Category Archives: Audit

Mitigating Political Ignorance

Ilya Somin’s Democracy and Political Ignorance paints a bleak picture of the state of our nation’s political knowledge, and of what can be done to improve it. After having devoted several posts to Political Ignorance, I would be remiss if I didn’t try to chime in with my own thoughts on making the situation better, because I think it can be made substantially better than the book leaves you believing.

First off, we only need to get a little better to get substantively better decision-making. A shift of, on average, a few percent will move a repeated process like elections away from being a random walk and towards gradual improvement. From there it is a matter of the miracle of compound interest to carry us towards better and better outcomes. Congressional Representatives are elected anywhere from an average of five times to 25 times, for senior leadership. Senators are elected less often, but almost half of the Senate has served previously in the House. They have ample opportunity to learn new patterns of response to voter knowledge.

Smart Voters

We can start making voters smarter by expanding the franchise to smart voters. This means destroying efforts at voter suppression and gerrymandering. Voter suppression (such as onerous voter ID laws) are aimed at exactly the person we want voting – the motivated voter. Political Ignorance has demonstrated that motivation and knowledge move in proportion to each other, and argues for a causal connection.

Similarly, gerrymandering devalues votes, demotivating voters. We are moving towards mathematical definitions of gerrymandering that will help the courts decide when districts need to be redrawn.

Overturning the Citizens United Supreme Court decision is also critical. Part of the problem for voters today is that the signal-to-noise ratio in media is very low. Voters are inundated by low information fire hoses of advertising and fake news. The time has come to recognize not just financial institutions as “systemically important”, but elections as well – imposing stricter requirements than normal free speech.

Doing away with voter suppression, gerrymandering, and Citizens United will have a major impact in making voters better informed and bringing more motivated voters to the polls. But we can do more.

Better Candidates

Just being a candidate should put a burden of proof on individuals that they are fit for the job. In the past, this proof has been indirect, mainly being a member of a preferred class such as white, male, property owners of a certain age.

We can do better by mandating transparency in finances, physical, and mental health, depending on the risk and level of government service. For the President, the Personnel Reliability Program would be an apporiate test. This is the test that must be passed by nuclear launch officers. Considering that the president is the first link in the chain of launch authorization, (s)he should be able to pass the same test.

Audit the Fed

If we look at the history of American capital markets it is one of boom, crash, manipulation, and mistrust until the Great Crash and the formation of the SEC in response. Government regulation of markets and corporations brought stability to the capital market and greatly lowered the risk premium of investment, allowing corporations access to larger and larger amounts of capital. Contrary to libertarian claims, without government regulation, the capital markets would not have been able to function effectively and power the growth of the last century.

One key part of this success was the requirement for the publication of yearly and quarterly financial statements, audited by independent certified public accounting firms. These statements provide clear, detailed, and trustworthy information on the activities of the corporation. Investors rely on these reports and swiftly punish executives that manipulate them. Indeed, Donald Blankenship could have served more prison time for securities fraud than for killing 29 miners.

The learning point is that a similar source of trustworthy information on politicians and their accomplishments is not currently available or widely known. While financial statements for government units would be helpful, a wider, ‘triple-bottom-line‘ approach may have to be devised that would need to be applied quarterly to give voters enough data to work from.

Just as the SEC assign corporate executives CIK numbers to track them across corporate boards and influence, it would help to have numbers assigned to politicians to be better able to collect data on all of their activities. There can be no libertarian outcry here. We already do this for the sake of money. Doing it for the sake of liberty is an even stronger rationale.

Game the System

Political Ignorance refers to one study in which participants scored higher on a test of political knowledge when offered a cash inducement. Somin downplays the importance of this result, which I think is a mistake. The important point is not that it is impossible to pay people to vote. The important point of the study is that people have more knowledge than they use unless they can be motivated to use it. They don’t need to be motivated, and only then start to acquire knowledge. Some amount of unused knowledge is stored away waiting only for motivation to bring it forth.

Can voters be motivated to access this knowledge in the voting booth? I say yes, we just have to be creative in how we do it.

Let’s imagine a contest that any registered voter can enter. It starts with a test of knowledge in three areas, the structure of government, current issues in their district, and how to filter the media to recognize bias and fake news. The contest comes with additional apps, games, and referral bonuses to help a voter up their score. Take the test as often as you want, only your last score will count. To qualify, you must take the test within a week of voting.

The next part of the contest is a lottery that rewards participants randomly, but with bias by their score. Since there is no common way to demonstrate evidence that you voted in the US, the contest is not rewarding voting. It is rewarding being a well prepared potential voter.

By making the second part a lottery, we limit the cost of the contest while still motivating participants. This bounded cost could be undertaken by the Federal Election Commission, the League of Women Voters, George Soros, Facebook, the Koch Brothers or all of the above. Yes, there is a danger that partisan actors could put out their own contests with biased questions – is that any different than political advertising today? On the other hand, a billion dollar contest sponsored by Apple, Facebook, and Google with the LWV seal of approval has a powerful cachet.

Napoleon is supposed to have said, “A soldier will fight long and hard for a bit of colored ribbon.” We aren’t asking for death in battle, just voting knowledgably. Voters can be motivated, can be come knowledgeable, using the tricks and insights of modern marketing and psychology. We only need to make a small difference for the electoral process to become better and better. So as daunting as the task is, we have to try.

Stevens Conference Keynote: XBRL More Than Numbers

Walter Hamscher gave an important message to the conference – XBRL was designed to support more than just numbers. The text block tagging of SEC filings clearly shows this, but only scratches the surface. To look deeper, let’s break out the consultant’s favorite tool, the quadrant chart! Continue reading Stevens Conference Keynote: XBRL More Than Numbers

Audit Quality Indicators, the Usual Suspects

If you are interested in audit quality (and who isn’t?) there is a very interesting slide deck available at the PCAOB web site on Audit Quality Indicators. Looking though the recommendations and survey results, it seems that there is strong support for reporting more data, not more documents, to the PCAOB. And what data standard might we use for that? Continue reading Audit Quality Indicators, the Usual Suspects

Chimerix: How Much Did You Spend On XBRL?

A trial balloon aimed at exempting most small filers from XBRL was almost floated today atImage representing Chimerix as depicted in Cru... a Congressional hearing. See the Data Transparency Coalition’s blog for the details. It would seem that several Congressmen found the testimony of Kenneth Moch, from Chimerix, to be influential. Let’s look closer at that testimony. Continue reading Chimerix: How Much Did You Spend On XBRL?

Why XBRL Exists

City seal of Detroit
We Hope For Better Things Rising From The Ashes

The City of Detroit released a joint report of its auditor general and inspector general  yesterday, detailing the problems in several areas of city governance. The areas that have attracted the attention of the media related to the city’s pension funds. The funds have made numerous payments over the years that are outside their purpose, for example year-end cash payments to active workers and pensioners. And it gets worse. Continue reading Why XBRL Exists