Money, and How Congress Perceives It

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Washington is filling the newswires with stories of how Congress plans to send money to people as a way to perk up the economy. Whether we're in a recession or not, what does this tell us about a very large number of our elected representatives? It would seem that the folks sent to perch on Capitol Hill and legislate for us find it easy to spend money. While this may not be a surprise to many, few in Congress are trying to put the emphasis on Americans earning money through permanent passage of marginal tax-rate reductions of one kind or another.

Instead, there is talk of sending $800 checks to every taxpayer ($1,600 for couples); the only requirement being that the lucky recipients not earn too much money themselves. All it proves is that sending out checks to millions of people adds up to a lot of money. Why would Congress want to do that, particularly when its members would rarely think of sending a personal check to someone they don't know? The answer comes in two parts.

The first is that the federal government does not itself earn any money; it can only spend. Even though there are similarities to a “wind farm”, swinging arms in the sky and lots of hot air in circulation, this bicameral body generates no energy, nothing productive, by design. Those of us in the working world send a portion of the wealth we create to them. The idea behind the wealth transfer is to have the national government do things the people or the states can’t or shouldn’t do themselves, such as raising and maintaining the armed forces or supporting a judiciary. This process, of course, makes money easier for the government to obtain than it is for individuals and enterprises seeking capital.

The second part has to be that votes are the currency of politics, not the dollars the rest of us receive as compensation. Though political campaigns are nominally expensive, once a candidate is victorious, he or she has access to the resources collected by the Washington apparatus. This is the exact opposite of the way working people perceive their world; one that measures relative values in dollars: the best baseball players command the biggest paychecks for example.

These two add up to the realization that our elected representatives do not place as much importance on money and its value as we, the regular citizens, do. This has profound implications for the country and is nothing new, by the way. We should use this difference in incentives to understand the political-economic situation described above, as well as fiscal and monetary policy in general. The idea was well understood by the Americans who crafted the Constitution; a document that very much limited the reach of government. A market of free people could solve most “economic” problems on its own, especially with the strong protection of private property designed to give the people a real stake in market outcomes. Lest we forget, that was a radical concept in 1789.

For perspective, contrast the average guy’s income based upon skills in his field to that of a candidate who might have spent a million dollars to win a single vote, and with it the election (there have been oddball political situations like this, believe it or not). The politician would be seen as wasteful in the extreme by the private sector, quite smart in the public. Nevertheless, once in office, the successful candidate has access to all the funds, taxing power and patronage it controls. In this context, there is the obvious danger that congressmen, like other elected officials, may see money and its value as less important than votes. Since we are paid in dollars, this is often hard to understand outside of government, even though it explains a lot of strange Washington decisions made by people paid in votes.

In the end, it is up to the public to tell Congress it wants stable money and sound finances; not more empty promises on the subject based upon the way many on the Hill see money and taxes. They are often on the opposite side of the equation as spenders and consumers of tax revenue, while we are the ones producing their revenue. Think of the relationship as a mirror, with government reflecting society. Its revenue is our expense, and its surplus is our deficit. Remembering that as Congress discusses “short-term stimulus plans” might help us to advise our representatives more effectively.

Henry Meers worked in money management at Merrill Lynch for twenty years. He can be reached at
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