Recent events including a ruptured bicep tendon and a large research effort put me temporarily underwater - in the non-blogosphere - but an item in the Sunday NY Times forced me to resurface. It appeared as an essay by John Schwartz under the title "Not So Representative Investors," and it caught my eye because I had been thinking about not so representative Representatives.
In an interview I conducted to prepare for a West Coast scenario seminar on Asia and the future, a woman investor - portfolio manager for a certain western state - remarked that since 1975 the US has changed from a democracy to a plutocracy, but has anyone noticed?
She noted that the top 1 percent of the population makes 25 percent of the income and controls 40 percent of the wealth. And, she observed, the US Senate is almost entirely in that top one percent while most of the members of the House of Representatives are as well.
"Do you think that a democracy would have voted to prohibit Congress from regulating derivatives?" she asked (and I was quick to recognize this as a rhetorical question.) "Do you think a democracy would have voted to protect its Big Pharma industry from outside competition? Is that what a democracy would do?"
By now I was fully engaged with her line of reasoning and all I could do was concede her logic.
Her questions (or rather the point behind them) jumped up out of Schwartz's essay as he cited a recent study that found House members earning "statistically significant positive returns" on their portfolios, outperforming that market by 6 percentage points. Senators do even better, according to the research, showing "some of the highest excess returns ever recorded over a long period of time," beating the market by 10 percentage points a year.
One of the study's authors, Georgia State University's Alan Ziobrowski, an associate professor of business, is quoted saying that these returns are "abnormal" in the sense that they cannot be explained by good fortune or dumb luck.
It is interesting to consider how the Congress manages to outperform the markets in this category of finance as they have driven the country into its fiscal morass and appear unable or unwilling (or both) to get us out. Meanwhile the dollar continues to weaken, the Treasury market is faltering and global markets are skittish at the prospect that the US, manager of the global reserve currency, has lost its way.
Having just read "Exhorbitant Privilege," by UC Berkeley Professor Barry Eichengreen, who lays out prospects for the decline and fall of the dollar, I have reason to think that talk of a dollar collapse is not too extreme, particularly as Congress fiddles while Washington burns. It is little comfort and no compensation to realize that meanwhile they have been on the inside earning outsized returns.