Is Congress still the people’s house?

With 435 members, does Congress accurately represent the people?  Larry Sabato, Founder of the Center for Politics at the University of Virginia, discusses this and other interesting topics in his book A More Perfect Constitution.

At the Constitutional Convention of 1787, Washington proposed reducing the number of citizens per Congressman from 40,000 to 30,000.  Madison, writing in The Federalist Papers, predicted that at current population growth rates, the size of the House of Representatives would grow from 65 members to over 400 members by the 1830s.

Our current House of Representatives, at 435 members, has 690,000 citizens per Congressperson.  To compare, each Member of the 646 member British House of Commons represents 91,000.  Even the members of the 577 member French National Assembly represents 102,000 people.

Of course, we can’t return to the original number of 30,000 citizens per representative, as that would generate a deliberative body of over 10,000.  But clearly, an expansion could have positive benefits on the representative power of the house.  Even conservative commentator George Will has argued for a number around 1,000.

With a wealth of topics presented, I’ll discuss other proposals in the book later.

Would you rather manufacture Plasma TVs, or sell them?

In the last post, I was commenting on the results of President Bush’s 2008 fiscal stimulus checks.  While economists differ, it seems that there are increases in consumer spending due to consumer fiscal stimulus.

My second question was, even if we had spent all of our rebate checks on plasma TVs, how bad would that be?  The background for the question has a broader theme.  Is manufacturing (or agriculture or other industries that built America) something we should really be doing at home?

To answer this question, I wanted to think about profit margins and the supply chain.  Best Buy is the largest electronics retailer in the US and account for 21% of electronics sales.  Best Buy’s return on capital is 21.4% over the last 5 years

Panasonic is the largest manufacturer of Plasma TVs.  While they don’t break out their data by product, the overall return on capital of Panasonic has been 3.5% over the last 5 years.

So, if I gave you $1,000 . . . let’s say I called it a stimulus check, and asked you to invest it, would you rather invest in the operation that would give you 20% of it back per year ($200) or 4% ($40)?  It starts to look like there is a reason why business people decided not to pursue the relatively capital intensive, low margin plasma TV business…

But, you argue, most of that money that goes to Best Buy gets passed on to folks like Panasonic.  Shouldn’t we go where the most money goes?   Well, your data is correct.  Best Buy’s overall gross margin is around 24%, meaning that of every $1 we spend at Best Buy, only $0.26 goes to Best Buy, the other $0.76 go to their manufacturers and shipping.  So at the top line, the revenue line, you’re right.

Not so fast.  You should really be thinking about Return on Capital, not revenue.  If total revenues were the only deciding factor of an attractive business, then we would all be in the food business.  After all, it’s the largest world industry by revenue.   But we don’t do that, because at this point we know that it’s not a great return on capital (or a great growth and margin business).  It’s not the industry that the US should base its economic growth upon.

So, as an investor, I’d rather sell Plasma TVs than make them.  And as a policy advisor, I’d rather put dollars in consumers and businessmen’s pockets, and let those folks make the millions of tiny decisions that drive the U.S. economy.

Does fiscal stimulus work?

I had the pleasure of speaking with the great Congresswoman Jackie Speier (D – 12) earlier this week. She mentioned, as an example of the difficulty of fiscal stimulus, that  President Bush’s tax rebate checks caused nary a bump in consumer spending, according to studies, except in the purchase of plasma TVs. The punchline, of course, is that most of those are built in China, Taiwan, Korea, and Japan. US government stimulus dollars going to overseas folks.

And that got me wondering. Is that true? And if it is, is that a bad thing?

On the question of truth, it’s pretty clear that economists can give you virtually every answer you want. The theory says that the impact on the economy is minimal, as the increase in consumer spending is balanced out by the reduction of government spending (or in the U.S.’s case, the increase in debt funding).  Still, University of Chicago economists say the stimulus checks increased consumer spending while the good folks at Deloitte see any gains as limited in both size and duration.  The Chicago data indicates about 20% of spending on all durable goods, which includes plasma TVs, but also lawn mowers, furniture, and dishwashers.

OK, so maybe this plasma TV comment was a bit of rhetorical flourish.  So my next question is, how much should we care if it all went to plasma TVs?  That will be the next post.

Just in from Camelot, er, Washington DC

This was too good to not pass along. From a friend waiting for a position in the Obama Administration

I am glad to hear from you.  I just wish I had more news for you.  Perhaps you’ve heard, but Treasury (and the remainder of the Obama Administration) is staffing up pitifully slowly.  At a hearing, Paul Volcker called the situation “shameful.”  That’s about right.

Sadly, until the high level people get in place, nothing else can be done.  The atmosphere in all the agencies I’ve visited is one of summertime lull.  Obama and a few overworked aides are running the massive battleship of government with a few loose strings in the White House.

They keep comparing themselves to the Clinton and George W. Bush Administrations, and left-wing media outlets give them a pass.  It’s an absurd comparison (it would be like Stanford comparing itself to Spring Hill College and Springfield College, because those are the two that precede it in alphabetical order).  In a national emergency like today’s, a responsible government would compare itself to Lincoln or Roosevelt (during whose Administration they built the entire Pentagon–  the country’s largest office building by land area– from conception to completion– in 16 months).