ResultsUSA: Spreading Influence in Congress

Background

Recent polls show that Congress is regarded more dismally than ever before in the history of such polling. Citizens of the United States seem to feel that either Congress isn't paying attention to their needs, or that the two parties in Congress are so polarized that no one can have any meaningful affect.

Lawrence Lessig, in his recent TED talk, We the People, and the Republic we must reclaim, argues that the corrupting influence of money given by a small segment of the population is blocking anything else from being done. Before any other reform can be effected, campaign finance reform must first be addressed.

While many people have been looking at systems we can create to ensure fairer elections, herein I present an idea to implement within the current system, by which I mean that this idea should be implementable within current laws and regulations, whether or not legislators, political parties or lobbyists approve of the idea. Being able to implement ideas within the current system is valuable because, as legislators are human beings, it is reasonable to expect that they would never choose to relinquish power voluntarily.

Legislators spend between 30% and 70% of their work time fundraising for the next election cycle. Without this activity, they can't expect to hold their jobs as legislators. Such fundraising is primarily reaching out to donors to secure large donations.

This idea is a work on progress. Any improvements in either the content or the presentation are welcome and I hope that many people can contribute to realizing this idea.

The Big Idea

Changing the behavior of legislators can be done by giving them a different set of incentives. As citizens, we should not be paying for promises; we should be paying for results. Legislators need money to maintain their positions; we should provide it to them as best we can. We need a means of encouraging legislators to legislate. The idea is to provide a mechanism for such encourage on a result-by-result basis, instead of aggregating such encouragement against promises of future activity once in office.

An example: assume that 90% of Americans support universal background checks for purchases of firearms. What if each citizen had the opportunity to monetize that support for that particular result and distributed that money to the legislators that made that result happen? In a simplified scenario, one million citizens each pledge $10. 400 of the 535 legislators cast votes on the legislation to make this happen, so each of the 400 gets a contribution of 25,000 dollars for this result. If a legislator needs to raise $250,000/year for their party to get party support, that result gets then 1/10 of their fundraising goal, or about 5.2 weeks of fundraising time that can be devoted instead to legislating.

This operation would provide citizens with a range of results to which they could contribute. Examples could include:

• Universal Background checks for the purchase of firearms.
• Confirming a director for the EPA
• Passing a budget for FY 2013-2014
• Removing a particular loophole from the tax code
• Naming the new bridge that connects St. Louis to Illinois

It is important that each result be clear and measurable.

Implementation

FEC

How would it be legal to get this money to candidates? According to the FEC, there are contribution limits from one entity to another according to this chart. Thus, there are different ways that different sources might try to fund elections, as shown by the New York Times.

One intriguing detail is that there is no limit between national political parties. Thus, this operation could be organized as a political party with the following attributes:

1. Limits in contributions to the party would apply according to the FEC. In 2013-2014, the party could collect total pledges from one individual in the amount of $32,400.
2. Contributions could be distributed to candidates either according to the candidate's wishes, or using a default priority: 
• The Primary authorized campaign committee of a candidate ($5,000 House or $45,400 Senate)   
• The Leadership PAC established by a candidate (next $5,000)
• The political party associated with the candidate (any remaining contributions)

The proposed name of the party is ResultsUSA.

Technology

The big differences between this kind of operation and something like the DSCC or the NRSC are as follows:

1. Instead of collection donations, this operation would collect pledges.
2. This operation must provide support for citizens to associate pledges with results of their choosing.
3. Pledges would be collected and distributed upon getting specific results.

Arguments For

Citizen Alignment to Issues

This idea allows citizens to provide feedback to legislators on distinct issues. It also provides a way for citizens to reward a legislator who they might disagree with on some issues for working on those issues where there is agreement.  

Works within Current Laws

This idea does not require lobbying legislators to change the rules governing how they have to spend their time to keep their jobs. Thus, other reform efforts can continue in parallel.

Transparent Relationship between Legislation and Funding

With this idea, the relationship between a legislator's actions and the source of his funding can be clear and public. Because the funding is only provided for results, legislators need not make promises that may be broken later with relatively little consequence to the legislator, which should diminish citizen frustration with legislators.

Arguments Against

Supporting Incumbency

Because this idea only provides incentives for incumbent legislators, and not other potential candidates for office, it gives incumbents an advantage. However, I feel that the knowledge gained by a working legislator to provide results has value in making our democracy work and, as long as a legislator is doing the work, then they deserve the reward. This makes the job of legislating more similar to other types of work where people are paid for results. It also doesn't require a legislator to adopt a particular position if they feel the position is not aligned with their own moral, ethical or legal compass. It only provides a measurable incentive that can reflect a broader base of citizens than are currently being listened to in the fundraising phase of elections.

Financial Crisis 2000s: Reason Number 2

In a previous post on this blog, the first reason for the financial crisis was discussed: housing prices don't always go up, and lots of people bought houses assuming that they could re-finance their mortgages when housing prices go up.

Financial service companies, such as Goldman-Sachs, created a new way to earn money from mortgages. They figured out how to buy a bunch of mortgages and then create new bonds whose interest and principal were paid by those mortgages. Each new bond was rated based on the likelihood that interest and principal payments could be collected from the mortgages backing that bond. If only a few mortgages backing a particular bond defaulted, then the bond could still be paid (though the financial service company that created the bond might make less money). Once each new bond was created, it could then be divided into shares and sold to multiple buyers, just like other types of bonds.

One of the complexities of these new bonds which were backed by a group of mortgages was that each mortgage could be allocated to several of the new bonds, spreading the risk of any particular mortgage defaulting among several bonds. However, this splitting makes it very hard to figure out who owns each mortgage. Suppose, for example, 10% of a mortgage allocated to each of 10 new bonds and those 10 new bonds each are split into 100 shares. If that mortgage defaults, there are 1000 owners of the 10 new bonds which are affected by that one default.

The company that created each new bond could buy an insurance policy for each bond in case to many of its underlying mortgages defaulted. The insurance policy could then be used to pay the holder of the new bond. Thus, for the company creating the new bond, there was no apparent risk.

Finally, a company (not necessarily one that created the bond) could make even more money by entering into a contract that behaves like insurance on a bond even if they didn't hold the bond. This kind of contract pays the company if the bond defaults. One insurance company, AIG, sold a lot of these contracts to a variety of companies.

When lots of mortgages started to fail, this started a whole series of failures in the bonds created by the financial services companies. When those bonds started to fail, anyone who had contracts that either insured against such failure or just paid off when the bonds failed, tried to collect on their contracts. So many of these contracts were with AIG that when all of the underlying bonds defaulted, AIG didn't have enough money to pay for these contracts. As a result, AIG went bankrupt. When AIG went bankrupt, nobody could figure out how much money these contracts were actually worth. Because of that uncertainty, banks stopped lending money to each other. And, when banks stopped lending to each other, they also stopped lending to the businesses that depend on them, freezing business activity and resulting in a financial crisis in 2008 that affected the entire economy.