Tuesday, December 27, 2011
NYT Article on Congress and Wealth: More Context Please
The New York Times has published an interesting article on the wealth disparity among members of Congress and the average person in the US. The article reports that the median net worth of members of Congress is $913,000. The article does not provide the spread or the average net worth, however. The article also reports that the net worth of nearly one-half of the members of Congress exceeds $1,000,000.
The median net worth of members of Congress increased 15 percent between 2004 and 2010. The median net worth of Americans, generally, declined 10 percent during the same time period.
The article demonstrates that members of Congress have been insulated from the harmful impact of the economic downturn. The most damning analysis in the article, however, suggests that members of Congress might benefit from "inside" information when they invest money in securities. One study cited in the article concludes that investments made by members of Congress tend to outperform the market (it is unclear which market the study analyzed). Another study, however, found that the investments of members of Congress perform worse that the general investing public.
The Article Needs More Context
Although there are weaknesses in the article, it is probably safe to say that members of Congress are wealthier than the average American. The article, however, lacks a lot of information that could put this data into a more informative context.
Race, Gender and Congress
The biggest failure of the article is the omission of an analysis of the personal characteristics of members of Congress. Congress is disproportionately white and male. In the United States, these two characters correlate strongly with wealth.
There are 44 African-Americans in the House of Representatives and none in the Senate. There are 26 Latinos in the House of Representatives and two in the Senate. There are 74 women in the House of Representatives and 17 in the Senate. Two of the African-American House members are nonvoting delegates, as are two of the Latino members.
There are 13 Asian-American, Pacific Islander or Native Hawaiian members of Congress. 11 are in the House, of whom 2 are nonvoting delegates; 2 are Senators. There is only one Native American in Congress -- a member of the House of Representatives.
Blacks and Latinos are consistently poorer than whites in the US. Furthermore, the wealth of blacks and Latinos has decreased much more sharply than the wealth of whites during the current recession. Women-headed households are also the poorest in the nation - especially households headed by women of color.
This racial and gender data provides a useful setting for thinking about the wealth data of members of Congress. Of course, several persons of color and women in Congress also possess great wealth (e.g., Nancy Pelosi, who is white, and Ed Pastor, who is male). Nonetheless, members of Congress could have disproportionate wealth because they are disproportionately white and male.
Other Relevant Personal Factors
Other factors are relevant to this discussion. Members of Congress are not young. The median age in the House is 50; in the Senate it is 62. The median age in the US, however, is roughly 37. Accordingly, members of Congress have had more time to accumulate wealth than the average person living in the US.
Members of Congress are also drawn from high-income professions. Most members of Congress are lawyers. Public servants/politicians and business professions rank second and third behind lawyers. There are also 17 medical doctors in Congress.
Members of Congress also have greater educational attainment than members of the general public. 92 percent of the House and 99 percent of the Senate have a bachelor's degree. 36 percent of the House and 55 percent of the Senate have law degrees. 18 members of the House have earned a Ph.D. 24 members of Congress have medical degrees. These numbers are up substantially from statistics in 1969.
By contrast, 87% of the US population above the age of 25 has a high school diploma, but only 30 percent of that demographic has a bachelor's degree. Less than 3 percent of that demographic has a doctoral or professional degree. If the entire US population were included, the percentages would, obviously, decline. Because wealth and education correlate strongly (in both directions), it is not surprising that members of Congress possess greater wealth than the average person in the US.
Wealth and Politics
Political scientists have for a long time debated the relationship between money and electoral success. According to conventional wisdom, wealthier candidates, or those candidates closely connected to wealthy individuals and corporations, enjoy more electoral success than economically disadvantaged candidates.
Several studies have challenged this conventional wisdom. Some research indicates that higher individual wealth or massive campaign donations do not influence election outcomes. Other research, however, presents a more qualified conclusion. It appears that wealth might give candidates an advantage if they are not well known or do not receive media attention. These candidates can purchase advertisements to acquire name recognition (Stephen J. Wayne, a professor of Political Science at Georgetown University, has written on this subject. See, Wayne, The Road to the White House).
Once inequality of name recognition subsides, however, some research finds that money does not substantially impact election success. This data, nonetheless, implies some connection between money and political success.
This essay does not contest the suggestion that the members of Congress can use their status as members of Congress to generate personal wealth. But this hypothesis requires more analysis than the NYT article provides.
Other explanations, such a race, gender, age, educational disparities, employment background, and pre-existing wealth (that relates to electoral success) likely explain a lot or all of the wealth disparities among members of Congress and the general public. These issues are extremely important points for public debate.
Another important factor is likely investment risk tolerance. Investment in risky assets generally provides higher returns over the longterm. Studies have shown that wealthier folks, men, whites and higher educated investors have higher risk tolerance.