Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't (10 page)

It seems that the next crop of presidential candidates will continue to belabor the notion that fund raising matters.
The Daily News
recently reported the leaked contents of a dossier outlining Rudy Giuliani’s strategy for his 2008 presidential run. According to
The Daily News
, “At the center of his [Giuliani’s] efforts: a massive fund-raising push to bring in at least $100 million this year, with a scramble for at least $25 million in the next three months alone.”
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Shortly after Barack Obama and Hillary Clinton announced their intentions to run for the Democratic nomination, the
New York Times
reported that both candidates aimed to raise $75 million just in 2007.
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Apparently, no one has told Guiliani, Obama, or Clinton that all this fund-raising is a waste of time. Haven’t they read
Freakonomics
?

Such counter-intuitive arguments notwithstanding, the vast majority of research confirms that contributions do affect political races. The studies also confirm that campaign contributions are much more important for lesser-known challengers than for incumbents.
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A final problem with restrictions on campaign financing is that their adoption inevitably creates momentum for ever more limitations on
public participation in elections. Such restrictions are becoming increasingly ridiculous and oppressive. In the state of Washington, we get a glimpse of the kind of new regulations that McCain-Feingold inspires. There, a judge ruled that statements by two radio talk show hosts who supported an initiative to lower the gas tax had to be defined as political advertising and thus were subject to campaign spending restrictions. This would have limited the pair’s conversations on the topic to fifteen minutes per week for the three weeks before the vote. The talk radio hosts ignored the ruling which, as of this writing, is before the state Supreme Court.
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Real per capita federal campaign expenditures for all candidates running for the House and Senate have risen 110 and 152 percent, respectively, from 1976 to 2006.
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Over the same period, real per capita income grew by only 46 percent. The dramatic growth in campaign spending is clear, but in the public debate over this problem, we rarely hear anyone consider the real reason for this explosion in spending—campaigns spend more and more because the government keeps getting bigger and bigger.

The rise in campaign spending has sparked demands for reforms ranging from stricter limits on campaign expenditures to public financing of election campaigns. And concern over “excessive” campaign spending is not limited to the federal government. Since the passage of McCain-Feingold, many states have adopted campaign finance regulations limiting donations to state political parties and restricting contributions to candidates from parties, individuals, corporations, or unions.

All these proposals to reduce campaign spending invariably ignore the root cause of the problem. The reason why campaign financing keeps growing is because the government is constantly expanding its
grip on the economy; the more that is at stake, the more people will spend to get their candidates elected.
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One-hundred years ago, when federal government spending accounted for just 2 to 3 percent of GDP, government expenditures did not affect the average citizen so directly. Today, with federal government spending at about 20 percent of GDP,
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much more is at stake when we select who will control the purse strings.

Nearly 90 percent of the growth in federal campaign spending from the 1970s to the 1990s can be explained just by the growth in federal government expenditures. Likewise, on the state level, states that saw the fastest growth in per capita government spending also witnessed the most rapid growth in per capita campaign spending. Indeed, the rise in state government expenditures explains as much as 80 percent of state legislative and gubernatorial campaign expenditures.
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Instead of addressing the growth of government, groups concerned by the rise in campaign financing inevitably advocate restrictions on campaign spending and contributions to candidates. But attempts to limit the amount of money in campaigns have failed quite extraordinarily, as we have seen. Campaign finance restrictions don’t really decrease the amount of money in campaigns; they just change the avenue the money takes from the donor’s wallet.

Due to campaign finance restrictions, many donors simply give their money to PACs instead of candidates. PACs are often portrayed by advocates of campaign finance reform as “special interest” groups that exert a malign influence on the political system. Proliferating quickly after the passage of the campaign finance reform regulations of the 1970s, they are sometimes perceived as vehicles used to avoid campaign finance restrictions. This is especially true in recent years, when a special type of political advocacy organization that is exempt from many campaign finance restrictions—so-called 527 groups—has multiplied quickly.

The proliferation of PACs was a natural reaction to campaign finance restrictions. People want to participate in the political process
and to support the candidates they like. When new regulations restrict their ability to do this, they look for other ways. Generally, when given an option, donors prefer to give directly to candidates, not to intermediaries like PACs and 527 groups. Direct donations to candidates are more efficient, largely because McCain-Feingold greatly limits coordination between interest groups and the candidates they support. PACs and 527 groups thus sometimes create inconsistent messages for a candidate, or even worse, may push an agenda that differs from that of the candidate they support. But due to restrictions on direct donations to candidates, donors are left with little choice; they are forced to support PACs and 527 groups by default.

While utterly failing to counter the surge of money in politics, campaign finance restrictions have empowered PACs and 527 groups. This is evident in the campaign spending by billionaire George Soros, who spent close to $18 million advocating for campaign finance reform.
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However, the adoption of McCain-Feingold has not removed Soros’ own money from politics. Instead, he has given tens of millions of dollars to a variety of liberal PACs and 527 groups including
Moveon.org
and America Coming Together (ACT). These groups have largely taken over some campaign functions that the political parties used to control, such as advertising and get-out-the-vote drives.
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(ACT raised and spent a hefty $200 million during the 2004 campaign alone.)
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As Soros himself demonstrates, since McCain-Feingold, money continues to pour in to political campaigns, even from some of the biggest advocates of campaign finance reform. But instead of going directly to political parties and individual candidates, the money is now being funneled through the less efficient auspices of non-party organizations.
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The empowerment of PACs and 527 groups by campaign finance restrictions brings a detrimental consequence that is frequently overlooked—it increases the number and intensity of negative political advertisements. Political commentators and newspaper editorials frequently
complain that the proliferation of negative campaign ads breeds cynicism and depresses voter turnout.
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Just before the 2006 November election, for example, CBS bemoaned that “This political season has already set records . . . in terms of the number of negative ads that we’re forced to watch.”
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Such commentary, however, tends to ignore the relationship between the rise in negative ads and campaign finance reform. Candidates have been forced by campaign finance limits—and particularly by McCain-Feingold—to cede much of the responsibility for producing political ads to independent PACs and 527s. These groups are more able to run negative ads than candidates can themselves because these groups are less concerned about a possible backlash—if a PAC-sponsored ad is particularly offensive, the candidate that it is supposed to help can always claim that he has no connection to the commercial or to the group that produced it. This is not so easy to argue if the objectionable ad is produced by the candidate’s own staff.

Annoyed that 527 groups still allow citizens a roundabout way to donate to their favored candidates, campaign finance reformers have introduced legislation to further restrict their activities, such as the 527 Reform Act of 2005. Even if approved, such “reforms” will not abolish money from politics; they’ll just once again change its route. The National Rifle Association (NRA) recently foreshadowed how interest groups might react to all these restrictions when it looked into purchasing a TV or radio station. The group, perhaps, could thereby avoid myriad campaign finance restrictions by claiming the status of a media organization.

While campaign spending continues to grow rapidly, we must keep the overall figures in perspective. In 2004, total campaign spending for all House, Senate, and presidential candidates amounted to $2.17 billion while overall federal government spending was about $2.23 trillion.
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Thus campaign expenditures totaled roughly one-thousandth of what the federal government spent. With trillions of dollars a year at
stake, is that really too much to spend in debating how that money should be allocated? We must expect a lot of people will spend large amounts of cash to influence the selection of the people who control such huge amounts of money. But for those of you who think $2.17 billion is an outrageous sum, consider this: Proctor & Gamble spent $3.9 billion on advertising in that same year.
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In the popular mind, one of the quintessential examples of influence-peddling is the phenomenon of “double-giving”—donors giving funds to both candidates in a political race to ensure that whoever is elected will be in their debt.

Judging by media articles and reports from various interest groups, the phenomenon of double giving is a widespread, cynical practice that illustrates the need for campaign finance reform. The AP reported that the practice “isn’t all that unusual” in an August 2006 article entitled, “No need to choose sides, some donors give to both gubernatorial candidates.”
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According to the Center for Responsive Politics, “double-giving [by PACs] is the classic example of pragmatic political investment. It shows that there is little ideological content behind the contributions. They just want to give to the winner with the hope that it will pay off legislatively.”
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A study by Public Campaign, an advocacy organization for campaign finance regulations, found that “forty-seven companies and organizations that appear on the donor list of three or more presidential candidates gave at least $50,000 overall. Forty-five of these companies are playing the entire field, showing up on all four of the front-runners’ donor lists.”
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This indeed seems cynical. Not many donors can really believe that both the Democrat and the Republican candidate in a race are equally good. And even if this were the case, why would donors waste their money donating to both candidates instead of moving their donations
to other races where politicians differed in a more substantial way? The only explanation for double-giving seems to be to buy influence.

Yet, this entire image of double giving is a complete myth.
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In fact, it is impossible for corporations to practice double-giving in any federal races at all, since they are legally banned from donating to federal candidates whether in House, Senate, or presidential races. Similar restrictions also exist in many states for state elections.
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What is often lazily reported as “corporate” donations for a federal race is really the sum-total of donations by a corporation’s individual employees. And there is a perfectly logical explanation why we would see corporate employees donating to both parties: most companies employ both Republicans and Democrats.

As for PACs, they almost never double-give. Ron Pearson of the Conservative Victory Fund reports, “I cannot think of one case, and I have carefully studied all the conservative PAC contributions, where a conservative PAC has simultaneously given to more than one candidate in a race.”
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Likewise, Ann Murry of the American Medical Association notes, “I couldn’t say with complete certainty that we have never done that, but it sure would seem weird if we did.” Indeed, there is certainly good cause for viewing double-giving as “weird.” According to Chris Farrell, the director of the National Association of Retired Federal Employees’ PAC, “contributions to both candidates in a race is the same as contributions to neither.” The purpose of double-giving is ostensibly to ensure that whoever wins the election will feel indebted to the donor, but it’s hard to imagine how a candidate could perceive such a debt to a PAC that had also given money to his opponent. As Farrell remarked, “it’s not like these candidates are stupid.”

Even in the few instances when PACs do double-give, the donations are usually not made for the cynical reason claimed by campaign finance proponents. Mary Anne Karpinsky of the Association of Trial Lawyers of American affirms that her organization only engages in double-giving “in one in a thousand races,” and that “the only time that that occurs is
if a particular candidate is a member.” Similarly, Jim Tobin, the director of the National Association of Life Underwriters PAC, testifies that instances of double-giving by his PAC are “extremely rare,” occurring “no more than 1 percent, maybe 2 percent of the time.” This happens when “one of our members may be running for Congress and, even though he may not stand a chance, we feel obligated to give him some money so as to encourage other members to run in the future.”