Zach Sheinberg
Sunday, October 30, 2011
The pundits and the press corps track the “money race” of politics like equity research analysts follow stocks. Similar to the way that stock price has become a proxy for the innate value of a company (as accurate or inaccurate a metric as it might be), so too has total fundraising become a proxy for the innate popularity (and viability) of a candidate for office.
Even just in the last few weeks, the press was flush with stories about the $17 million Rick Perry raised despite his floundering in the polls, the $15 million Mitt Romney raised, which was $2 million less than Perry despite Romney’s frontrunner status, and the small amounts raised by the rest.
In the era of modern politics, money matters (and the “money race” occurs) because candidates require money to spread their name and their message, which they hope will lead to votes for them on Election Day. Even in the internet age, the surest medium to spread name and message is still television. Advertising on television requires money. The more money a candidate raises, the more television advertising a candidate can buy. The more television advertising, the more awareness of the candidate among the voters and hopefully, the more votes on Election Day.
Certainly, money cannot guarantee victory at the polls, as Michael Huffington learned the hard way. But money does a few important things for a candidate.
As I already mentioned, money buys television, which buys awareness among voters. Money buys famous campaign consultants, which provides an additional piece of evidence (albeit not an independent one) and validation of candidate viability. Money pays for donations to other candidates, and hopefully the endorsements of those candidates. Money scares away other potential candidates who fear they cannot raise a similar sum.
Think about the advantage of money in politics this way. If you innovated a new social networking tool, would you want Facebook to find out and compete with you?
Money is important. But we all know that money in politics is a problem.
First, there is the perception of impropriety (whether well grounded or not) that money influences the decisions that politicians make. Even if untrue, the perception itself is still damaging because that perception undermines the trust of voters. Though in my opinion, the perception is well grounded. While clear cases of political bribery thankfully are not widespread in this country, the less malignant cases of money favoritism run rampant. As an example, if two constituents call their Congressman with a question, which constituent do you think will receive the first return call? The one who donated the maximum limit to the Congressman during the last election cycle or the one who donated nothing?
Second, there is the unfair advantage that rich candidates like New York City Mayor Michael Bloomberg, former U.S. Senator and New Jersey Governor Jon Corzine and Representative Darrell Issa, among many others, have over poor candidates. Again, money is not perfectly correlated with success at the polls, but certainly, the correlation is very high.
Third, the amount of time that candidates and officeholders spend raising money, the less time they spend learning and talking about public policy issues, legislating and governing. We “hire” candidates to legislate and govern, not to raise money. Yet our officeholders spend an inordinate amount of time on the task of fundraising, which is not part of the official job description.
The question is, how do we fix the political money problem? Here are some ideas.
Ban Money in Politics
Why not simply ban all money in politics?
First, if we banned all money, it would become very difficult for candidates to communicate with voters. The results of the 2010 Census indicated that each Congressional district now has approximately 710,000 citizens. In a two-year election cycle, with how many voters do you suppose a candidate could communicate without any money, without direct mail, web advertising or television? With no money in politics, voters would become even less informed about candidates than they are today.
Second, according to the case law of the Supreme Court, banning all money would violate the First Amendment to the U.S. Constitution. The Supreme Court interprets the right of freedom of speech to include the freedom to spend money to speak freely, which includes the freedom to spend money to support or oppose a political candidate.
I know what you’re thinking. Then how can Congress limit the amount that an individual can donate to a particular candidate? The answer is that constitutional freedoms are not unlimited.
For example, an American citizen cannot yell fire in a crowded theater or threaten the life of the President. Those forms of speech are illegal. We are not free to speak that way. Congress can limit constitution rights when a compelling societal interest exists to do so. Congress decided that a compelling societal interest existed to limit free speech through political donations and the Supreme Court historically has agreed.
Some Other Ideas
Why not limit donations from any individual, organization or corporation to $5.00? This way, the person with 1,000 friends on Facebook becomes as politically powerful as the very wealthy. This idea would give political power not to those who have the most money, but to those who have the biggest networks and who exert the greatest effort in leveraging those networks for a candidate. The problems with this idea are that lower contribution limits (1) might force candidates to spend even more time raising money and (2) would give an even greater advantage to rich candidates, who still would have the legal right to spend as much of their own money as they desire on their campaign.
Why not have the federal government fund elections? Public funding would remove the fundraising burden from campaigns and allow more time for learning and talking about issues, meeting with constituents and legislating and governing once in office. The problems with this idea are (1) where does the government get the money, especially in the current environment where there is tremendous pressure to cut government spending and (2) how does the government decide how much each candidate receives? Should the amounts differ by office (i.e. House v. Senate)? By state? By district? By candidate status (i.e. incumbent v. challenger) as incumbents enjoy the “incumbent advantage?” Should the amounts be indexed to inflation? What threshold must candidates meet to receive funds?
On top of public financing, why not force candidates to circulate petitions for support and for every signature a candidate collects, the candidate receives some pre-set amount, say $10, from the government? This way, signatures of voters (presumably a proxy for candidate support) become the most valuable resource as opposed to money. One problem with this idea is that political parties, unions and other political organizations would regain a tremendous amount of power because they would have quick and easy access to large numbers of potential petition signers (i.e. their members who are constituents in the district).
Why not compel the television networks to allocate a certain amount of time to each candidate? After all, the federal government does own the airwaves, which it licenses to the networks. There are already rules in place that govern how much networks can charge political candidates for airtime. So why not change the rules to make that rate zero? Taking the largest cost out of the campaign budget certainly would release some pressure on candidate fundraising. One obstacle to this idea is that the networks make money from selling ads to political candidates. Which means they will lobby and exert the influence they have with politicians to prevent this loss of revenue (even if the amount is small).
You can clearly see the difficulty in balancing our societal interests in removing impropriety and the perception of impropriety in politics, creating a fair playing field among all candidates, ensuring that officeholders spend more time legislating and governing and preserving our cherished freedom of speech.
So what should we do? Please feel free to comment below, share your ideas and agree or disagree with anything above.
Sunday, October 30, 2011
Sunday, October 23, 2011
HOW ARE JOBS CREATED
Sunday, October 23, 2011
Zach Sheinberg
Last Monday, Joe Nocera of the New York Times wrote a column (http://nyti.ms/pzifyt) about the effort of Starbucks founder Howard Schultz to help create jobs (outside of Starbucks) in the United States.
As I read the article, I was reminded of how hard creating jobs is. And I started thinking about the process of job creation. My question is, how are jobs created?
Let’s start at the beginning.
An employer hires and pays an employee when that employer requires additional labor to produce the product or service that the employer sells. An employer requires additional labor when new demand (or the expectation of new demand) exists for the product or service that the employer sells. New demand exists when new customers place new orders (or existing customers place more orders) for the products or services that the employer sells. The expectation of new demand exists when the customer base grows.
There are two types of products and services: those demanded by consumers and those demanded by other businesses. Though the demand of other businesses for products and services are simply derivative of consumer demand. For example, if homeowners are not repaving their driveways, paving companies are not purchasing new paving machines; paving machine manufacturers are not purchasing new metal to make paving machines; mining companies are mining less metal and so on. Consumer demand for goods and services drives the economy.
New consumer demand occurs when consumers have money to spend on products and services and have the expectation that they will continue to have money to spend in the future. Consumers have money to spend when they are working and earning income. They have the expectation that they will continue to have money to spend in the future when they feel secure in employment (whether they feel secure at their current job or are confident that if they leave their current job they can find a new and similarly or better-paying job).
Such explains our predicament. In order to create new jobs, we must have people already working so they can make money to spend on new stuff that we need new workers to make.
So how do we break this seemingly hopeless cycle? We innovate.
Take the introduction of the iPod as an example. With the iPod, Apple innovated. The company changed and improved the way consumers listened to and stored music. The iPod made listening and storage so much easier than the best available options that existed at the time (remember carrying around a Discman that skipped constantly and dozens of CDs?). Therefore, consumers demanded the iPod. Consumers bought the iPod. Apple’s innovation created this new demand.
So Apple made more iPods, which required more employees (both internally at Apple and externally at Apple’s manufacturing partners). These new workers had new income that they then spent, which created new demand for other goods and services throughout the economy, which led to new jobs in those areas, and the ripple effects continued.
Now when the iPod first came out, there was a fixed amount of money in our economy. So consumer purchases of the iPod likely redirected money away from other goods and services that those consumers may have purchased if the iPod had never existed. Which means that the companies that sold those now less desirable goods and services probably had to lay off workers, order less materials from suppliers, who probably had to lay off workers of their own, and so forth. So when the iPod first came out, the new jobs at Apple were probably offset by the loss of jobs at other companies.
However, while in the short run, overall employment may have stayed the same (Apple added jobs, other companies lost jobs), in time, Apple’s innovation of the iPod created more jobs for the economy than it cost. As more consumers demanded the iPod, Apple started making more iPods, which required more workers; new companies started making iPod accessories, which required more workers; competitors started making iPod knockoffs, which required more workers; Apple spent more money on research, development and innovation, which led to iTunes, the iPhone and the iPad, which required more workers. While impossible to quantify, the ripple effect of the iPod without question was a net gain for jobs in our economy.
Our economy creates jobs by creating new demand for stuff. We create new demand for stuff by innovating, by giving consumers better and/or less expensive versions of old stuff and desirable new stuff like the iPod.
So the question becomes, how do we spur innovation? How do corporations spur innovation? How can the government spur innovation? Because only innovation will lead to sustainable economic growth and sustainable lower unemployment.
Some food for thought (and I’m not suggesting any answers)…
- Will reductions in corporate taxes sustainably spur the economy? Will corporations having more money in their coffers lead to innovation and/or sustainable new jobs?
- Will reductions in government spending and government debt sustainably spur the economy? Will the large chunk of government consumption eventually be replaced by equivalent or greater private consumption (and keep in mind the ramifications of reduction of the national debt)?
- Will increases in government spending and government debt sustainably spur the economy? Should the government fund (and continue to fund) organizations that undertake research and development (eg. the National Institutes of Health, NASA, the Defense Department, the Energy Department)?
- Will reductions in overall personal taxes (including income taxes, sales taxes, etc.) sustainably spur the economy? Will individuals having more money in their pockets lead to sustainable increases in consumer demand?
My point here is that the creation of jobs is not easy and cannot happen overnight. Steering the economy back on course is like steering a massive ocean freighter back on course.
Whatever your ideas on how to create jobs, please share them below. And feel free to agree or disagree with me on anything above.
Zach Sheinberg
Last Monday, Joe Nocera of the New York Times wrote a column (http://nyti.ms/pzifyt) about the effort of Starbucks founder Howard Schultz to help create jobs (outside of Starbucks) in the United States.
As I read the article, I was reminded of how hard creating jobs is. And I started thinking about the process of job creation. My question is, how are jobs created?
Let’s start at the beginning.
An employer hires and pays an employee when that employer requires additional labor to produce the product or service that the employer sells. An employer requires additional labor when new demand (or the expectation of new demand) exists for the product or service that the employer sells. New demand exists when new customers place new orders (or existing customers place more orders) for the products or services that the employer sells. The expectation of new demand exists when the customer base grows.
There are two types of products and services: those demanded by consumers and those demanded by other businesses. Though the demand of other businesses for products and services are simply derivative of consumer demand. For example, if homeowners are not repaving their driveways, paving companies are not purchasing new paving machines; paving machine manufacturers are not purchasing new metal to make paving machines; mining companies are mining less metal and so on. Consumer demand for goods and services drives the economy.
New consumer demand occurs when consumers have money to spend on products and services and have the expectation that they will continue to have money to spend in the future. Consumers have money to spend when they are working and earning income. They have the expectation that they will continue to have money to spend in the future when they feel secure in employment (whether they feel secure at their current job or are confident that if they leave their current job they can find a new and similarly or better-paying job).
Such explains our predicament. In order to create new jobs, we must have people already working so they can make money to spend on new stuff that we need new workers to make.
So how do we break this seemingly hopeless cycle? We innovate.
Take the introduction of the iPod as an example. With the iPod, Apple innovated. The company changed and improved the way consumers listened to and stored music. The iPod made listening and storage so much easier than the best available options that existed at the time (remember carrying around a Discman that skipped constantly and dozens of CDs?). Therefore, consumers demanded the iPod. Consumers bought the iPod. Apple’s innovation created this new demand.
So Apple made more iPods, which required more employees (both internally at Apple and externally at Apple’s manufacturing partners). These new workers had new income that they then spent, which created new demand for other goods and services throughout the economy, which led to new jobs in those areas, and the ripple effects continued.
Now when the iPod first came out, there was a fixed amount of money in our economy. So consumer purchases of the iPod likely redirected money away from other goods and services that those consumers may have purchased if the iPod had never existed. Which means that the companies that sold those now less desirable goods and services probably had to lay off workers, order less materials from suppliers, who probably had to lay off workers of their own, and so forth. So when the iPod first came out, the new jobs at Apple were probably offset by the loss of jobs at other companies.
However, while in the short run, overall employment may have stayed the same (Apple added jobs, other companies lost jobs), in time, Apple’s innovation of the iPod created more jobs for the economy than it cost. As more consumers demanded the iPod, Apple started making more iPods, which required more workers; new companies started making iPod accessories, which required more workers; competitors started making iPod knockoffs, which required more workers; Apple spent more money on research, development and innovation, which led to iTunes, the iPhone and the iPad, which required more workers. While impossible to quantify, the ripple effect of the iPod without question was a net gain for jobs in our economy.
Our economy creates jobs by creating new demand for stuff. We create new demand for stuff by innovating, by giving consumers better and/or less expensive versions of old stuff and desirable new stuff like the iPod.
So the question becomes, how do we spur innovation? How do corporations spur innovation? How can the government spur innovation? Because only innovation will lead to sustainable economic growth and sustainable lower unemployment.
Some food for thought (and I’m not suggesting any answers)…
- Will reductions in corporate taxes sustainably spur the economy? Will corporations having more money in their coffers lead to innovation and/or sustainable new jobs?
- Will reductions in government spending and government debt sustainably spur the economy? Will the large chunk of government consumption eventually be replaced by equivalent or greater private consumption (and keep in mind the ramifications of reduction of the national debt)?
- Will increases in government spending and government debt sustainably spur the economy? Should the government fund (and continue to fund) organizations that undertake research and development (eg. the National Institutes of Health, NASA, the Defense Department, the Energy Department)?
- Will reductions in overall personal taxes (including income taxes, sales taxes, etc.) sustainably spur the economy? Will individuals having more money in their pockets lead to sustainable increases in consumer demand?
My point here is that the creation of jobs is not easy and cannot happen overnight. Steering the economy back on course is like steering a massive ocean freighter back on course.
Whatever your ideas on how to create jobs, please share them below. And feel free to agree or disagree with me on anything above.
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