What is the value of a seat in the Senate?

“Illinois Governor Rod Blagojevich was arrested this morning on federal corruption charges. One of the charges was that he tried to sell the Senate seat vacated by President-elect Obama. As governor, Blagojevich is responsible for filling it through appointment.

According to the Chicago Sun-Times, some of the ideas that he floated in exchange for the seat were a substantial salary for himself at a non-profit group or a labor union, a corporate board seat for his wife, campaign contributions, and/or a cabinet post or ambassadorship for himself.

Those are some hefty demands. So you have to wonder how much a Senate seat costs. Well, I did some quick back-of-the-envelope calculations.

First, Senators make a base salary of $167,100. Assuming a person joined the Senate at age 44 and stayed for two terms, and adjusted for 2% inflation with a 2.7% discount rate (10-year treasury), the net present value would be ~$1.9 million.

But membership in the Senate carries more than just a salary. After two terms in the upper chamber, a retiring Senator can become a well-paid lobbyist. Assuming a very conservative base salary (in today's numbers) of $318,362, a Senator-turned-lobbyist could make ~$4.5 million over another 12 years.

But that's not all, Senators are given a lifetime pension starting at age 62. The average annual pension is currently $60,972. If payments started in 18 years and continued until death at 84, the total amount received would be ~$1.8 million.

If you discount everything back to today, the net present value of the Senate seat would be ~$6.2 million.

Not bad for a public sector gig.”

Andrew Roth , “How Much Does a Senate Seat Cost?”, The Club for Growth Blog (9 December 2008).

http://www.clubforgrowth.org/2008/12/how_much_does_a_senate_seat_co.php


Andrew Roth Director of Government Affairs at the Club for Growth, a non-profit political organization whose members help elect candidates to Congress who support the Reagan vision of lower taxes and limited government.

My understanding is that the politicians attempting to buy this seat were not just criminals but also cheap, for they were not willing to pay more than a million dollars for it. Thus, they weren’t willing to pay as a bribe anything near what the seat was really worth.

Or maybe there is another reason. Maybe because, valuable as it is, the $6.2 million a Senate seat is worth must be matched against its opportunity cost, to use an economist’s phrase, that is, against the amount a corrupt politician could earn in his present position. At an implied opportunity cost of over five million dollars, politicians must be well paid in their present posts. That’s a lot more than I thought politicians would be paid. Or, maybe, the pay of a politician is somehow “supplemented” in ways they don’t want us to know about. Just guessing.