Thursday, April 16, 2015

Pay More And Get (Much) More

The latest Congressional lawmakers caught in ethical and financial wrongdoing are Democratic Senator Bob Menendez and Republican (now ex) Rep. Aaron Schock. And sure, I feel anger and disgust. Only most of it is directed at the simpleminded public and an imbecilic media influencing it to keep our elected leaders ill paid and vulnerable to petty temptations.

Americans by and large accept our capitalist system where CEOs and other top officers of large companies are paid millions or tens of millions of dollars in salary. In the same way our annual federal budget of over $3.5 trillion is collectively controlled by a 100 Senators and 435 Representatives, or over $6 billion apiece. That's above the revenue threshold of $5 billion for a Fortune 500 company. Yet they're paid only $174,000 each with no raises since 2009.

This does not even count the millions of dollars they have to raise to fight elections - every 2 years for Representatives and 6 years for Senators. Unless they are very wealthy and prepared to use their own money they have to fund their campaigns by turning to deep pocketed donors who rarely give anything for free. And once lawmakers of modest means are taking help in cash or kind for their campaigns it's a small extra step accepting this for personal gain or pleasure.

Sen. Menendez' lengthy list of alleged transgressions sound relatively minor to me. He has a rich ophthalmologist friend of 20 years named Dr. Salomon Melgen who contributed over the years a total of $750,000 to various campaign funds helping Mr. Menendez. The Senator also used perks like private jet travel, hotel and villa stays paid for by Dr. Melgen. Mr. Menendez for his part pushed for favorable treatment of Dr. Melgen's cases involving billing disputes with CMS (Medicare), grant of visas to foreign girlfriends of Dr. Melgen on three occasions, and trying to further Dr. Melgen's financial interests by dissuading donations of monitoring equipment to ports by the Customs and Border Patrol.

Political leaders and officials frequently try to help or further the interests of their constituents, friends and relatives. My colleagues and I regularly fielded such calls when I was in the Indian government. Some matters were purely discretionary, i.e., the decision could have gone either way on merits. It is for the concerned agencies to decide whether to accommodate such requests or refuse because they clearly violate some rules or principles. Grant of a U.S. visa for example (as I know from the experiences of hundreds of Indians) often hinges on the whims of the consular officer who happens to be interviewing the applicant. So a Senator weighing in on behalf of a close friend's girlfriend(s) isn't a big deal.

Rep. Schock's excesses are more trivial still, though his donors claim they were swindled by his "campaign full of corruption and lies about his integrity." He splurged taxpayer or campaign funds on doing up his office like in Downton Abbey, some duty free shopping, a couple of non-official trips by private jet, and taking his staff / interns for a New York trip and a Katy Perry concert. The cumulative excess tab was well under $200,000, and there was no "bribe multiplier." By that I mean that taxpayer or donor loss is no higher than Mr. Schock's benefit, unlike in bribes where the loss to government (or briber's gain) is far higher than the payoff to the public official. (That's the whole point of paying a bribe - getting back much more than your "investment.")

These lapses by the two lawmakers are microscopic as compared to failure of all in Congress on the truly big issues. Take healthcare expenses, which nationally run to $3 trillion annually with almost half in public funds. This is about $9,000 per capita, over twice as much as in peer developed countries, and yet Americans on average get less care and suffer worse outcomes.  We can bring down our prices to West Europe levels without compromising quality through straightforward steps I outlined back in March 2011. We don't because lawmakers instead heed and protect the health insurer, provider and affiliated lobbies. This costs us $1.5 trillion extra, or a sellout of nearly $3 billion annually per Congress member. Another example: low tax rates for hedge fund managers (who overall don't produce anything useful, and typically through their seldom detected shenanigans like insider trading, hurt ordinary investors.)

I see three takeaways. First, let us mainly judge our lawmakers and leaders on how they promote and protect our national interests on which we spend billions and trillions of dollars, and cut them some slack on travel and office expenses. Second, let us be enlightened enough to pay them salaries and allowances commensurate with their responsibilities that have at least partial parity with those in the private sector. This will make them less vulnerable to petty corruption and not so easily bought out for small favors. (That's why you rarely see CEOs of S&P 500 companies engage in petty corruption, not because of their superior morality.) And third, let us have true campaign finance reform and publicly funded elections so that our lawmakers need to depend less on special interests.

About the last it is heartening that Hillary Clinton after announcing her 2016 Presidential bid spelled out campaign finance reform as one of the four main tenets of her campaign. It will be great if President Obama (who as outgoing President will be seen as having no axe to grind) strongly pitches for much higher salaries for Congress members, federal and state heads, as they're all underpaid. Even Republican lawmakers and Governors who oppose Mr. Obama will appreciate this as their espousing this themselves is seen and derided in the shallow media as being self-serving. And I'd certainly like to see the new President champion this, perhaps as an adjunct to campaign finance reform.

So how much is a fair salary? I'd point to "clean" Singapore's example where top officials and administrators are paid in the seven figures, and their prime minister is the highest paid worldwide. Illustratively, a large and rich country like U.S.A. can pay its President $5 million annually, Congress members $2 million, about the same for state governors, adjusted for state size, and significant raises for most states' legislators. They should also be paid very decent pensions, while being barred from holding future "influence" jobs such as of lobbyists where they interact with former colleagues and staffers. All this may cost an extra $4 billion or so annually but think of how it will improve the stewardship of our $4 trillion federal budget, and similarly of state funds.

Myopic thinking fanned by an asinine media that is behind the poor pay of our public leaders is not just a problem in U.S.A.  Back in an Aug. 2007 post I had reacted to chain emails sent by otherwise educated and intelligent friends about how overpaid Indian Members of Parliament are swallowing up our national resources. Then in May 2009 I wrote on the misplaced outrage at some pathetically small expenses by British Members of Parliament.

So no, we're not alone in our thinking. But I just hope Americans can like Singapore be more progressive and enlightened in paying our public representatives better, and reaping the rewards in the form of much better and cleaner governance.