Government
Representative Government – Not So Fast
Apparently, the US has a representative government.
One of the problems, though, is that the representatives seemed to have
forgotten who they are representing. Much is made about campaign finance.
Politics is an expensive game/occupation. It takes an ever growing amount of
money to stay competitive (or at least it seems that way, even grassroots
movements seem to be well funded). Sometimes in order to secure funding a
politician has to align themselves with a specific group (a group who probably
wants a degree of input in the decision process). In order to keep the money
flowing, they have to meet with groups during their time in office. Another
trend is strict partisanship. It seems you are voting more for the party line
more than the candidate (and as a consequence, the representatives don’t tend to
deviate too far from the platform). So between the party and the backers, it
is hard to tell who the candidate is really representing. It is one thing to
have a brand identity (like Republican or Democrat), but the slavishness is a
new twist.
There is a problem with representative government that
it seems to be winner take all. A congressman may win by 1% in an election, but
act like it was 100% (more on this if I tackle the Electoral College). Maybe a
party squeaks out elections for 10 seats in the senate, but barely. This is
representative for the ones who voted for the winners, but the people who voted
for the losers are not really represented (though they will have a chance in
several years). The party will probably try to force through its agenda because
it has the votes, but that is not akin to being what the majority of the people
actually want (especially since the apathy party is the majority party). Once
the person is elected, all bets are off. Who knows how they will actually vote
on anything (maybe their whole platform was a lie).
The average salary of a congressman is $174,000 in
2010 (http://usgovinfo.about.com/od/uscongress/a/congresspay.htm). According to
the same site, congressional salaries started in 1855. Apparently, congressmen
can also get a pension if they serve for 20 years. Where am I going with this?
I think I have a method to my madness. I guess I am trying to show the type of
money that is at stake here. Let’s use the assumption of a 4 year term. This
should be a minor indication of how much money is at stake. That is essentially
$696,000 over a term span (plus a better shot at additional terms). For normal
people, that is a large amount of money. Unfortunately it also encourages the
career politician. This is one of the things I take issue with. I believe that
part of the expensive cost of campaigning is that the salary is so high
(especially since most
of the money spent is not spent by the
candidate).
Debt and Irresponsible Spending
One of the big problems fiscal conservatives like me
have with the government is the levels of spending and waste. Whether it is
bills inflated by pork, programs that I don’t believe should philosophically
exist, vote buying schemes or unnecessary wars, there is no denying that the US
government has a problem with fiscal responsibility. This will come up in some
future topics also.
There is also the problem of debt. Philosophically,
any government program financed by debt is irresponsible. Unfortunately, the US
has turned debt financing into an art. So why is debt financing bad (outside
some corporate capital financing scenarios)? Debt is instant gratification
(spending) and paying off later. It is kind of like how on the consumer side
people got into trouble with credit card purchases. They get the benefit now
for a greater cost later (including the extra cost incurred as interest). Debt
at the government level will incur an interest expense that will actually make
things more expensive (conveniently ignoring inflation). Eventually, the
government will find itself in a situation where it cannot optimize spending
based on tax receipts (maximize results) because some of the money must be
diverted to pay off debt. Unfortunately, the US government, in particular
decided that they would pay off debt with debt. That is like paying off your
MasterCard with a Visa (not exactly a sound strategy). The national debt of the
US now is a mind bogglingly high number. Most people have a hard enough time
with the concept of $1 million, never mind $10 trillion (that is a lot of zeros,
13 of them - 10,000,000,000,000). By the way it is over $10 trillion and the
getting worse every day.
Debt financing can work in business (limited to
something like 25%) due to several factors. The parenthetical statement in the
previous statement would be part of a capital structure (how a company is
financed – ie x% debt, y% equity, z% whatever). The corporate debt (at least
that in bonds) is mostly callable (can be paid off before the end date), I do
not believe it to be the case with government securities (ironically named, I
know). Unfortunately, the US does not have a defined capital structure limiting
debt yet. There are reports that the US is getting closer to debt being equal
to 100% of the total structure. One factor is that the debt is typically tied
directly into some cash inflow. I like to think in terms of cash flows – a
inflow is like getting your paycheck, a cash outflow (or negative cash flow) is
money going out like paying a bill. The government is not that organized and
the specific inflow (taxes) goes into a general fund instead of being targeted
to a specific program. Social security and Medicare payments are example of a
more direct inflow/outflow system (though unfortunately both are transfer
programs). So, what options does the government have to pay this overwhelming
debt? Basically the most likely option is to print more money (hurting the
value of the dollar and any savings a person may have).
Economic Transparency and Funding – You Spend More than You Think You Do
This is a
long title for a likely short section. What this is basically about is that the
taxpayer does not really know where all of the money goes and even how much they
are being taxed. Corporations produce quarterly reports, the government
produces reports, but the quality is a lot less than that of the businesses. It
is also true that there tends to be more of a delay between actual reports and
data collection than in the private sector. What I really want to see is
quarterly operating reports of cash flows of everything (nothing should ever be
considered off budget). Then we could more accurately look at the reports and
see that the government is perpetually spending more than it takes in. They do
this by using debt (which will take the form of a future tax). Congress (and
the CBO) needs to be absolutely open about what the full cost of programs
is.
Maybe
they should come out with cash flow statements for every program (including
start up costs, transitional costs, any and all debt implications, worst case
scenario and most likely scenario, yearly disbursement, potential cessation
costs, and any other associated costs that directly relate to it financial
viability). I know the government produces tons of data, but I am not sure they
are producing the operational data that I really want. Without the true data,
it will be hard to tell exactly how much of your money the government is
spending on a specific program and in general (no more rounding to the nearest
billion or million).
Part of the 2010 proposed new “Contract with America
Version 2” that the Republicans are going to be pushing in advance of the 2010
midterm elections seems to be a balanced budget amendment. On one hand this is
a step towards ending debt financing (you can’t spend more than you take in,
cash flows in and out are essentially equal) and promoting fiscal
responsibility. This has been enacted in several states, but they have found
some problems with its execution.
I have no problem with cash outflows not being allowed
to exceed cash inflows (like taxes). However, a possible problem arises when
cash (tax) inflows exceed current expenditures. This is what the states seemed
to have a problem with. In good economic times, the states saw more money
coming in; unfortunately they treated this like something that would last
(despite the inclusion of rainy day funds). When the economy took a turn for
the worse, they were left with a bunch of unfunded or underfunded programs
(which they shouldn’t have enacted in the first place). The real solution for
the federal government would be a spending cap ($1 trillion dollars per year
maximum, hopefully less) with an extra 1-10 billion dollars being available only
for paying down the national debt. One of the problems with spending programs
is that they seem to be sticky – the congress will enact them, but really hates
cutting them (and resists it). I say cap the spending at a certain level and
never allow it to be exceeded (regardless of how good the economy is).
Broken System
There was a recent poll where 86% of the respondents
said that the US government was broken. There are serious problems with the US
government that have to be addressed. Chief among them are debts and ethics.
The debt is a huge problem and you are just seeing the tip of the iceberg. Of
course there are other problems (many of them at that). There are ethics
concerns, wasted money, forgetting that the representatives are working for the
people and not the other way around, unsustainable spending, short-term action
at the expense of the longer term, ignoring the fact that their spending can
lead to serious problems, corruption, lack of transparency, a government that is
too involved in its citizens’ daily life and a growing disenfranchisement among
its citizens.
One such problem is the legislation itself. The
attempt at the healthcare bill is a good example. Bills should not be so long
and complex (over a thousand pages of confusing, meandering text that nobody has
the time to read). Bills should max out at about 20 pages and should be written
in plain English. What is the world coming to where you have legislators
pushing overly long and complex legislation in an attempt to push things
through, since nobody in their right mind is going to read all of it? I guess
that is how it is when you have a country largely run by lawyers.
There are also some potential problems with the act of
voting itself.
Voting and Related Issues
So how could voting possibly be a problem? For one
there is using “democracy” by one or more groups to take advantage of funding by
someone else. This is the Oregon tax increase example (and an abuse of
democracy). Many areas have switched from the live polling station to more of a
mail-in ballot scenario. What I really want is the evolution of voting – online
voting. This could allow for better real time tabulation and open up voting to
a wider demographic. Sure there will be security concerns, but there are for
any voting method ever established. Whether it is the questionable hand recount
where votes mysteriously appear, vote tampering or pianos and the dead voting in
Chicago – there will be questions, it is inevitable.
There is a peculiar problem that deals with
presidential elections. That problem is the Electoral College system. It is
largely a winner-take-all scenario that does not truly reflect reality (based
off of the assumption that the people should not be allowed to elect their own
president). It should not be all the electoral votes in a state are given to the
winner; it should be decided in every district. The value of a vote is not the
same in every area with the Electoral College system. I would prefer a straight
popular vote, but that is likely to never happen. I guess it is about time I
included another blog post. I am not sure what I was doing anymore with the
numbers, and had to guess on a typo for EV? – Arizona where there was a typo of
810
Original Post Date: 3/17/11
No comments:
Post a Comment