Incorrect title, the finding is "lawmakers who later ascend to leadership positions perform similarly to matched peers beforehand but outperform them by 47 percentage points annually after ascension." This is saying that people in congressional leadership positions do 47% better than other members of Congress.
>This is saying that people in congressional leadership positions do 47% better than other members of Congress.
It's even more damning than that I think.
>we find that lawmakers who later ascend to leadership positions perform similarly to matched peers beforehand but outperform them by 47 percentage points annually after ascension.
The same person makes more after being put in a leadership position than before. That essentially removes any possibility of 'well maybe they're just more knowledgable and that's why they're in leadership.'
A person typically picks stocks based on some view of the future: what’s going to be valuable, how the world is going to change, etc. Presumably, a congressperson does the same when drafting legislation - try to move the world in the direction they think it should go. The underlying worldview and outlook is the shared variable, and congresspeople in leadership positions are more capable of moving the world the way they think it should go than anyone else. The increased stock performance is because someone in congressional leadership’s predictions for the future are more self-fulfilling than most.
(Again, that’s the best steel man I can offer, and if you made it this far without laughing, I commend you)
I think the point is that this study suggests a causal relationship (having leadership power enables one to make more money), which is stronger than just correlation (being in leadership positions correlated with making more money).
There are a lot of strong claims that the paper does not make. It never says that leaders outperform index funds. It just says very specifically that leaders outperform other members of congress. The paper also does not include any clear charts on the actual returns the congressional leaders were getting.
Maybe I'm simply too dumb to interpret this paper, but overall I find it unconvincing of anything notable or scandalous.
I'm interested in the specific claim that Congresspeople are trading in ways that beats SPY, and I think it's just not true.
The Unusual Whales piece says that in 2023, Democrats had 31% returns, Republicans 18%, and SPY was 25%. Doing a weighted calculation, I get (31212+18222)/(212+222) = 25% exactly. So that piece provides some strong evidence that in that year, Congress did not outperform the market, despite attempting to imply the opposite.
Your other links are just general speculation on the subject, and in fact link 4 even says "House and Senator stock returns are consistent with random stock picking."
I do think Congress should probably be restricted from options and maybe short-term trading in general. But I get frustrated by all these doomers who think Congress is corrupt and doing insider trading all the time when there's just not any generalized evidence for it.
The more committees you are on, the more opportunities you have for informed medium term trading that escapes insider-dealing scrutiny. It's a fundamental problem with government and it is why politicians should be required to put their stocks in a blind trust. But it still doesn't solve the problem of blind trusts not being truly blind when you know what went into them.
Ideally we should remove the incentive all together. Limit it so Politicians can only buy index funds that don’t target any specific industry.
Fundamentally you can classify modern society into two groups: government and commercial citizenry.
The incentives of these two groups are misaligned and that is essentially the origin of all corruption.
The commercial citizen, his goal is to make money, compete and to do so by bending the rules and using any means possible.
The government, his goal is to be fair, to enforce and follow the rules, and to guard citizens.
When you combine these two groups the incentives collide. You get government officials who are supposed to be fair but instead they are incentivized by commercial interests so they make biased laws, take bribes and do all that shit.
To reduce corruption you really need to create societies made up of two different groups with two different sets of incentives.
Dictators are more immune to this effect because all of their commercial incentives are pretty much completely fulfilled as they own the whole country.
In a democracy the closest sort of thing I’ve seen to this is priesthood. Buddhism or becoming a monk is similar but these are not elevated leadership positions like priests.
Basically when you become a government official it should be like becoming a priest. You are removing yourself from commercial society. It changes everything. Your incentives are different and it even filters out all the bad actors.
Such a society can realistically exist. I think the unrealistic part is converting our current society into something like this.
The primary challenge I see is that at least in the US, government positions are often elected and termed, meaning there is no guarantee your cash flow from your government job will continue long-term. This is why you must continue to operate as a private citizen, with a government job.
The second potential issue is one of pay - the best of society can make far more in a commercial setting than in a government setting - barring corruption, of course.
For your second potential issue, I’m saying that’s the point. Nobody becomes a priest for money.
These people who become priests do so for other reasons and they largely want to exit the commercial economy. That’s the type of people government should be made of. Under this system pretty much 100 percent of politicians wouldn’t have even become a politician.
Since we are talking about political leadership at the highest levels (not pastoral local municipalities), a good comparison with priesthood would be the Vatican. Even in priesthood, when there is concentrated power over vulnerable populations, we can find: wealth hoarding, money laundering, collaboration with organized crime, and protection of rampant sexual abuse. For hundreds of years. This suggests to me that the issue is hierarchy more than it is quality of those who reign over us.
Here's my hot take: politicians should be paid a lot of money, and in return they should be subject to limits on how they can invest, if they can invest at all. Remove the incentives that cause corruption and attract talent. I think it's a bit naive to say that public servants need to be earning a meager salary. Underpaid people don't stay in their roles very long.
The first point is true of most employment, unless you're one of the ~10% of US employees with a union contract. Your paycheck is always subject to the whims of your employer.
I don't have a great solution for the 2nd issue you pose though. Raising the pay of elected officials is often politically unpopular, but you're certainly right that one makes more in the private sector than as a junior congressperson.
Yes and no - if you lose your job at Apple, you can go down the street to Microsoft. If you lose your elected government job, you can't run again for years. Meaning, you have to switch from being a government employee back to being a commercial employee.
Problem: politicians have families. Unless becoming a "government citizen" propagates recursively to cover one's extended family, and perhaps their extended families as well, i.e. potentially hundreds of people in total, there's no way to isolate the new member of government from having incentive to help their loved ones, who are still "commercial citizens".
Conversely, if you somehow solve that, it brings forth a new problem: the "govenrment citizens" are now an alien society, with little understanding of lives of people they serve. To borrow your priest analogy, it's like Catholic priests giving marital advice to couples - it tends to be wildly off mark, as celibacy gives the priest neither experience nor stake in happy marriages.
The goal should be to not produce homo economicus in the first place, not to figure out how to build a society out of them in the same way you build a trustless smart contract.
You can still play the market with index funds. For example if someone knew that Trump was about to announce new tariffs they would sell to dodge the brief market panic.
> The commercial citizen, his goal is to make money, compete and to do so by bending the rules and using any means possible.
This conception of "citizen" is even more depressing to me than Homo Economicus. There are values aside from wealth, and not everyone is a money grubbing sociopath.
> it is why politicians should be required to put their stocks in a blind trust
Don't these people get a salary already? If "serving the people" isn't enough as an incentive, maybe they shouldn't be in a position for serving the people?
Outlaw politicians owning stocks at all, it makes no sense they ever could in the first place, when the incentives are so obviously misaligned. It simply lives too much room for misbehaving actors, no matter how much bandage you put on top.
I don't want people in congress as a career. Do it for at most 2 terms and get back to the real world. When that is the reality it means we cannot take away their ability to have stocks because when they return "to the real world" they will need that savings. Though while in office they should be limited to buying and selling from blind trusts and such things where they cannot know what happens except the economy in general. However if they own stock before it isn't fair to make them sell it: this is a really hard problem and there probably isn't an answer I will be happy with.
> 't want people in congress as a career. Do it for at most 2 terms and get back to the real world.
How realistic is this though? Getting elected to Congress usually means having some other prior government experience, or your opponents attack you with "why would you give this person responsibility at a congressional level if they've never even worked in local politics?" Not to mention you need name recognition, a history in government that people can use to understand your values as acted, relationships in government to accomplish anything.
As I get older it seems that liberal democracy basically requires career bureaucrats to function. I'm very open to discussing other ways of organizing society, but if we're gonna do liberal democracy, seems this is the way.
> How realistic is this though? Getting elected to Congress usually means having some other prior government experience, or your opponents attack you with "why would you give this person responsibility at a congressional level if they've never even worked in local politics?" Not to mention you need name recognition, a history in government that people can use to understand your values as acted, relationships in government to accomplish anything.
I would contend there are plenty of people in lower levels who can move up or not. Was the mayor of the next town over any good and thus I want to send them onto state congress? Was a library board member two towns over good and I want them in the US house? For that matter, do they run a good honest business (there are lots of businesses) that I can check out locally and thus I want to risk them.
The real key is that term limits need to apply to everyone and so nobody will bother asking about experience as there isn't anything more on their side to fall back on.
Though in the end you are probably right - doesn't mean I like it.
> As I get older it seems that liberal democracy basically requires career bureaucrats to function.
I agree, but the people in congress should not be the career bureaucrats.
> For that matter, do they run a good honest business (there are lots of businesses) that I can check out locally and thus I want to risk them.
It's always funny to me how much people hand wring over politicians and then they somehow believe that putting someone who currently and actively has large personal interests and incentives to make government worse for people for their own gain is somehow a good thing
If you think politicians doing things to affect their bottom line through stocks is bad, surely you recognize how crystal clear and more direct the incentive is to do that kind of thing when your "asset" is your own business that can't be easily pivoted and depends on labor being cheap and desperate?
Nevermind that those kind of people just usually have radically different worldviews about what a government SHOULD do, and that worldview almost never allows for government preventing them from harming people for profit
Even to the extent it isn't true, a plumber followed by a chef followed by ... ensures that whatever they try to do that benefits themselves is checked soon enough by the next person.
There’s bad and good to term limits. It incentivizes short term thinking and goals. Supreme Court judges for example are deliberately given lifetime seats to get rid of short term incentives.
Go back to local politics? Why the only direction should be always up? At the end, who cares?
Career politicians with most power who reach the top will always be good primarily at one thing - bullshitting their way to the top in various sociopathic manners that no power structure anywhere is immune to. Those who are inside the circus for 30+ years? Expect them to be rotten to the core while wearing very polished masks, seeing and dealing with the worst and staying on top. Not a place for a nice good hearted well intending folks.
Don't expect some common good to come out of them just because it would be nice or proper thing to do, either its by mistake as a byproduct of some other effort or some pre-election campaign.
> Do it for at most 2 terms and get back to the real world.
Guaranteeing they never get good at their job, and institutional knowledge keeps decaying.
We need to stop pretending that Congress or any of these elected positions don't require skills. I think to be a Congressperson you have to go to specific trade school--let's call it Congress U--graduate with high honors, serve in some other government capacity, and your grades are public record. Only then are you qualified to even run for election.
Democracy isn't about letting any random firebrand run things. Heck, we don't even let random firebrands install electricity.
Disagree. The main motivation for serving in Congress should be just that - service to the country. Not personal power building, not a career. The actual process, writing bills, parliamentary procedure, is all managed by staff anyway. The representative or senator is mainly the face of the office and should be mostly talking with constituents and not buried in policy.
If there's one qualification test I would possibly support it would to pass a high school AP US History exam.
I am completely sympathetic to your motivations here. However, it seems like if you take that approach, where many qualifications are required before you are “eligible” to hold elected office, it’s much closer to an aristocracy than a republic or a democracy. Unelected elites who control the special university and those who set the eligibility rules in general hold and safeguard the real power, allowing trusted insiders to ascend to power and burying those with unorthodox ideas or worrying populist notions. It’s an anti-democratic idea.
It probably, on net, increases the power of elites and decreases the power of ordinary people, which increases the already extreme tilt in that direction. Like with a lot of things, it depends on the virtue of the elites in question whether this is a great idea or a catastrophic and oppressive one. As we can see, our current elites are so shameless they blatantly trade on privileged knowledge and can’t even manage to pass a budget for the country.
I worry about this too. That is why transparency in all aspects of the qualification process is key. I think said trade school should be free, and even subsidized. We should have a pretty large pool of qualified candidates so that qualifications aren't the major bottleneck.
This can work. We do accept accreditation for lots of aspects of the economy, and though none of them is a perfect system, does for the most part keep quacks out of certain trades.
In general when one looks at the longest serving politicians, it seems to reek much more of extremes of corruption than skill. The insider trading this article references being but one aspect of that. It also correlates with people turning into warmongers, but that's probably just another angle to corruption since there's a rich and ridiculously unaccountable flow of money in military related stuff.
For another datum consider presidents' second term. This is often where they are supposed to be able to really act out their vision for the future since they're ostensibly out of politics after this and have at least 4 years of experience at the highest level, yet they almost invariably tend to be extremely underwhelming.
I'm not arguing there is no skill, but I am arguing that just spending a lot of time in office doesn't seem to correlate much with achieving that skill.
> Guaranteeing [that congressional lawmakers] never get good at their job
I don't know if you've been paying much attention to US politics since the year 2000 but the vast majority of them are no good at their job regardless of how long they've been there.
> We need to stop pretending that Congress or any of these elected positions don't require skills.
I don't think anyone does? But currently the only real skills you need for attaining high US office are 1) be rich and/or have enough rich people in your phone book or 2) the ability to make Donald Trump feel like a special boy.
> Democracy isn't about letting any random firebrand run things.
waves in US/UK/Argentina/Brazilian politics over the last decade
As a thought experiment, imagine a world where borders exist as they are but the whole political process inside them everywhere is to 1) choose a zone randomly 2) choose a citizen randomly 3) receive policy proposal from them 4) vote yes/no on policy using random dice 5) for resolving ambiguity on any and all policy details such as "how much" or "for how long", return to step 1.
It's uh, king for a day, with checks and balances on human cruelty via chaotic caprice. How likely is that world to be worse than ours? If so, how much worse? If not here and now, then which counterfactual geography or year would you have to transported to so that this randomized process is definitely preferable?
Here is the problem: what if it is worse in ways that none of us can think of today? How do we get out of this system if it turns out bad.
History has shown everything we have tried ends up worse than what we have, but that doesn't mean there are not things that could be better. Only that we need to be really careful not to make things worse in a way we can't get out of in our attempt.
Think through the downstream impact of term limits... where does the power accumulated by long-term congressmen go? My guess... it flows to either/all of career bureaucrats, lobbyists, or career congressional aides. Do we really want to cede more power to groups that are not elected (bureaucrats, lobbyists) or elected-by-proxy (aides)?
I take the exact opposite view. A revolving door of congresspeople would decrease the influence of lobbying (and, for that matter, the influence of political parties in general), because once a member of congress reaches their term limit they would no longer be influenced by campaign donations.
Also, let's take a step back:
> where does the power accumulated by long-term congressmen go
We need to take a very hard look at any supposedly democratic system in which power is "accumulated" by individuals. Deeply entrenched politicians who never face term limits nor reelection resistance have no reason whatsoever to care about the will of the people.
Ding ding! I think that's the real problem. If I were king for a day, I'd end gerrymandering and replace it with non-partisan (probably algorithmic) districting. And I'd shit-can partisan primaries and introduce approval voting or instant-runoff (or something similar).
> A revolving door of congresspeople would decrease the influence of lobbying
Make an argument that actually supports this rather than asserting it.
Most people who study this kind of thing outright disagree.
Lobbying in the US doesn't happen because we let people work in government for a long time, plenty of other countries do that, it happens because we are one of the only places that legally empower rich people to pay for the campaigns of elected officials and have one of the most expensive political campaigning systems in the world and we openly claim lobbying to be a right of rich people.
Political parties in the US yet again come back to just how absurdly expensive running a campaign is in the US, largely because we refuse to regulate it. Other countries don't allow candidates to run advertisements a full year in advance because that's wasteful and stupid. Candidates are beholden to the political parties for campaign funding. Even Bernie suckles the political party teat to maintain his seat.
If you don't fix that but you limit the ability of a politician to gain mindshare simply by doing a good job in congress (because you only give them two terms) all you have done is make it easier for rich people to control who can get elected.
Indeed, even the US system used to be better! The Civil Rights Act was bipartisan, with meaningful republican support, because there used to be socially progressive republicans! There used to be racist asshole democrats! When the Clinton government was cutting programs, prominent republican representatives from Texas were actively working with prominent Democrat representatives to maintain funding to the particle collider project there. But as America continued to enshrine the right of the rich to fund politicians, and continued to let campaign costs balloon to the point that only a rich person's super PAC or the literal party establishments could afford to run one, what did you expect to happen?
Trumps power over the republican party is fascinating because it largely isn't money based. He's just so populist among republican voters that he can unilaterally control who gets elected regardless of funding. This is generally a fucking bad thing, because trump sucks, but it's just a more direct version of what the Democrat and Republican parties have done for a few decades now.
Are you aware that both democrat and republican lawmakers spend most of their time on the phone calling and begging rich people to fund their next election campaign, even right after an election?
None of this goes away with term limits. All you are doing is giving the people who hold the purse more power over elections.
How good would you be at your job if you had to spend a few million dollars every four years to keep it? How good would you be if your company's competitors were loudly offering to pay that burden?
Depends on what power we cede. We should give them clear rules so they can make decisions based on their expertise. They should not be making the rules though (except as suggestions to congress - as experts this is an important part of their job)
I’m only playing devils advocate here but the counter argument is society is very complex and it takes time to understand it to a sufficient degree. Short term limits would mean a Congress making impactful decisions without fully understanding the ramifications, or they just rely on unelected bureaucrats and lobbyists to tell them what to do.
The counter counter argument is that you could be a career politician working your way up: two terms at city council, two as mayor, two as governor etc…and by the time someone is voted into the national stage they presumably have decades of experience.
yeah this is exactly it, there's no good way to prevent congress from sharing inside information to enrich people around them in the wake of personal bans... we just need term limits to reduce the surface area
Yeah, but that makes them susceptible to lobby groups. They offer the politicians cushy jobs after their political career in exchange for political services. Politician probably has to be a sustainable and well-paid career somehow.
Good news, the average career in the House is already 8 years, so no new law needed! The Senate average is 11 years, so it's already less than 2 terms, no change needed there either!
I'm only half kidding - yes, there are outliers, many of whom probably should have retired years ago (but not because they've been around too long, but because they're simply too old to do the job - Pelosi and McConnell come to mind). But, the range of term limits that are usually discussed are already within the existing range, so it doesn't change all that much.
Less than 6 years, since there’s a GOP majority and the GOP imposes a 6 year limit of chairs. And since they introduced that (late 90s, Gingrich era?) they’ve fallen into complete uselessness. So I’m not convinced that’s an answer.
Those with longer tenure though tend to end up in the powerful senate positions like becoming a majority/minority leader. Thus you end up with absolute fossils like Pelosi or McConnell who most recently basically snuck in banning hemp into the budget bill, which was something absolutely almost no one in the USA was calling for and incredibly unpopular.
I doubt a minority/majority leader with only 2 terms would be as good at snaking in this kind of stuff in, or snaking their way through the politics of various committees to kill off proposed legislation before it's voted upon, that takes practice to really get good at all the underhanded techniques.
I'd absolutely support a maximum age limit, maybe e.g. if you will reach 70 years of age in your term of office you cannot run. So a senator could be elected up to age 64. A Representative up to age 68. And I'd apply that to all elected offices. My biggest criticism of Biden vs. Trump was that they were both too old.
No, no. We want the wisdom of the older generations.
We want the stability of someone who has seen life’s ups and downs and understands there is more to life than the petty day to days of a presidency. There is a legacy beyond them and they imbue that in their policy.
Age can be a symptom of your inability to do this, but it is not the problem.
The problem is with specific mental ailments and behavior coming into the presidency. We should scrutinize those ailments heavily, and build a culture around stepping down when life inevitably gets to you too — and having it taken from you if you do not take the opportunity for mutual dignity.
The problems that afflicted Biden could happen to anyone at any age. It is a problem if any candidate experiences it.
And I do not really think age has effectively changed Trump’s view of the world.
I would use straight up sortition rather than voting for congress. Propel people into the job from obscurity, by the time they've learned how to game the system it is time to leave.
Only if you theorize that power corruption is a step function, and that there isn't survivor bias and influence during the process of getting to the point where you can even win an election.
Running an election campaign as anyone but a filthy rich person means you have to accept a brown bag at the beginning with a lot of implied conditions. Sortition means it's at least possible you get someone who isn't looking for the brown bag.
Lord Acton has a few words about power etc. I don't think most people selected ala Cincinnatus for greatness have the ability to demure when venturing into government at high levels. Quid Pro Quo...
>Sortition means it's at least possible you get someone who isn't looking for the brown bag.
I mean sure, but sortition has tons of it's own problems, and it's actually pretty easy to reduce the requirement to take a bag before you can run a campaign, because this is something every other democratic country manages.
The US is the only country that allows you to run campaign adverts years ahead of time. That's expensive. The US has no limits to campaign contributions in the first place, and no ceiling on campaign spending. The US has loudly declared that it is right and just that the mega rich oil Baron can pay for literally every single campaign if they want, and unilaterally control who has access to his funds for getting elected. The US Supreme court has declared that it is a good thing that the oil baron can always outspend average people to get their needs heard.
Maybe fix the part of our country where we allowed the supreme court to insist that more money should give you more access and control over government. Maybe fix the part where half the country insists that we should elect "Businessmen" who will run a country like a "Business" because that's somehow a good thing, and that having someone who has direct business interests that are contrary to the interest of the general public run said government is a good way to do things.
It's like thinking that Pharma adverts are bad and so we should destroy the pharma industry. Like, no, chill, just ban pharma adverts like the rest of the world.
The thing is that bribery is technically illegal. Of course it's completely ubiquitous, but it's generally (FFS Menendez) done in a nuanced and practiced way. Newcomers are not always going to be willing to accept bribes, and actually trying to offer them one would require much more overtness, which enters rapidly into the domain of clear criminality, to say nothing of when your bribe attempt is rejected. And these are the issues with just one guy - with hundreds of politicians regularly cycling in and out, this scale of bribery is just not realistic.
The bigger risk with sortition is that power isn't granted through a title, but through people agreeing to respect that title. If the authority of that title ends up being undermined, then it's entirely possible for power to shift from our representatives to other, probably more entrenched, groups. One could argue that on many issues this is already the case. For instance Congress ostensibly has oversight over the intelligence agencies but the power relationship there is completely reversed. For those that don't know, Congressmen don't have classified access by default. Millions of people in the US have classified clearance, but the people representing the country at the highest level - nah, why would they need such a thing?
Being a congressperson isn't something you're supposed to have to get good at. You're supposed to just be a representative of the people. The "experts" in government are the nonelected officials, advisors and agencies.
For similar reasons, all presidents are newbies. The benefits of having one with lots of experience would be vastly outweighed by the downsides...
Since they are supposed to be serving their country and not seeking personal gain, their interests should be aligned with those of the whole country. As a condition of taking office, they should surrender their entire stock portfolio to a government custodian in exchange for a federally-held broad market index fund. While in office, they are free to sell from that fund if they need the money and free to buy more of that, but no other securities. When they leave office, they are owed the present value of their index fund, and can repurchase whatever they want to. All of these could be made non-taxable events, so that if someone wants to just go back into the same positions they had, there isn’t any complication.
To me, the above seems slightly complex, but well worth undertaking in order to stop this blatant and shameless corruption.
As we’ve seen with the current president, though, it’s much more difficult when they own and control whole businesses instead of just fungible securities. To be fair to the president, there isn’t really any reasonable way to get rid of his massive conflicts of interest besides having a pre-inauguration IPO for all his companies and retaining 0 shares - and his family retaining nothing too. But that’s a bigger problem that probably cant be solved.
Stocks though, it would be easy, they just don’t want to solve it.
Your argument seems to be that those in public service should only survive on their salaries, because "doing it for the people" is enough of a reward that they don't need to worry about such trivialities as money.
There's no good reason to stop anyone from owning stocks. It's part of any sensible person's retirement strategy. The issue is whether there's a conflict of interest there, and blind trusts or broad market ETFs are two good ways of addressing that issue.
Other alternatives include announcing their intention to trade in specific stocks several months in advance of doing so, so that even if they know about specific long-term future advantages a company might have, it's public knowledge and others can also trade in a similar way. But the easiest solutions by far are blind trusts and broad market ETFs.
It makes more sense when the government isn't as powerful as it is today. If we didn't ask or expect our governments to do so much the politicians would have much less advantage over the average person.
If we don't pay them well (and we arguably already fail to do that[1]), then it becomes really hard for anybody but the independently wealthy to be in Congress.
1 - $174,000 is the current salary. With that, they have to maintain two households (one in DC, one in home district/state). That salary is far from unusual for white collar workers in major metro areas.
Yes, like every other profession in the US seemingly, Congress is also underpaid. But letting them individually fight for getting as money as they possible can before they retire via means the typical person doesn't have access to, isn't right either. I agree they should be paid appropriately, so they also can survive on their salary, but still think they shouldn't be able to do certain things others can, because of their position.
Singapore pays its public officials high salaries primarily to ensure the integrity and quality of its government. The official justification centers on attracting top talent who could otherwise command high incomes in the private sector, thereby establishing a "clean wage" that reduces the financial incentive for corruption. Salaries are explicitly benchmarked to the median income of the nation's highest earners.
e.g.,
Singapore PM annual salary: ~$1.63 million USD
Singapore President salary: ~$1.14 million USD
(These are the highest public salaries in the world for politicians)
You’d have a massive influx of incompetent grifters who only get themselves elected for the salary. At the end of the day public service still has to a “sacrifice” (doesn’t mean that it shouldn’t be compensated at e.g. top 5 percentile income).
Give them spending rights. You need a second home in DC? Ok, if you pass a means test we reimburse your rent and travel costs. There's no sense in giving them additional excuses for not doing their job. 174k is plenty of money to live off.
> If we don't pay them well (and we arguably already fail to do that[1]), then it becomes really hard for anybody but the independently wealthy to be in Congress
Congress should be paid minimum wage. They are the ones who determined that this is enough to live on so everything above that is wasteful spending of public funds. If they don't think it's enough, they can change the minimum wage to a liveable amount.
That’s the best way of ensuring that bribes (legal or not) become the primary source of income for every representative who is not independently wealthy.
Their salary is not nearly enough. FAANG SWEs make several times more money for something that's quite a bit less important. Their pay is pretty good, but they also have a job which requires them to stay away from home (for most of them) for long periods of time. The pay is not really enough to maintain a household and a second living space comfortably.
I get the sentiment that they shouldn't be in it for the money. But money is important even for idealists. Let's say someone wants to serve the people, but not enough to take a $174,000/year salary with a lot of travel and needing to pay for lodging in a remote city, when they could be making $500,000/year at Facebook instead. Would you say that this person doesn't want to serve the people enough, and shouldn't run?
Maybe you would, but the problem is that you mostly won't get people who want to serve even more. By paying a relatively low salary, you'll end up getting:
1. Idealists with poor prospects in the job market.
2. Extreme idealists with good job prospects.
3. People who think they can leverage the position to make enough money to offset the difference in pay.
4. People rich enough not to care about piddling W-2 income.
In practice, categories 3 and 4 will win. According to https://www.quiverquant.com/congress-live-net-worth/, 107 members, or 20%, of Congress has a net worth of over $10 million. That net worth is in the top 2% of their age group. 16 members, or 3%, have a net worth of over $100 million.
And of course people don't tend to attain substantial net worth without having an eye for ways to make money, so it's very likely that those people will abuse their position to make money as long as they think they can get away with it.
I'd rather see a substantially increased salary, something like $1 million/year, so that ordinary people with decent skills can see serving in Congress as something they don't have to sacrifice for, financially. That would create a lot more competition for those positions and push out some of the extremely wealthy ones.
> The pay is not really enough to maintain a household and a second living space comfortably.
Who's talking about a second living space? They can move like most Americans do for work when the commute is too much.
> Let's say someone wants to serve the people, but not enough to take a $174,000/year salary with a lot of travel and needing to pay for lodging in a remote city, when they could be making $500,000/year at Facebook instead.
Then they can go work for Facebook. Who cares what they would like to have.
> Would you say that this person doesn't want to serve the people enough, and shouldn't run?
Yes.
> Maybe you would, but the problem is that you mostly won't get people who want to serve even more.
Source?
> In practice, categories 3 and 4 will win. According to https://www.quiverquant.com/congress-live-net-worth/, 107 members, or 20%, of Congress has a net worth of over $10 million. That net worth is in the top 2% of their age group. 16 members, or 3%, have a net worth of over $100 million.
Before or after they started their career?
> I'd rather see a substantially increased salary, something like $1 million/year, so that ordinary people with decent skills can see serving in Congress as something they don't have to sacrifice for, financially.
Ordinary people don't have the expectation of needing to be payed $1M to serve their country.
> That would create a lot more competition for those positions and push out some of the extremely wealthy ones.
The wealthy ones just use their wealth to get ahead.
Could you maybe read the whole message before quote-replying? It's kind of annoying to get "Source?" followed by a quote of the data it's based on.
> Before or after they started their career?
Does it matter? You don't get that kind of wealth from $174,000/year. Either you came into the job with it and thus are in category 4, or you didn't and you managed to build that wealth despite not having a salary that would produce it, meaning you're in category 3.
I don't understand how you envision moving for the job would work. You think a member of Congress from, say, Oregon should live full-time in DC? That certainly doesn't sound like a "serve the people" situation, that sounds like a "completely insulated from your constituents and always surrounded by insiders" situation. In practice, representatives are only in DC about half the year, and the part where they're not in DC is an essential part of the job.
> It's kind of annoying to get "Source?" followed by a quote of the data it's based on.
But your link doesn't answer your statement which was that you wouldn't find people more willing to serve if you were to lower the salary.
Your link lists congressional representatives net worths which is a biased dataset which only looks at the type of people that currently run for Congress but also the money they managed to accumulate in sometimes illegal ways during their tenure (in Congress or other political appointments).
> Does it matter? You don't get that kind of wealth from $174,000/year. Either you came into the job with it and thus are in category 4, or you didn't and you managed to build that wealth despite not having a salary that would produce it, meaning you're in category 3.
Or you made that money through insider trading which is the topic at hand.
> I don't understand how you envision moving for the job would work.
You sell your house or rent it out and then you buy a train / plane ticket.
> You think a member of Congress from, say, Oregon should live full-time in DC?
Sure, that's where the votes take place.
Congress representatives have reimbursements of up to $367 per day which is enough for them to pay for travel, lodging and food costs while back in their state.
> That certainly doesn't sound like a "serve the people" situation
They have significant responsibilities in two locations, which could be a 16-hour plane ride away from each other. It would be more expensive in many locations to get temporary housing for the months when their responsibilities were in their constituencies.
The back-and-forth would be extra burdensome for families (kids in school, partner with job, etc).
Also, House terms are only two years. They'd need to be prepared to disrupt their families' lives on ~60-days notice, every two years.
My understanding is that many Representatives, especially, keep their house at home, and rent in DC (often with other Reps as roommates).
None of this is insurmountable or particularly egregious. Many of us have had to do worse! But it selects against people with ordinary adult-responsibility lives, which I would argue are the kinds of people we want to select for as representation.
My link was not the argument. My argument was the text I wrote describing how Congress is full of rich people and this indicates that it’s full of types 3 and 4. The link is just a source for the numbers.
> Or you made that money through insider trading which is the topic at hand.
Right, that would be the thing I mentioned where people leverage the position for money beyond the salary. I’m not sure you’re actually understanding what you’re replying to.
I have a hot take on this that I think could actually make some headway:
- We raise the congressional salary. Say, maybe double them across the board.
BUT in exchange, you, your immediate family, and any business, LLC, or other similar vehicle you are a named party to as a consultant, beneficiary, owner, or investor must divest of specific investments and can only hold the equivalent value of an index fund that tracks the general market. Or, you can remove yourself from the investment/ownership vehicle during the term you serve as a congressperson.
Problem solved? Probably not, but it's an interesting thought experiment. I'm sure there are a bunch of loopholes I haven't fully through through, too.
> Or, you can remove yourself from the investment/ownership vehicle during the term you serve as a congressperson.
The problem with "blind trusts" is that even blind men wink and nudge. It's quite hard to police a veritable horde of Congressmen who pinky-swear to never pass information along to friends, relatives and various other associates, employed by them or otherwise.
It can be. But it's quite hard. And frequently unsuccessful. The concept of "insider trading" sounds great and unambiguous until some examination, but becomes quite ripe for loophole-finding exercises afterwards.
I honestly don't know how you put a cone of silence around congresspeople such that insider trading anywhere in their sphere of influence is impossible. My intent would be to make it difficult for the congressperson to directly benefit from passing along insider info and compensate them enough such that it isn't a practical path. Sure, they could still tell friends to buy/sell, but if the friend *does* act on that, it's sure going to raise eyebrows when they try to wire $1M worth of proceeds to the congressperson for "movie & pizza night".
And I know that the next stone to be cast is "yeah, but if they help friends/business associates beat the market, congresspeople can still benefit with board seats and jobs when they're done with congressional terms". That's totally valid, and I have no idea how to combat that.
Forget pizza night IOUs. Lots of very smart people have come up with lots of clever ways to pay someone for a service, ways that don't even register when it comes to public awareness. I could have bought this house from you for 1.5 million, but I'm going to buy it for 2.5 million because I simply must have it. Man, what a sucker, eh?
> The problem with "blind trusts" is that even blind men wink and nudge.
They should only be allowed to invest in a fund that is open to public participation. This should also be public information. You should be able to pick a congresperson and invest in the exact same funds that they do.
it's not really possible considering that most retirement accounts are stock portfolios — it also doesn't matter too much on an individual level because an individual ban just gets pushed to sharing stock tips with extended family (already happens), family bans get pushed to friends, etc...
I really think the best and maybe only way to avoid this wealth building nonsense are much harsher term limits — public service should be severely limited to prevent people from being in decades long positions to abuse it. Term limits also prevent the incessant campaign fundraising to some extent, because say you're limited to 2 terms... there's not much point in personal fundraising on your last one
Could we just not prohibit lawmakers from investing in particular stocks, but rather to only invest in the market as a whole (e.g. via ETFs) and/or in government bonds?
> Could we just not prohibit lawmakers from investing in particular stocks
You're talking about HR 5106 [0] (aka the "Restore Trust in Congress Act"), currently being blocked by Republican House leadership, and actively facing a discharge position by the House rank and file (Republican included) to force a vote [1].
It's authored by a Republican congressman, and is a bipartisan flop, with only 100 total reps sponsoring. It's true that of those few who are sponsoring there are more Democrats, but overall most Democrats oppose which is also enough to block the bill, same as Republicans.
80 Democratic cosponsors out of 213 Democratic representatives.
The bill is sponsored by 37% of Democrats
22 Republican cosponsors out of 219 Republican representativs.
The bill is sponsored by 10% of Republicans.
I think you might be jumping to conclusions by calling it a bipartisan flop. Co-sponsorship is not the same as a vote, there may be people not on the sponsorship list who would vote for the bill.
The bill was introduced 3 months ago (43 days these last three months was a government shutdown) and not enough time has passed to determine whether the bill will be a "flop" or not.
It's not a flop without a vote. I can agree with that definition. It's then not a "blocked" bill without a vote either. Right?
I'm certainly not trying to seem like I'm jumping to any conclusions. But we should like to keep our definitions uniform throughout a given paragraph. Well, at least if we aspire to call ourselves rational.
Blocking it outright is probably more than what I want. I think if they can only invest in things like S&P500 funds that would suffice for me. Force them to invest more broadly in a way that it cannot interfere with the market.
Alternatively, instead of disclosing on a huge delay, have them disclose instantly. We have the mechanisms to do this nowadays.
Even "ETFs" are a big enough hole to drive a truck through in terms of performance, e.g., it's not hard to guess how an oil ETF will perform in response to certain geopolitical events.
We could also apply Presidential rules to all of them. The President has to essentially forgo all ability to manage his or her wealth during the time they are in office. Such shenanigans as they play must either be to benefit someone else, or a very long term play for when they are out of office. This is still what you might call "suboptimal" but it's an improvement, even just the "longterm" part. (We should be so lucky as for our politicians to be thinking about how to goose the longterm performance of our economy rather than how to make a couple million next week no matter what it does to everyone else.)
Instant disclosure would allow ETFs, which is probably the best option.
I think having a congressional required fund that the public could also invest in makes sense as well.
I’ve been thinking about an act to intentionally enrich members of Congress for reducing the deficit (e.g. a fraction of percent of savings certified by GAO goes to district and to member’s fund with a multi year cool off period, saving based on ratcheted down watermark).
The first allows constituents to reap the benefits of their member’s power, the second incentivizes members to be as financially motivated to not spend money as they are to spend money.
> I’ve been thinking about an act to intentionally enrich members of Congress for reducing the deficit (e.g. a fraction of percent of savings certified by GAO goes to district and to member’s fund with a multi year cool off period, saving based on ratcheted down watermark).
There needs to be more incentive to be wise with that money though. If a representative decides to “fall on their sword” and cut spending on local infrastructure projects, they enrich themselves while impoverishing their constituents. Other reps probably won’t jump in to save a district they don’t represent. I would worry that this would make politicians fleecing their neighbors even worse.
1. Only things that approximately match the contents of TSP funds or broader
2. Have to write down a 10b5-1 for the entire duration of your election plus one year, with a double cooloff period (6mo vs 3mo), and have to extend it within 3mo of each successful election.
Restricting public servants to only government bond investments would be a great way to discourage anyone with financial sense from running for congress.
I think the simplest way forward would be to require immediate, not delayed, disclosure of trades. If they’re doing something, let everyone see it immediately and it specific detail.
We could also implement some planned trading requirements for large purchases of individual stocks: If someone wants to trade more than $100K of something, make them announce it 7 or even 1 day in advance. They still get to buy it, but the market can front-run the investment if they believe there’s inside info at play.
It's not so challenging and it happens widely in industry: people are often heavily restricted in the range of trading they may conduct in cases where their business would give them insider knowledge, such as in certain parts of banks, accounting firms, credit rating agencies etc
> It's not so challenging and it happens widely in industry:
Restricting people only to government bond investments (the first line of my post, the point I was responding to) does not happen widely in industry.
Restricting people’s trades of a few stocks where they have insider knowledge does happen. I would be in favor of laws against congressional insider trading, too, but not laws forbidding all stock ownership or restricting them to government bonds as was proposed above. That’s just short sighted.
You're creating a straw man (perhaps accidentally) which makes your argument seem such stronger than it is against the actual proposals.
Neither the comment you replied to, nor the proposed law, suggest the limit should be solely government bonds, which is what you're arguing against in your comment, they both say government bonds OR publicly traded diverse stock funds, for example ETFs.
Maybe you still believe that's restrictive enough to be a problem, but considering many people, even the likes of Warren Buffet, consider the best investment advice to be either "just invest in ETF/funds that track the whole market" or "just invest in a mix of ETFs/funds and also some bonds", while nobody considers "just invest in government bonds" to be good advice, your argument would be a hell if a lot weaker if actually applied to what IS being proposed rather than pretending that the proposal only allows investing in government bonds.
Banning trading outright is impossible and won't happen.
Congressional staff and congresspeople (and their families + extended families) should be forced to trade via an exchange that publicly discloses immediately, and any person on public dime needs to disclose specifically WHY they made the trade or, there needs to be some sort of mechanism that forces said congressfolk to disclose their trades 48 hours prior to execution, and held for at least X amount of time. Any selling of security needs to be announced well ahead of time.
Ha! The supreme court (what a joke) has said that it's cool to give "gratuities" after the fact to judges or lawmakers who do what you want. It's not a bribe, it's just a gift or a tip!
Well, currently we have a ton of Congresspeople who are primarily motivated by their "good financial sense" (for obvious reasons e.g. this study). So, I think we could do with a few more Congresspeople with less financial sense and more genuine motivation to improve the lives of their constituents.
> discourage anyone with financial sense from running for congress.
What's wrong with that? "If you choose a life in government, you'll never be rich, but you may be powerful" seems like a perfectly acceptable situation.
Even the most disruptive proposals in these comments aren't banning representatives from being rich, it's just banning them from adding extreme amounts of additional wealth while in office.
It may be acceptable for them, but I'd prefer people who have financial sense in charge of the budget and people who are so power hungry as to forgo money kept as far from governance as possible
Only moreso than the counterfactual. The status quo only rewards those with financial sense who are willing to be a little corrupt, which undermines the effect. Really, we should just pay them 7 figures
And if you consider "I'm not as rich as I am physically capable of being" to be "punishment", you have absurd priorities and should not be in congress.
There's so much more to life and the world than the number on your portfolio for christs sake.
People have this mindset like they are the buddha or something, and then you show them a trick to save 25% on every amazon order, and they are all over like addict shown a pill stash. So dumb
> Restricting public servants to only government bond investments would be a great way to discourage anyone with financial sense from running for congress.
The flip side is it also discourages anyone primarily looking to profit off it, rather than being interested in actual governance.
People think that quality governance is all about the intelligence to know the best rules to decide for the greater benefit of society. Politicians behave badly because of incentive. Good rules would require correct incentive, not merely higher quality individuals. Intelligence doesn't dissuade corruption of power, if anything it accelerates it.
Unintended side effect might be that congress would use their power to make bonds a more profitable avenue of investment, creating a very reliable, high-interest retirement vehicle for average people (rather than getting into the roulette wheel of the stock market). Imagine if USG-backed 15% treasuries were a thing?
Where do you think the money for those 15% interest payments would come from?
There are historical examples of what happens when lawmakers mandate high amounts of money creation. It doesn’t end with the people being better off. It usually destroys the economy.
> would be a great way to discourage anyone with financial sense from running for congress.
So it's better to encourage people without any morals?
I think we need politicians who have the financial sense to see that the government is built to serve people whether or not they're invested in the market. As it is now now we've completely failed the American people.
Right now congresspeople are only paid about $200k. People who want that position are likely to be people who plan to profit off of it in other ways, at the expense of the nation. We should pay congresspeople more, as well as increasing trading and lobbying restrictions, to help attract honest, capable candidates.
Agreed. The whole idea that they are in it for the “service” is a really naive idea. If we want honest hardworking and qualified people to do the job the salaries should be in the 500k to 1.5m (senate) range. Then knock out the corruption.
According to this link [1] 200k would put someone above the 80th percentile and not far below the 95th percentile in terms of household income for the DC metro area, so I don't see how that could be considered "underpaid", especially when you consider the benefits.
The type of person who gets elected to Congress is likely to be far above average in charisma/intelligence/skill, and hence underpaid relative to what they could attain in the private sector
I mean, it sounds dumb, but returns from further wealth are logarithmic; after a certain point, the only thing you can buy more of is power. And you’ve already got that, in this case!
If you’re in a situation where getting more wealth could endanger your power, it makes sense not to wealth-max since, again, what else could you buy with it? But you need to get into the “what else could you buy with it” regime for this reasoning to make sense.
Someone who only has basic needs gets there pretty early. But even the relatively unenlightened don’t need the second jet except, yannow, for power.
i'd support that if and only if it required congresspeople to divest from individual stocks. with perhaps some compromise like...maybe they could hold "total market" index funds, or are only able to trade once a year, or etc
> Restricting public servants to only government bond investments would be a great way to discourage anyone with financial sense from running for congress.
Running for congress is already kind of a financially silly thing to do, that ship has sailed. Let’s pull the trigger on this and just see what happens.
>Running for congress is already kind
of a financially silly thing to do
Evidently it's not. There's another problem that it seems to me that it's mainly wealthy elite who get in. How many working class people are there in major leadership positions?
To what end? Most congressional actions that could conceivably lead to insider trading benefit aren’t directed at single companies anyway. They’re directed at sectors or policies which impact many companies, which is easily captured by ETFs.
If Congress is acting on singular companies, the congress people are usually smart enough to avoid obviously trading that singular stock.
> They’re directed at sectors or policies which impact many companies, which is easily captured by ETFs.
The abstract doesn't seem to agree. The use of "firms" and "corporate" implies individual companies.
"purchase of stocks whose firms receiving more government contracts and favorable party support on bills. The corporate access channel is reflected in stock trades that predict subsequent corporate news and greater returns on donor-owned or home-state firms."
That's why populist movements raise its head from time to time. It's the human's self-cleansing mechanism -- very damaging, and usually burn much more than necessary, but whatever.
More importantly, why would you want to restrict public servants only to low interest rate government bonds? That would select out most people with decent financial sense from taking the job.
The point is to level the playing field, not to become so restrictive and punishing that the job only appeals to politicians who are so self-sacrificing that they don’t exist as much as people want. Stocks also aren’t the only place where politicians could leverage their positions for personal financial gain.
Because this topic makes people mad and makes politicians who oppose it look bad, which hurts electability. Not to mention it seems like non-elite politicians wouldn’t be affected, so for them this is an easy publicity boost.
I'm not particularly concerned about unfair gains made possible by insider knowledge. The economy is large enough, and the set of lawmakers (not to mention leadership-level lawmakers!) small enough, that that the overall effect on anything is going to be negligible.
My concern would be that the "skill" we're seeing isn't with using insider information, but with using their power to alter outcomes to make whatever investments they'd previously chosen become profitable post hoc. If they're causing our regulatory landscape to be change to pad their wallets, that's going to have a much greater effect on our overall system than just being able to make a trade a day earlier than the rest of us.
> I'm not particularly concerned about unfair gains made possible by insider knowledge.
I am. I work at a company that trades publicly. My wife works at a firm. I can’t do anything with my stocks outside of three weeks a quarter. I can never buy options. My wife has to clear her positions with whatever department. If I have these obstacles, congress should absolutely have them — maybe more. Ideally they can trade index funds and that’s about it.
> If I have these obstacles, congress should absolutely have them
This jealousy is a minor issue, though. There's no reason for you to believe Congresspeople should have exactly the same limitations and opportunities that you have. This is in fact a discussion that involves limiting them from doing things that you would retain the right to do.
It’s not jealousy, it’s equality. If insider trading is illegal, then it should be illegal for everyone and Congress should be no exception. They have even more opportunities and insider knowledge, about many more companies than I do. It absolutely affects how they govern, they tend to be more corrupt because they don’t have to abide by the same regulations that a civilian does.
Yeah, your equality really is just jealousy. It's your feeling that the situation is unfair. But there's no principle of nature that says that things must be fair.
For me, if I can improve the lot of everyone by at least X%, but doing so means that some few people will actually get a benefit of 2X%, that's a darn good deal. Withholding the potential X% from those poor people just because it's not fair seems rather cruel. We may have the luxury of wanting things to be fair, but there are some people for whom those X% will make all the difference.
> Yeah, your equality really is just jealousy. It's your feeling that the situation is unfair. But there's no principle of nature that says that things must be fair.
By that logic why have equality for anything? Why even have civil rights if you can just be like “that’s just the way it is, why should you be able to vote? I’ll vote for the best of all our interests”. It doesn’t work that way.
> For me, if I can improve the lot of everyone by at least X%, but doing so means that some few people will actually get a benefit of 2X%, that's a darn good deal.
In an altruistic society, maybe. But economic theory is based on the idea that everyone will try to do what’s best for them and not for the masses. Congress sets the laws - so they are more interested in benefiting themselves than anyone else. Therefore we need a forcing function, and one way would be to clamp down on insider trading.
But we should be concerned shouldn't we? These people are exempt from laws, they and their presecessors made, for which they will happily condemn the common person and profit again when you pay for your crime.
These people are exempt from laws, they and their presecessors made
Well, that's the problem, right there. We shouldn't be thinking about making new laws that they also won't subject themselves to. We should be thinking about shoring up the rule of law, and ensuring that they are always held accountable.
Unfortunately, today's partisan politics prevents that from happening. The partisans - on BOTH sides - behave as if it's more important that their own side appear faultless and all guilt falls on their opponent. So partisans ensure that those on their own side will get a free pass.
> that that the overall effect on anything is going to be negligible.
It's not the effect on the market you should be worried about. It's the effect on democracy. If you have a culture of people comfortable with doing very well thank you off the back of the broad knowledge they have access to that is not-quite-non-public-but-buried-in-the-minutes, then you are tolerating the first tier of the rot.
The second tier of the rot is insider trading.
The third tier is the insider trading that is happening when nobody cares, like in the current regime.
The third tier of the rot is the grift. You can see the grift happening now.
You have to go broken-windows-policy on this or you have nothing.
Yes, that is one solution, but history has shown it is very hard to effectively police it, as there are a million ways to get around it.
The SEC enforcement of Insider Trading laws is also simultaneously both ineffective and created high-profile wrong cases which get people with influence to further weaken it.
Seems to me the best solution to all of the above is to simply require ALL trades to be open and transparent with the ultimate beneficial owner and the trade available in real-time. Pharma scientists & execs start buying/selling their stock unusually? Easy to setup trackers so we know it in the same second and can also take advantage of their knowledge that their new drug trial succeeded/failed, and it will eliminate much of the insider-trading edge. A congressperson buys/sells a bundle of shares of a company in his state? Again, we see they're likely getting/losing contracts soon, and again, much of the margin disappears.
Traders would rapidly setup hedge funds and ETFs to ensure this happens in milliseconds, and much of the advantage and problems of insider trading being unfair disappear, along with a lot of enforcement cost.
Personally, I think there's a fundamental flaw in insider training law in the same category as the fundamental flaw in copyright and patents.
You are trying to stop people from using knowledge for gain... In a system that is fundamentally designed to reward using knowledge for gain. Fully enforcing insider trading law requires slicing of categories and resolution of ambiguity that creates the same problems it does in the other knowledge market law: decisions that feel unfair even if the letter says they aren't, people getting away with things that feel wrong on a technicality, and the whole category Congress people fall into where it's impossible to do their job and not obtain enough market knowledge to be leverageable.
I don't have enough historical knowledge to know if this was always a problem and we just weren't sensitive to it or if past generations were more modest or magnanimous and either didn't take advantage of what they knew or took advantage of it and spread the wealth around, but I think we might be trying to fundamentally solve the wrong problem.
It is entirely possible that the problem is the asymmetry is the market creates themselves. There may simply be no better, more efficient solution than taxing the hell out of the rich, no matter how they got there.
I agree that blind trusts don't fix everything, but it is a start.
The situation right now isn't just corrupting, congress-critters are labeled as idiots by their own if they don't actively take advantage of "perks" like free stock tips that would be illegal in any other context.
The "everyone does it" excuse is what keeps this house of cards up. And it is not partisan, both D's and R's inevitably become rich if they stay in the house for more than a couple of terms.
That's why I don't think they should be able to trade stocks at all. Why are they under less scrutiny than low rung engineering employees at one of the big 4?
Someone really needs to do a meta-analysis of these results because a paper from a few years ago showed that members of congress underperform at stock picking:
Both papers could be true if congresspeople are worse than the public at picking stocks, but congressional leaders are just better than the average congressperson
It would also be interesting to compare overall stock-picking "ability“ across party lines.
Real-estate investing is another corruption vector. One way to bribe a politician is to sell them a house at a million dollar discount. The optics become that the politician is a “savvy real-estate investor".
I didn’t get a chance to read the entire NBER paper, but an important nuance is that it takes an industry-normalized perspective.
It could be possible that someone in Congress has insider information about a specific industry that helps them, but not about a specific stock. For example, if I knew about specific legislation that would impact auto manufacturers I may have a better idea to get in or out of that sector without necessarily knowing if Ford will do better than GM.
To your point about meta-analysis it would also be useful to know if members are worse than normies at picking industries as well.
Essentially, what information are they privy to that public is not? What asymmetry exists (timing, un-public information)? Is there any way for the public to be nearly as informed? What are they trading on? Upcoming funding changes (more money here -> buy, less money there --> sell)? COVID impact stands out.
Most "big" projects (huge chip foundries, etc.) require various forms of government approval (if not outright funding). They get asymmetry from knowing:
1. Sometimes that the project is happening before everyone else
2. If the project will or will not be approved or stopped e.g. in committee
3. Various other classified things like Dept of Defense briefings (if the Army says it needs XYZ component and plans to buy 10 billion worth of them, then buy the company that makes XYZ component).
It isn't necessarily that they have information the public doesn't (although it could be that, they would know about policy changes before the general public does). It could also be that they use their leadership position to push forward policies that benefit stocks that they own.
This could even happen for non-selfish reasons. If you genuinely believe that, e.g, "The future of America is BigTech," you'll both favor tech stocks in your portfolio and be more sympathetic to their lobbyists and favored bills.
There are 3 things always overlooked in this conversation.
- It’s not just representatives but their staff, family and friends. See the Covid scandals as an example.
- Often the information they’re privy to can come from their networks outside of government. The current transparency laws give us insights into their family members’ investments which is incredibly beneficial public knowledge.
- The current laws have no teeth and are not enforced well. Immediate disclosure should be required & automated for elected representatives, judges, family & staff within 24 hours. Late reporting should be immediate sale and loss of any profits.
If you compared Pelosi to other investors in San Francisco, you wouldn’t see much of a difference. Anyone who has gone heavy into tech in the last couple of decades has outperformed the market at considerable risk of going broke if there was a tech bust. Compare Facebook or Google to an index fund, especially before index funds decides to go heavy into FAANGs.
People who make/have more money also have more appetite for risk and also in general make more returns. Even without insider trading, being able to take a lopsided position on tech with the expectation that if it loses you still have a comfortable life, that is how the rich become richer.
That doesn't explain why persons in leadership positions outperform other members of congress. Presumably they all talk to each other and could share trading strategies. There's no reason not to unless your strategy involves inside information that might get you in trouble if spread around.
It actually does, if you believe that the people in leadership positions have been earning money for longer and have more experience in investing. You could also easily argue that they are more successful in general than congress people of similar tenure who aren't in leadership positions.
You are basically comparing the CEO to middle layer management, and then what do you expect? You need to do a more balanced comparison than that to show an actual discrepancy. Or maybe get congress to dole leadership positions out at random and then compare?
I’m not defending congressional trading, but there are potentially other confounding variables (emphasis on potential). Leaders may tend to be older, have more appetite for risk, or leadership may correlate with wealth/status because “the connected” can also raise more money etc etc. Unless those types of variables are controlled for, it should temper how strongly we draw conclusions.
That would be good. I only said that his "lawmakers who later ascend to leadership positions perform similarly to matched peers beforehand but outperform them by 47 percentage points annually after ascension." is way too long. I guess other people disagreed because I got some downvotes.
What's the rule on titles now? I thought HN had a strict 'no editorializing headlines' policy, but I see the article has a different headline than what was posted here
