Friday, March 23, 2012

Hidden Returns on Congressional Pay

In his last post Dr. Parker argues against the popular notion of refusing pay increases for members of Congress.[1] I agree with his position that it is largely a “feel good” ploy by the Tea Party and others to pander to our ever declining opinion of those in DC doing the people’s business however, let’s apply some basic behavioral economics to the issue.

First, realize that after 22 years in office a congressman is eligible for a pension payment of around $85,000 per year. Right now, the average term in office is about five years. In 2002, the pension payment ranged from $41,000 to $55,000. Not very much when you consider the expense of a second home in the DC area and the cost of campaigning.

Let’s look at this another way. The average age of members of the House at the beginning of the 112th Congress was 56.7 years - young enough for a second, if short, career. The overwhelming majority of members have a college education – typically a law degree or business background. When the status of a member of the House changes from member to former member what to they do? They mostly move into the lobbying game where they earn very large amounts of money cashing in on their expertise and rolodex as they represent often the very interests they regulated while holding elected office. The classic revolving door.

Viewed this way, the rational thing to do is “invest” in your congressional “education” for about the same amount of time it took to get your law degree and then go for the higher return on investment by starting a new career working on K Street.

Two other things. Keep in mind the overwhelming majority of House members are already wealthy. For example, the median net worth in 2009 of a House representative was more than 2.5 times more than it was in 1984 — $725,00 vs. $280,000 — adjusted for inflation (one interesting fact - our own Congressman Denny Rehburg enjoys a net worth in upwards of $56 million. Out of 535 members of Congress, he is richer than more than 95% of his Capitol Hill colleagues). The other thing to keep in mind is that while leftover campaign funds cannot be used for personal gain, FEC regulations require leftover campaign funds be returned to donors, transferred to a political party or candidate, or donated to charity. Of course generous donations are rewarded with board appointments, jobs, the ubiquitous lobbying contract and, (tell me it isn’t so) even university appointments.

Any way you look at it, serving in the House for even a short period of time has potentially high rates of payoff. The only logical solution to this and other inequities in the current political system is public finance of public elections.

[1] According to the State Department’s Office of Protocol, there is no such title as Congressman for members of the House of Representatives. Rather, they are supposed to be referred to by their social title (that is Mr. or Ms., or Dr., Mrs., or Miss as preferred). I realize this is a small matter but civilization runs smoother with recognition of social niceties. By the way, Wikipedia has this completely wrong.

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