Public Choice and Campaign Finance

Campaign finance reform has been a heated topic with John McCain’s nomination to the Republican Party. Fred Thompson even before the nomination was tied up had the problem of supporting campaign finance reform when he was a senator. In order to educate myself I took a look at a Public Choice article that is about campaign finance.

It is called “A Public Choice Perspective on Campaign Finance Reform,” by Burton Adams and Russell Settle. They begin by giving a brief overview of the history of campaign finance. It began with the Federal Election Campaign Act of 1971 and was later amended in 1974. This is where the idea of public funding for campaign came in and a restriction on campaigns spending crazy amounts of money and getting lots of money from individuals. This did not work so then came the Bipartisan Campaign Reform Act of 2002. This tried to rein in some soft money contributions. Those who do not know “soft money” is money that can go to political parties for “party building” while hard money is money going straight to the campaign. Soft money was being limited in this case through individuals, unions, businesses, and PACs.

Some ask why is this important and is money important in campaigns? The answer is yes. The correlation between voter turnout and amount of money spend is positive and of course in most cases turnout equals good outcome. Also since 1960 to 2000 campaign spending has increased by 400%. Other interest bits are that it was also found that the greater the office the greater amount of money that is needed. This may seems to be obvious but what is interesting is that the greater office is a function of how much political appointment power and how long you are there for. Obviously, the more equals more power which means you need more money.

Capping money for campaigns would like most economists would allow the marginal benefit (MB) and marginal costs (MC) to be below and equilibrium. This is of course the benefit and costs of raising money and getting the office. The model shows an interesting point is that if we were to cap private funds and meet them with the exact public funds the equilibrium would still be lower. This is because you have eliminated the time spend raising money and now the candidates can substitute time getting more voters. There is also another fundamental flaw with campaign finance reform is that the caps are not inflation adjusted. The cap used to be $1,000 for an individual but that was in 1974. In 1994, that same money was only worth $250.

What have the candidates done to counteract this and has this actually accomplished anything? The answer is no. It instead has the campaigns try to figure out a way around. The most obvious is that donors now give to parties and they no longer use the money to “party build” instead they run commercials and funnel money for the campaigns. Noticed I used the word “for” and not “to.” This is because when you would set up a phone bank or a commercial it would be to bash the other candidate and can be ran by staffers paid by the GOP or DNC and not John McCain or Barack Obama. Bill Clinton was one of the first to figure this out and it was truly entrepreneurial.

The empirical work that was done was to see who benefited the most from the legislation. It was obvious that in general Democrat benefited because the GOP in the last six cycles has outraised the DMC by 16%. The bill was in now was “Bipartisan” like the title suggests. In the House, 94% of Dems voted for it while only 19% of Repubs did. In the Senate, 96% of the Dems voted for it while 22% of the Repubs did. The last interesting find was that years in office didn’t matter when it came to voting but the margin of victory did. The closer the margin the more likely the person was to vote for it. That is because they were probably scared of soft money being thrown their way next time.

My Thoughts: Campaign finance reform doesn’t seem to be doing much good politicians and parties seem to be getting around it. The Public Choice aspect is that initially the vote was seen to help safe up districts for those congressmen who are really worried. It somewhat limited the soft money through those organizations mentioned above, but that is about all it did. Bill Clinton’s campaign was an entrepreneur in their design to funnel soft money to the campaign. This model has been and will be used in future campaigns. We might as well as get rid of campaign finance legislation. It is a waste on society to try to get around the rules and doesn’t do anything to rein in spending.



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