Freedomnomics: Why the Free Market Works and Other Half-Baked Theories Don't John Jr. (the dot read aloud .txt) 📖

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 2007.40 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.41

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.42

Why is Campaign Spending Increasing So Quickly?

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 2006.43 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.44 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,45 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.46

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.47 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.48 (ACT raised and spent a hefty $200 million during the 2004 campaign alone.)49

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.50

The empowerment of PACs and 527 groups by campaign finance restrictions brings