Wednesday, December 19, 2007

The Stock Market Analogy

I got to thinking about term limits and recall provisions yesterday. The local city council was discussing an initiative to make provisions for recalling sitting city councilmen.

The analogy I came up with is the stock market; now this is a little stretch, so I'll ask you to bear with me. When you or I buy a stock, we're "voting" with our wallets, essentially. We think that giving our dollars to Exxon, or Altria, or whomever, is a better use of our dollars than what we could do with it. Investors expect an appreciation on their investment, and this can take the form of increased share value, a cash dividend, or both.

When you buy a stock - recall the voting interpretation - you keep it as long as it continues to do what you want it to: return value and justify your decision. If the stock loses value (or you lose faith in the company's management), you're free to dump it at any time, assuming of course that we're talking about widely-traded public companies for which there's almost always a market, even if a stock is declining. Only when the corporation is near-collapse does the market dry up, and if you're stuck, you're stuck.

Well, I got to thinking about recall provisions. This is your ability to "sell" your position. If your elected official isn't returning value - justifying your decision - you should be able to exit that position, so to speak. In this way, market accountability would reward good governors and punish bad ones. Naturally, to provide protection from simple partisan sniping, there would have to be a threshold for beginning a recall and making it valid. Nevertheless, I think the idea is a good one.

And here's where I may ruffle some feathers. I think term limits are a bad idea. We've discussed this at length in the past, but fundamentally, the right of the people to choose their governors is being infringed by instituting limits. Recall the stock market analogy. Suppose I have had my position in Exxon for about 5 years (this is roughly the case). Now imagine that I am compelled by statute to sell my position. The stock is doing great and I love it. Why should I be compelled to sell?

I think term limits are well-intentioned, but in the final analysis, inappropriate for liberty loving people in the long-term.


Carl Schultz said...

Michael, I totally agree with your thoughts regarding term limits. Elections alone provide adequate term limits. However, I will respectfully disagree with you regarding recall provisions.

First, it seems to me that it is contrary to the concept of a Republic. As James Madison discussed in Federalist Paper #10, a pure democracy is an insufficient form of government for a free people and that it eventually results in mob rule. A republic is a buffer to a majority oppressing the rights of a minority. If the majority can remove a President at its first whim with a recall, what buffer does it provide for the minority?

I also take exception to the notion of elective office as a property right (as in owning a stock); particularly at the Federal level. And if it was a property right, by what right does the majority of people have the authority to take away my property right without due process and just compensation (see the 5th Amendment). The Constitution addresses the removal of an elected official from office. The Constitutional Congress had recall available as an option. But our Founders did not leave the People the right to simply remove one from office, but established procedures for impeachment. The basis for impeachment was not for simple offences of governance, but for Treason, and other High Crimes and Misdemeanors. And then only on conviction after a trial. This provides due process, but if the office is property, where is my just compensation?

Finally, with recall there is no incentive to do the right thing when facing the mob, but only anything that 50%+1 of any group can be conned into. If we are not moral, then we will be undone. As Alexander Hamilton is quoted "The voice of the people has been said to be the voice of God; and, however generally this maxim has been quoted and believed, it is not true to fact. The people are turbulent and changing, they seldom judge or determine right." Removal from office should be the result of a sober deliberation, not from a passionate appeal.

Michael Tams said...


Recall provisions wouldn't negate the fact that our system is a Republic - I'm aware of what disdain the Founders had for democracies and I share those sentiments.

My analogy isn't to say that elected offices are property rights; it's a server/servant relationship. The point of my stock market and voting/elections analogy is a question of accountability. As an owner of a stock, company management is accountable to me for their performance. As an "owner" of my elected official, they are (perhaps: should be) accountable to me and everyone else they represent. Why shouldn't "owners" have the ability - even if it is used infrequently given the necessarily high hurdle that must be created to account for negating mere partisanship - to enforce accountability in those that act as their/our agents? As I said originally: "Naturally, to provide protection from simple partisan sniping, there would have to be a threshold for beginning a recall and making it valid." I wouldn't imagine anyone would go for a simple majority, for example.

Thanks for the comments, and I hope that clarifies things a little bit.


Terry Morris said...

Mike, good post.

I would respectfully ask of Mr. Schultz what about local recall provisions impresses him as inconsistent with the federal constitution and our Republican form of government?


Carl said...

Michael, Thank you for your clarification. I apologize for the delay in response, but with Christmas etc. I have been otherwise disposed.

I did want to pursue this line of thought from merely theoretical to the practical. In researching current recall provisions you will find that the bar is not set so high as a simple majority. Of the 18 States that have recall (19 if you count Virginia that forces a trial instead of a re-election) not one requires a super-majority in any manner. The proposed bill in Springfield requires a mere 12% of the number of people that voted for that office in the last election. Assuming only 50% of the registered voters voted (not unusual for a non-presidential election), that means that 6% of the voters can compel the expenditure of monies from the State Treasury without so much as an aye from a single one of our Legislators. Indeed, the election would occur even if every Representative was opposed. (Note: Mr. Morris, this is one example of how recall is not consistant with our Republican form of Government)

I have several other concerns, such as, the limiting of the official to remain true to his oath to protect the Constitution, the hamstringing of officials to lead in difficult times, the abuse of the majority on the minority (refer to Federalist Paper #10), the abuse of well-financed sectarian groups, etc.

It has long been the case that the burden of proof lies with the agent of change. As Abraham Lincoln put it "I do not mean to say we are bound to follow implicitly in whatever our fathers did. To do so would be to discard all the lights of current experience-- to reject all progress, all improvement. What I do say, is, that if we would supplant the opinions and policy of our fathers in any case, we should do so on evidence so conclusive and arguement so clear, that even their great authority, fairly considered and weighed, cannot stand."

The Framers of the Constitution had the ability to use a 'Throw the bums out!!!' populist approach to remove an official from office, but did not. I assume there were many reasons for choosing the impeachment process. If only by example, a recall provision is inconsistant with our Federal Constitution.

Michael Tams said...


Happy New Year, hope all is going well with you.

Thanks for the clarifying comments. I won't speak for Mr. Morris, but I'm unconvinced that recall provisions are destructive to republican government.

I see recall provisions as a means of enforcing accountability. How then - or perhaps in what scenario - would an elected official in the face of a potential recall fail to uphold their oath to support and defend the Constitution? How would the existence of such provisions prohibit leading in difficult times? One can argue that President Bush might have faced a recall challenge in the midst of the worst part of the Iraq conflict, yet, would that have stopped him from doing the right thing? Would it stop you or me?

I'll give you this: any such provision, if enacted, should be of a sufficient hurdle as to render it immune to the passions of partisianship.

I'll grant you this, as well: in my ideal America, the electorate is so energized in a system of perfectly balanced government that elected officials know that missteps are politically fatal, and such things as recall provisions are wholly unnecessary. But until we create this sort of a civic awakening (a generational or longer process), wouldn't such provisions curb the abuses of unaccountable politicians? Or at least give them something to think about/look over their shoulder?


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