Sunday, May 16, 2010

Fixing The Budget Deficit: Part 2, Incentivizing Politicians

Yesterday, we began a series on how to fix the budget deficit by suggesting wholesale changes to how individuals are incentivized through the structures of taxes.  Change how people are rewarded and punished and you'll get them to do what we, as a society, would like to see done.  That was Step 1.

Step 2:  Create Appropriate Incentives For Politicians To Behave In The Country's Interest

Regardless of where someone aligns politically, the sentiment toward politicians could hardly get any lower.  In special elections to replace vacant seats, the incumbent party is being rejected in droves, however, voter anger has mostly been directed at Democrats.  Right now, politicians, especially CAREER politicians, are being looked upon as akin to either ambulance-chasing lawyers or used car salesmen - on a good day!

Let's face it.   Politicians do such a crummy job because their incentive is to do whatever it takes to get re-elcted even if it means voting for a piece of legislation they KNOW will be ultimately harmful.  Ideally, we need them to do the RIGHT thing for the LONG run even if it may affect their re-election campaigns because of SHORT run dynamics.

Do we need to change human behavior?  Do we need to drug them?  How do we get them to do the right thing?

We can get politicians to behave and vote exactly the way we want them to by changing their incentive structure.   How?  The same way a corporation does.  By rewarding them for "success" and punishing them for "failure" in the performance of their duties.

Let's take the budget as an example - an area Congress has a direct hand in determining.  Think of Representatives and Senators as large groups of two separate Boards of Directors for America Corporation.  If we want them to balance the budget, PAY THEM A BONUS if they balance the budget!
That way, it's certain to happen.

Think it would be too expensive?   Hardly!  Let's say we paid a performance bonus to the entire House of Representatives of $100 million for achieving a balanced budget.  If successful, that would produce more than $250,000 per person - more than a year's pay.  We could do the same for Senators.  A $100 million dollar bonus pool would translate into $1 million each.  Think they couldn't balance the budget with that carrot hanging in front of them?

Given the size of budget deficit we now have of nearly $1.5 trillion, that bonus structure would save itself many, many times over.  Suddenly, they wouldn't be so anxious to go on vacations.  Suddenly, hard decisions would be made as to where to make cuts.  Suddenly, we would see FAR FEWER pork projects.

We could also withhold some of that bonus until the goal is actually met.  Since economic data like budget deficits are only known after the fact, we should only release the bonuses when the final tallies are in.  That way, we don't pay them for their lousy projections, but for accomplishments.

This same methodology could be used to achieve other goals like reforming out of control entitlement programs, or trimming defense, or any other goal deemed to be in the best interests of our country as a whole.

The amount of pay could be determined by an executive compensation committee of respected and experienced people from all walks of life.  This committee could be made up of folks such as former Presidents (at least those without a wife who is serving as Secretary of State and wants that Presidency oh so bad!) or business executives or other high profile and trusted individuals. 

Another means of correcting the lunacy of our political ruling class would be to force them to eat their own cooking  You like Obamacare so much?  Sign up!   You like Social Security so much?  Sign up!  There should be no ability to "opt out".

If we forced them to abide by the rules they set out for everyone else, they might just be a tad less inclined to stuff these rules and programs down our throats!

This approach to how we utilize our Congress, if properly stuctured, would completely change the horrendous and inefficient dynamic characterizing Washington, D.C.  The interests of Congress and the populace would be completely aligned.  We would have a more effective governing society.

Marko's Take

We devoted a two-part video blog series to fixing Social Security.  Part 1 of the series, entitled "Social In-Security:  The Problem" can be accessed by clicking here  Part 2 of the series, entitled "Social In-Security:  The Solution" will be posted in the next couple of days.

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