and other sources.

Here's another way to consider the 76,000 barrels of oil equivalent per day that come from solar and wind: It's approximately equal to the raw energy output of one average-sized coal mine."

That's pretty stunning, isn't it? Putting current renewable energy production into terms that correctly scale it to a minuscule amount of US energy consumption. Stated that way, it's obvious that renewables are nowhere near the point of replacing any significant amount of US electrical power generation. And as they grow, renewables will certainly encounter new problems with scaling up to real, significant production levels.

Bryce concludes his impressive piece with these observations,

"Perhaps the president's omissions are understandable. America has an intense love-hate relationship with hydrocarbons in general, and with coal and oil in particular. And with increasing political pressure to cut carbon-dioxide emissions, that love-hate relationship has only gotten more complicated.

But the problem of scale means that these hydrocarbons just won't go away. Sure, Mr. Obama can double the output from solar and wind. And then double it again. And again. And again. But getting from 76,000 barrels of oil equivalent per day to something close to the 47.4 million barrels of oil equivalent per day needed to keep the U.S. economy running is going to take a long, long time. It would be refreshing if the president or perhaps a few of the Democrats on Capitol Hill would admit that fact."

Anyone familiar with exponential math understands Bryce's point. You'd have to double renewable production 9.28 times from its current level to reach 47.4 million barrels of daily oil equivalent production. Of course, doubling ever-larger production levels becomes impossible. So the decade implied by Bryce's math demonstrates just how long renewables will really take to accomplish Wonderboy's goal.

For those of you who are interested, a more realistic long term average growth rate of 15% per year in renewables results in a timeframe of 46 years before non-carbon energy sources can replace conventional, existing US electrical power production.

Henninger On The Anti-Business Democratic Party

I have always believed that the Congressional Democrats, once in power, would be incapable of stopping themselves from excess liberalism.

Nevermind that the country is far less liberal than they are. The Congressional liberals are pathological.

Last Thursday, the Wall Street Journal's Daniel Henninger wrote an excellent piece encapsulating this phenomenon entitled, "Democrats Bid Business Adieu." He wrote,

"The current version of the party has largely broken free of any understanding whatsoever of the private sector- how it works or what it needs to function.

But Democrats who work in real jobs rather than work for the mothership in Washington must recognize that the party''s obsessions are becoming ever less hospitable to a functioning economy, or Mr. Geithner's labors to that goal.

Put it this way: Imagine any of this generation's Democratic establishment taking a job at Procter & Gamble in Cincinnati as a middle-manager responsible for a division of employees and its annual profit and loss. It is wholly inconceivable. Or helping an owner of an auto-parts company manage through a real crisis. They wouldn't have a clue."

I briefly mentioned something along these lines this evening to a squash partner about whom I've written before. He is a New Jersey-born, liberal Democratic lawyer. When I broached the subject of the inadvisability of a professional political class, he didn't quite get my point.

He is too liberal, and too far gone.

As Henninger observes,

"A Democratic Party that was always anti-Wall Street is becoming anti-Main Street."

He then closes with the passage,

"Some of Mr. Obama's supporters need to reboot their vision. They did not sign on just to him, but to him and his party. That party is creating a world of its own, a world being drained of oxygen for the kind of people who build the nation's economy."

After Reagan, I didn't think we'd every sink to this low point again. Neither did most of my friends, who are, of course, conservative. But we have.

I guess America will have to endure several years of this serious political miscalculation, and its tragic, real negative economic consequences, before we come to our collective senses. Until then, it's going to be a very rough ride.