COMMENTARY | COLUMNISTS | STAN SEWITCH

'We get the government we deserve'

So said Alexis de Tocqueville in his study of “Democracy in America,” one of the earliest examples of political and social field studies. As a scholar, de Tocqueville was accomplished. It is ironic that his interest in a new type of social equality, democracy, would burn so intently. His lineage was aristocratic and traced ancestors to the Battle of Hastings in 1066. “Democracy in America” was written in two volumes, published in 1835 and 1840.

One wonders if any serious thinkers about our brand of government have emerged since. If relevant knowledge of American governance under democracy is a measure, the answer would have to be “no.”

The Intercollegiate Studies Institute’s American Civic Literacy Program conducted a test survey of 2,508 people in 2008. Out of that group, 164 stated that either currently or some time in their life, they served as elected political representatives. The results of the survey, comprised of 33 questions that could not be construed as overly complex or theoretical, are sobering. About 49 percent of the questions were answered correctly by ordinary citizens. Those having served elected office scored 44 percent.

A true test of civic literacy of our elected federal officials need not include a fact survey. One need only look at the results of our congressional efforts, or lack thereof. It’s not about Republican philosophies versus Democrat. Any examination of the underlying principles of each shows just how similar in action these two parties have been. Whether the executive branch or the Senate or the House is controlled by one party versus the other, each has done what it could to ignore the hazard of the debt-laden condition we Americans find ourselves in.

An example of just how inept our leaders have been: At the 2009 Corporate Directors Forum, held annually in San Diego and one of the most well-attended such conferences comprised of institutional investors, public company directors and executives, Christopher Cox took time out of his job search to speak to the assembly. The administration had changed, so Cox was free to speak.

During the Q&A period, I asked Cox how the Security and Exchange Commission failed to first identify the developing problem of unregulated derivative trading, and then to provide the oversight that his agency was charged to do.

His answer was, “Well, when these complex derivatives first started to appear, they comprised such a small portion of the trading activity of Wall Street that we judged it lower on the priority list for allocation of oversight resources.”

As any economist or student of human behavior will tell you, shenanigans occur mostly in the dark. Derivatives now eclipse the total value of all other securities traded. Globally. A study done in 2003 (five years before the Wall Street meltdown) by Randall Dodd at the Derivatives Study Center in Washington, D.C., estimated total global derivatives trading exceeded $873 trillion. That’s almost 60 times the current U.S. GDP. Proof positive that an unwatched pot boils over.

Yes, we get the government we deserve. Mostly, it has been through inaction that our citizenry has earned the leadership we have in Washington. The highest rate of voter turnout for a presidential election in the last half century is 63.1 percent, in 1960. The lowest was 49.1 percent, less than half the eligible voters, in 1996. The congressional elections in between are much worse, ranging from 36.4 percent in 1998, to a high of 48.4 percent in 1966. It’s got to get pretty bad before we Americans start to become involved. By then, the muck has been spread pretty thick.

While I believe that the haphazard “movement” called Occupy Wall Street will be less than effective in forcing fundamental improvements in the oversight of our economic institutions, this phenomenon is welcomed if for no other reason than people are getting out of their comfortable chairs and becoming involved. I heard a CEO recently say that what we really need is an Occupy Washington movement, to force attention on the ineptitude and outright conflicts of interest that our elected leaders seem blind to.

For example, it is apparently not illegal for a member of Congress to provide information not generally available to the public to others, who may then use that information to make securities trades. Sen. Spencer Bachus, when he was the Ranking Member of the House Financial Services Committee in 2008, is accused of making trades betting against the market one day after a meeting with Ben Bernanke and then-Treasury Secretary Hank Paulson. Nancy Pelosi and John Boehner have similarly been accused in their history.

How else does a congressional representative or senator amass millions, paid their official annual salary of $162,500? Officers, like the speaker of the house, make more of course, but even so, this is not compensation to result in becoming a millionaire when the congressman or woman didn’t enter office with a fortune already built.

The good news is that our troubled economic structure, globally, is forcing a bright light on all these issues. And that light is not going away anytime soon. If there is a silver lining in the prospect of a decade or more of anemic economic growth, it is this. We’ll get more involved, work to understand the government of democracy, get a higher score on civil literacy and elect leaders who are better. Because we’ll be.

Sewitch is CEO of KI Investment Holdings, LLC, conducting an investment experiment in long-term principles. He can be reached at stan@sddt.com.

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