Neither side distinguished itself in the debate on the bill to prohibit Labor Department fostering of economically targeted investments, which was passed in the House of Representatives last month.
In fact, the amount of hyperbole and outright distortion on display during the debate was enough to cause this observer to lose a little more respect for Congress as a deliberative body.
Ideology overwhelmed honest debate. For example, the bill's supporters quoted a Joint Economic Committee report claiming pension funds could lose $44,000 per participant over 30 years if the funds invested 5% of their assets in ETIs.
They cited as one source of such data a study by Alicia Munnell, a former vice president of the Federal Reserve Bank of Boston and now a nominee for a seat on the president's Council of Economic Advisors.
However, Ms. Munnell's study dealt not with ETIs, but with social investments, which are technically different animals.
ETIs are defined as investments that offer risk-adjusted market rates of return, but in addition provide a supplementary benefit, e.g., increasing employment in a region. Social investing accepts that some return may be sacrificed in an investment in an effort to do good - dumping tobacco stocks from a portfolio and replacing them with another class of stock that might produce lower returns is a social investment, for example.
So Ms. Munnell's returns did not relate to what returns might be expected from economically targeted investments.
Some economically targeted investments have indeed performed poorly. But others, including New York City's targeted Government National Mortgage Association program, appear to have produced competitive returns.
The Joint Economic Committee report also cited another study by two university professors that showed ETIs lowered returns by 118 to 210 basis points.
However, more studies will be needed to settle the question of whether ETIs do in fact produce competitive risk-adjusted returns, or whether the politics and compromises involved prevent such returns.
The hyperbole was at least as great on the other side and was compounded by confused thinking and non-sequiturs.
Rep. Lynn Woolsey, D-Calif., argued passage of the bill would drive pension funds to invest overseas "where there will be absolutely no confusion about the legality of the investment," apparently assuming all domestic investments can meet the definition of economically targeted investments and therefore might be of uncertain legality. In a sense this is correct, but not in the sense ETI advocates accept.
Rep. Luis Gutierrez, D-Ill., dragged the B-2 bomber into the debate, arguing that those who want to continue B-2 production to preserve jobs should favor ETIs to preserve or create jobs. But continuing production of the B-2 wouldn't reduce the investment returns of anyone's pension funds in a meaningful way or introduce potential conflicts of interests into the investment of pension assets, as the proponents of the bill argue ETIs would do.
Both sides in this debate should be sent to debating school and made to do lots of homework.