A Modest Proposal for Capitol Hill

Once upon a time, New York Tribune editor Horace Greeley dispensed some memorable advice to a young correspondent seeking advice on how to become successful:

So many people ask me what they shall do; so few tell me what they can do. Yet this is the pivot wherein all must turn.

I believe that each of us who has his place to make should go where men are wanted, and where employment is not bestowed as alms. Of course, I say to all who are in want of work, Go West!

That advice is from 1871, when the “West” referred to the underdeveloped and underpopulated western territories of the United States. Greeley recognized that the American frontier could provide incredible opportunities for Americans willing to take smart risks and work hard to succeed.

What’s the modern-day equivalent?

It might not be as aspirational as Greeley’s advice, but here it is:

Want to be a millionaire? Don’t start a business. Run for Congress!

That’s not serious life coaching, but rather the tongue-in-cheek title of Barron‘s Brian Hamilton’s recent op-ed deploring the ongoing scandal of insider trading among elected officials in Washington, DC. Here’s his summary of the problem:

… since 2004, the top 100 wealth gainers in Congress have averaged a 114% increase in net worth while in office, according to a recent Ballotpedia study. During the same period, the median U.S. household saw its inflation-adjusted net worth decline by nearly 1%. That means that for every $1 of wealth the average American lost, Congress’s top 100 gained $121. Wow. Today, at least 30% of senators are estimated to be worth more than $10 million, despite their taxpayer-funded base salary being just $174,000.

How is this possible?

One obvious explanation is that these politicians are privy to information that average Americans aren’t, yet they are still permitted to own and trade individual stocks. The 2012 Stock Act, which requires members of Congress to report stock trades worth more than $1,000 within a 45-day window, does nothing to curb legislators’ trading.

You would hope that they would want to act in the interest of the country without the appearance of personal gain. However, an investigation conducted by a consortium of news organizations that analyzed nearly 9,000 financial-disclosure reports identified 78 members of Congress who violated the Stock Act.

Maybe I’m old-fashioned, but I always thought that you were supposed to make money from taking risks and adding value. It seems these guys are simply trading on their influence and knowledge. I think most Americans would be shocked to know how the system actually works in favor of the politicians.

Hamilton proposes a two-part solution. The first part would be to restrict officials to invest only in funds indexed to the entire U.S. stock market or economy through blind trusts they cannot control. The second part would be to impose term limits on elected officials. He argues that the two together would reduce politicians’ ability to cash in on their insider knowledge while aligning their financial interests with those of ordinary Americans.

The first part of Hamilton’s solution is achievable. It requires only that a majority of politicians pass a measure to enact it into law. The more public support such a measure has, the harder it will be for them to resist it.

The second part, however, isn’t achievable in my view. It would require a constitutional amendment, which sets an extraordinarily high barrier for ever making it happen. The U.S. Constitution has been around for 237 years and has been amended just 27 times. It’s neither easy nor likely to ever happen.

A modest proposal

What if there is a way to get around that barrier? What if we tweaked the first part of Hamilton’s solution so that after six years in Congress, the blind trusts politicians have to put their money in would have to put all of it in U.S. treasuries if government spending grew faster than tax collections during the previous session of Congress?

Instead of being able to make ridiculous money in stocks using their insider knowledge, they would have to put all their money into treasuries, which have historically had lower returns. That fact of life alone could provide a big financial disincentive for them to outstay their welcome in Washington, DC, especially since they aren’t willing to rein in their excessive spending.

Better still, the politicians can’t complain about it because they’re the ones most responsible for the U.S. government’s borrowing in the first place. They’re the ones who say U.S. treasuries are an incredibly safe investment. Why shouldn’t they be first in line to loan Uncle Sam all the money they have to invest by putting it in treasuries whenever they overspend?

Maybe it will make them wish they’d gone west and done something productive with their lives instead.