This is actually a post from 2009. But I thought it worth sharing again.
Go to Policy, portfolios and the investor lawmaker: As stock ownership rises in Congress, experts warn of potential ethics concerns from the Washington Post this past week.
Most
members of the House of Representatives own stock. The article says
"The investments increasingly put lawmakers in the position of voting or advocating on matters that could affect their personal wealth, whether the lawmakers realize it or not."
Politicians
who rarely agree on anything might be found to be voting for the same
bill if it matters to their pocket book. They are supposed to report
what they own but the drag their feet and the records are not very well
computerized, so they are harder to analyze. And they are good at this
investing stuff. From 1985-2001, the legislators beat the market by .55
basis points a month. In a year that means 6.6 percentage points above
the market.
In that time, the market (DJIA) gained just a bit
under 1% a month (from 12-31-85 to 12-31-2001). It went from 1,546 to
10,021. So, if you had $1,546 in the market it became worth $10,021.
But, if you were a member of Congress, it rose about 1.5% a month and
you would have ended up with $26,970. Each dollar in the market grew
into $6.48 while for the lawmakers it grew into $17.44.
"The
researchers, whose findings were presented at a congressional hearing in
July, said the statistics suggest that those unusual returns must be
based on lawmakers' access to "government and important social
contacts.""
But legislators acting on their self interest is not new. Charles Beard wrote about this in his book An Economic Interpretation of the Constitution of the United States. He argued that self-interest was a big force in how the framers wrote the constitution.
In the 1950s, Forrest McDonald We the People : The Economic Origins of the Constitution, in attempt to refute Beard. But more recently, economic historian Robert A. McGuire wrote a book called To Form a More Perfect Union: A New Economic Interpretation of the United States Constitution. He used modern statistical analysis to show that the Beard thesis may be legitimate.
My
students might recall something like this that I talk about on the
first day of the semester. Congressmen in the early 1790s voted on the
"Funding and Assumption Act" based on how much money they would receive
if that bill passed. The bill paid back all of the debts from the
Revolutionary War at full value (they were not getting paid back before
the Constitution was passed because under the Articles of Confederation
all states had to agree to a tax increase-this did not happen much so
taxes were never raised to pay back the money the government borrowed to
finance the war). But under the Constitution if both the House and the
Senate passed a tax increase and the president signed it, it became law.
The
debts were securities or bonds. Some congressman owned them. I found
how much about half the congressmen owned in these bonds from McDonald's
book. The ones who voted yes on the bill had an average of about $6,000
while the ones who voted no had about $700. So it is possible that
money influenced the vote.
Here is a passage from John Spencer Bassett's book about the "Funding and Assumption Act" The Federalist System, 1789-1801:
"All the speculating class, in Congress and out of it, were zealously in favor of the scheme; and while it was till being debated they were trying to by all the means known to their class to buy up, even in the remote parts of the country, the old bonds at the depreciated values."
Here are they guys who voted yes and their dollar value of their bond holdings:
AMES 35
BASSETT 0
BURKE 5252
BUTLER 0
CLYMER 14000
DALTON 12
DCARROLL 227
ELLSWORTH 5985
FITZSIMMONS 2668
GALE 4252
GERRY 50000
GROUT 0
IZARD 20865
JOHNSON 0
KING 10000
LANGDON 27921
MORRIS 11000
PARTRIDGE 2195
PATERSON 0
READ 341
SEDGWICK 1680
SHERMAN 7729
STRONG 10903
STURGES 189
SUMTER 0
WADSWORTH 1625
WHITE 1619
WLSMITH 11910
Now the no votes
BALDWIN 2500
COLES 0
FEW 640
GILMAN 1025
GRIFFIN 0
HARTLEY 0
LIVERMORE 0
MADISON 0
MATHEWS 0
MJSTONE 3814
MOORE 0
MUHLENBERG 0
SCOTT 127
WILLIAMSON 2600
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