The MEWBI; An Investment Vehicle for Congress

Members of Congress are incredibly smart investors. That was sarcasm. What I mean to say is that historically, the portfolios of members of Congress outperform the market by 20%, with senior Republicans outperforming the market by 35%. In early 2020, former senators Kelly Loeffler and David Perdue, among others, were criticized for extremely opportune stock trades not long after a classified briefing on the COVID-19 pandemic. Occasionally a member of Congress gets too blatant and actually gets prosecuted for insider trading.

This is a problem of appearance and outcomes. Congress has low enough popularity without insider trading scandals, and confidence in government is essential to a democracy. More importantly, having members with half an eye on their portfolios is going to nudge the legislative steering wheel in a direction that favors one industry over another, wealth over work, and Wall Street over all.

There has been a proposal out there for a while that simply prohibits members of Congress from owning individual stocks. They would have to invest in broad based mutual funds or index funds. They might have to hand over their investments to a blind trust to be managed secretly for the duration of their time in office.

Fair enough, but not enough. Even if they have their investments in a blind trust, they know that their money is in the stock market and that they will get that money back. They will have an interest in a rising market rather than a rising standard of living for ordinary Americans. About 60% of Americans own no stock at all, and the richest 1% own about 50% of the stock market. In theory, stock value is based on the expectation of future earnings. Many of the ways that corporations achieve higher earnings aren’t beneficial to your average person. That is, they can make more money by paying us less, charging us more, outsourcing, union busting, skirting health and safety regulations, and polluting the environment.

What we need is an investment vehicle for members of Congress that aligns their financial interests with the financial interests of the average American. To that end, I have come up with an index called the MEWBI, or Median Economic Well Being Index.

To start with, it’s based on the U.S. median wage. Note: median, not average. This avoids the “Bill Gates walks into a bar” effect. (When Bill walks into a bar, on average everyone in there is now a millionaire.) Median wage is the annual income halfway between the highest and lowest wage earners in the country. In 2019 the U.S. median household income was $68,703, according to the Census Bureau.

However, median wage isn’t enough. If median wage goes up but the cost of living goes up more, life hasn’t improved. What I’d like to get at is discretionary income. That is, the money people have left over after they pay for housing, food, healthcare, basic transportation, and other necessary expenses. There is a useful number for this called living wage or livable wage. That is a calculated number that estimates the most basic living expenses depending on where people live. It’s calculated on the county level for each state and for various situations: single, single parent with one to three children, couple with one or both parents working and one to three children. (To find the living wage for your area, click HERE.)

I don’t want a separate index for every county and situation in the U.S., so I need to simplify. The Census Bureau finds that the average household size in the U.S. right now is 3.23 people. I’ve looked around at livable wage for various places and noted that the wage for one parent with two children is close to that of two parents with one child, and both those numbers are close to a chart of state livable wage averages. In between Kentucky at $43,000 and Hawaii at $61,000 I find an average for all 50 states of $50,460.

Subtract $50,460 from $68,703 and I get a rough and ready $18,243 in discretionary income. An important note: livable wage is bare bones. Food, shelter, healthcare, plus soap and toothpaste is about it. A lot of what we would consider moderately necessary is not included. Still, it’s supposed to be a directional indicator, not a perfect snapshot. Knock off the dollar sign and it’s just 18,243.

This is still not good enough. There’s the question of inequality. A particular median wage doesn’t tell us about the balance of billionaires to unemployed homeless people. How can we tell that? There’s what is called the Gini coefficient or Gini index. It’s a number between zero and one. A nation with everyone earning the exact same income would have a Gini of zero. A nation with one multibillionaire and everyone else earning nothing has a Gini of one. The U.S. has a Gini Index of 0.48. A lower Gini index is a sign of more equality and by inference a more solid middle class. Since lower is better in this case, I’m using 1 minus the Gini to invert it, giving the U.S. an inverse Gini of 0.52.

Multiply 18,243 by the inverse Gini and we have 9486.36.

What about unemployment and underemployment? There are two numbers I’ll use for that. One is the labor force participation number, the percentage of people of working age who have jobs. It’s around 61.5% lately. The other is the so-called U-6 unemployment rate. In the news you generally see the U-3 rate, but that doesn’t account for people who have given up and aren’t filing for unemployment anymore. It also fails to account for people who want to work full time but are only working part time. The U-6 covers these people. Because lower unemployment is better, I’ll invert that as well. The U-6 is at 11.7% as I write this, so the inverted U-6 is 82.3%. Multiply those two factors in and we get a MEWBI of 4,801.47.

So, what do we do with this number? We use it as the basis of a long term investment vehicle.

Any investment requires a counter party. When you buy a bond, the counter party is the institution that is willing to pay you interest on your money; a city, state, or national government, or a business. When you buy a share of stock, there has to be someone willing to sell. That means someone who believes that there is a better place for their money than that stock. It’s a vote of no confidence. So where do we find a counter party who is willing to invest in the future increased poverty of average Americans?

I consulted with my friend The Broker.

(He must remain anonymous because of his work, but he is an experienced investment advisor specializing in ethical/sustainable investment. You can imagine him as a Batman villain; a middle aged man in a charcoal gray pinstripe suit covered in little green dollar signs, wearing a dollar-green burglar’s mask. “Well, Robin, the only clue is a stock certificate from a defunct Canadian mining company.” “Holy margin call, Batman! It’s The Broker!” But I digress.)

He made a counterintuitive but ingenious suggestion. The structure would be a bond with a variable return depending upon the performance of the MEWBI. The counterparty would be the U.S. Treasury Department. But wait, you say, isn’t the Treasury Department interested in general prosperity? Yes, exactly, but remember that we are only talking about 538 elected officials; The House, the Senate, the President, and the Vice President. The total net worth of the House and Senate together is about $8 billion. A few percentage points of return on that would be a rounding error for the Treasury. In fact, if Congress manages to dramatically improve the lot of lower and middle class Americans, then that percentage will be swamped by added tax receipts.

Here’s how it would work. As soon as a candidate is elected, that congress member-elect must transfer all assets into the MEWBI fund at the Treasury. This should be done tax-free to avoid penalizing them for a forced sale. The MEWBI funds would pay an inflation adjusted interest rate that would be added to or subtracted from depending on the performance of the MEWBI. Essentially, it would be a five year treasury note with a bonus, or a penalty.

The money would stay in the MEWBI fund for the duration of their service. When they retire or get voted out, the assets would reverse vest. That is, on departure they get 50% of their MEWBI assets back to invest how they please. After five years they get another 50% of what’s left, and so on. The reverse vesting is to prevent them from jumping immediately from Congress into corporate lobbying or serving on the board of some malevolent business or think tank. Their alignment of interests with the ordinary American will have a long tail.

Some might say, “But won’t this discourage people with a lot of wealth from serving in government?” Wow, why didn’t I think of that? If your main focus in life is making piles of money through stock investments, public service is not for you.

This would be a tough sell to Congress. About half are millionaires. The fifty wealthiest of them each have a net worth from the tens to hundreds of millions of dollars. It would take a huge, concerted effort to pressure them into relinquishing their suspiciously high returns. Like campaign finance reform, it would have a high return on investment for the median (not average) American.