“There are idiots, look around” (Three ways Congress screws with our economy)

This quote attributed to former Treasury Secretary, Larry Summers, pertained to those who believe that markets are totally efficient and, therefore, do not need to be regulated. While this was written in an unpublished paper, the quote could be used to very accurately describe the current state of our Congress. Though Mr. Summers contributed to the 2007-2009 financial debacle with the Treasury Department’s stance toward regulation (or lack thereof), he partially redeemed himself with this honest comment. Easily his statement could be used to describe the damage Congress has inflicted on the potential growth rate of our economy.

There is good reason why the majority of Americans rate Congress “somewhere below cockroaches, traffic jams, and Nickelback …” according to Public Policy Polling. Any time an organization has an approval rating of 9%, the level of dysfunction has to be off the charts. These words perfectly describe our current predicament. Not only does this have devastating effects on international, health, education and environmental policy; the impact on our economy and markets cannot be overstated.These three ways Congress screws with the economy have severely hindered our nation’s economic growth and encourage bad investor behavior:

1. Making dangerous, ill-informed or stupid comments to confuse and panic markets and individuals. Ignorant inflammatory statements about the economy have become a staple of our current Congress. These statements cause markets to move violently and investors to make ill-advised decisions that have lethal long-term effects. Case in point: the past few years the United States Congress decided to play with fire on more than one occasion by threatening to default on our National Debt. Doing their best to undo the work of our first Secretary of the Treasury, Alexander Hamilton (who knew it was paramount to meet all of our financial obligations in order to be considered a Super Power), some members of the House had other ideas. They actually remarked in public, that default would put an end to our current policy of overspending. It would teach us to be “fiscally responsible.” Rep. Louie Gohmert actually noted that an added benefit of default was that: “this would be an impeachable offense by the president”. President Obama could be blamed for this fiasco which would be well worth the financial apocalypse it would spawn, according to this twisted logic. Needless to say, the financial markets did not respond well to a calamitous potential debt default, and potential impeachment hearings. Markets gyrated violently. The S&P 500 lost 11% in less than two weeks. Economic activity temporarily froze up with all this irresponsible talk. Luckily cooler heads prevailed and a deal was brokered, but not before the collateral damage was done: Investors were scared out of the market and businesses ceased to expand.

Not to be outdone, other members of Congress have decided to scare people over the future of their sacred social security checks. The shrill cries of “Social Security is a Ponzi scheme” can be heard loud and clear in the hallowed halls. To put things into proper context, a Ponzi scheme is a corrupt plot where an investor loses all of his money due to the actions of a financial charlatan. Comparing social security to something created by Bernie Madoff is beyond irresponsible. The Social Security Trust fund will run out of reserves in 2033. Despite the ominous tone, this means 77% of all benefits will be paid even if nothing is done in the next several years. This would be highly unlikely and could be easily rectified as similar crises have been in the past with bipartisan compromise. In 1983 President Reagan and House Speaker Tip O’Neil did just that to end this entire ridiculous destabilizing rancor. It would simply involve a slight bump up in the Social Security tax; means-testing; a later retirement age; or a different way of calculating the price increases that are adjusted each year. Some combination of these options would prevent any doomsday scenario. Many individuals have listened to this nonsense and have decided to take their benefits at age 62 instead of waiting for their full retirement age to file. While this is not the only reason, almost 40% of eligible participants claim Social Security at age 62, thereby lowering their monthly disbursements by 32%! They assume if the system is going to run out of money it would be best to claim ASAP! These wild accusations by some in Congress have literally cost some Americans thousands of dollars of much needed retirement income by claiming too early due to misinformation. Relying on Congress to make financial decisions is a loser’s bet. Their hidden agendas, or just plain ignorance of economics, can be very dangerous to financial decision-making. As if to underscore the ineptitude and lack of historical acumen rampant in government, Joe Biden remarked, “When the stock market crashed, FDR got on television and didn’t just talk about the, you know, the princes of greed. He said,’ Look, here’s what happened…’” Oh boy!

2. Passing laws that encourage the misallocation of capital. Our current tax code is an astounding 73,954 pages! Think of the money spent by business and individuals on accountants and lawyers just to figure out this mess. Instead of going towards research, hiring, and worker training, the funds are misallocated to a small group of people whose job it is to decipher this unnecessary puzzle created by our elected officials. Tens of thousands of so called “carve outs” have been created due to the fact lobbyists have usurped congressional power. Many feel it would be much more honest for Congress to behave more like NASCAR and publicize the names of their benefactors on their freshly starched suits. Many groups have undue influence, which leads to various economic distortions and misuse of limited resources. Is it necessary to be able to deduct up to a million dollars for a home mortgage?? Why is this excess subsidized by the Federal Government? Not only is this unfair that less well-to-do citizens pay tax to pay for this perk, but it also encourages unwise speculation in in real estate (case in point: think about the sure bet on Florida condos a few years back). Most low-income individuals do not itemize their taxes, thereby making this a subsidy to the more “well-off” amongst us and the real estate industry as a whole. Taxes can greatly influence investing decisions. Money that could be earmarked for more beneficial projects is misdirected into projects to build more shopping malls. Both parties are equally guilty of encouraging unwise speculation by providing tax perks by their corporate masters.

Student Loans are another area where actions of Congress have caused unnecessary economic dislocations. Student loan debt has recently hit one trillion dollars. This extreme level of debt has severely hindered young people from starting families and businesses. It has contributed to the recent subpar economic recovery the past few years, which has affected our entire nation. While helping students pay for college is a noble and necessary job of government, the current system is puzzling. There are no credit checks for student loans or any type of assessment for the student’s ability to repay the debt based on future employment. It seems totally illogical to loan a sociology major and a chemical engineer the same amount of money, due their vastly divergent future earning potentials. Colleges have been given almost unlimited funds and the ability to raise tuition by double the inflation rate over the past decade through guaranteed federal student loan programs. They are not accountable for a student’s ability to find gainful employment after graduation. In a way, they are like many bank traders from a few years back. Heads they win, tails you lose. Privatized profits and socialized losses are not ingredients for sound economic policy. Mainly due to Federal funds, many university presidents earn million dollar incomes while too many recent graduates work at Starbucks. These institutions should be subject to claw backs, not unlike the policies of many financial institutions that will rescind a trader’s bonus if he later proves to be unprofitable. On top of this lunacy, student debt is not dischargeable in bankruptcy court. Unlike deliberate liars who borrowed money to speculate in real estate, a student’s debt cannot be wiped clean with a stroke of a pen. Billions of dollars are squandered unnecessarily due to laws that have been passed by Congress due to economic ignorance, partisan behavior, or campaign contributions that influence policy making. This is not a winning formula to steer the U.S. economy on a path toward its maximum growth potential.

3. Failing to think long term.Perhaps the most economically damaging activity Congress bestows on this nation is making decisions designed to maximize voter approval (i.e., the “never ending campaign”), rather than provide for the future general welfare of the citizens. This is not too much different than corporate managers who focus on quarterly earnings, or mutual fund managers who “window dress” their portfolios. Congress sacrifices sustainable long-term policy for short-term rewards. It is as plain as the nose on your face to see that our nation’s infrastructure is in shambles. Roads, bridges, and tunnels are literally falling apart and killing our citizens. Trillions of dollars of economic production and possible future investment are being squandered due to the inefficiencies caused by outdated modes of transportation symbolized by crumbling roads. The gasoline tax was designed to pay for most of these needs. It is effectively a user tax in which the biggest consumers of gas would pay the most since they would derive the most benefit from the structures maintained and built. The problem is the gas tax has not been raised since 1993. Not even an inflation adjustment has been implemented. This means consumers are paying much less in real terms of this tax than they did almost two decades ago! This is despite the fact our country’s economy has greatly increased over the same period. You would think this problem could be rationally explained to the American people. They would maybe understand paying a few cents more for each gallon could have an enormous effect on the long- term sustainability of our economy. Not so, rather than take the risk of being labeled a “tax raiser”, congressional members of both parties have abdicated their responsibilities and instead funded a series of temporary measures to delay this trust from running out of funds. I have not even touched upon our inferior airports and broadband networks. Our nation deserves better.

In summary, it is amazing our country has the ability to innovate and grow despite the best efforts of Congress. I am an optimist at heart and believe it does not have to be this way. Simply put, the possibilities of American economic growth would be limitless with a Congress focused on being responsible, creating policy allocating capital where it is most needed and thinking long term. This would certainly make the search for idiots that much more difficult.