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Incentive Pay for Congress Would Fix the Economy: A Modest Proposal

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Congress is concerned about dysfunctional incentives in the economy. It ought also to look at itself.

Congress is very good at telling the rest of us that we ought to be risk takers, but never takes any risks itself. It votes itself high pay, superb pensions, a gym and pool, preferred parking at National Airport, a healthy expense account, and, while they are at it, health insurance from a large pool of plans that the Republican Congress wants to deny the rest of us. As Chuck Grassley (R-IA) told his constituent at a Town Hall meeting, "if you want insurance like mine, get a job with the federal government".

Many Republicans ran for office declaring they would run the government, "like a business", a very curious claim since businesses are supposed to be profitable, and governments do those things that businesses do not. That is, one can be profitable selling an awesome quiche in the suburbs, but being profitable dispensing food stamps is fraud.

If they are serious, however, there is one way they can operate like a business. Cut their base pay and provide large incentive bonuses should the economy hit certain goals.

Properly formulated, unemployment is the only goal that needs to be measured. And, the Bureau of Labor Statistics does that by objective standards every quarter.

Here is how it could work.

Members currently receive 174,000 smackeroos per year in base salary (see, Grassley was right!). Cut that salary to $100,000 per year, but provide the following incentive bonuses:
Unemployment rate
8%: $20,000
7%: $40,000
6%: $90,000
5%: $150,000
4%: $300,000

Add a clawback provision should a bonus be paid but unemployment increases over the next several years to ensure at least an intermediate term, and not just a short-term focus, and the stars will be aligned for good, effective policy.

Congress's initial objection to this, of course, is that there are many forces they do not control that could affect our economy, and thus employment. What happens if China's economy slows, or there is another terrorist attack like Tucson on our soil? Welcome, my dear boys and girls, to the real world. Businesses face the same challenges with far less power to do anything about it themselves.

Constituents may object that we ought not bonus Congress for doing what it should be doing anyhow. That is certainly true, but the same could be said for managers and employees in business. There is good evidence that financial rewards linked to concrete achievements improve performance.

Then, watch what happens. Suddenly, ideological purity will vanish--just recall laissez-faire proselytizers, and beneficiaries, Henry Paulson and George W. Bush pleading for $700B government intervention to rescue the banks (and do not forget the original proposal that there could never be any oversight or any accounting as to how that money was spent!). Also, note that even Michelle Bachmann takes wicked federal subsidies for herself.

Suddenly, sending money to localities to keep teachers, firefighters, police employed will not be such a bad idea. Investing in new energy sources--not such a bad idea. Providing incentives to small businesses to hire--not such a bad idea. Investing in infrastructure--not such a bad idea. Another stimulus package--by another name of course--not such a bad idea. Keynesian economics will still not work in rightwing essays and journals---but it will not longer be such a bad idea for policy.

Wait, you say. Providing those incentives to create jobs will cost money, and if these "perverse" incentives are in place, Congress will just bust the budget.

Perhaps, but that is where the clawback provisions temper their zeal and where the debate will rest, on the long-term impacts of short-term spending and deficits to put people back to work. One notes, of course, that revenues will rise from more employed people paying taxes, and that transfer payments will be reduced due to less need. But, the net effect will be an increase in the deficit--at least for the short run.

But, most expect to be in Congress for several terms, and will be if the economy turns up and jobs are created. If their spending indeed has negative long-term negative impacts, then the economy will tank again, unemployment will skyrocket, they will lose their seats and/or no longer make high salaries, and the clawback provisions will kick in whether or not they remain in Congress.

Of course, the Congress would never make itself accountable with its own salaries and perks at risk. The elite ply Congress with campaign checks and "information", substantially reducing their risk, and driving their percentage of the nation's wealth continually higher.

Risk is for the rest of us. Or, haven't you noticed?