The Political Economics of Campaign Finance
Milyo, Jeffrey, Independent Review
The public debate over campaign-finance reform is often framed as necessitating an unfortunate trade off between the liberal ideals of free speech and association on one side and the democratic ideals of equal representation and participation on the other. But despite frequent calls for dramatic action, the terms of the tradeoff are not well-understood. In this regard as in others, the study of the political economics of campaign finance is more notable for its faults and oversights than for its contributions. Scholarly work on campaign finance provides little basis for a cost-benefit analysis of proposed campaign-finance reforms.
First, no one has analyzed systematically the effects of campaign-finance regulations on freedom of speech or association. Are such regulations enforced in an evenhanded or a haphazard manner? Are they enforced at all? How do campaign-finance regulations affect the nature of citizen participation and public debate? Are corporate, labor, and other interest groups equally constrained? Are organized interest groups less hampered by regulation than more ad hoc coalitions? It is difficult to evaluate the desirability of either current laws or proposed reforms when the potential costs of various policies have been completely ignored by scholars and policy makers alike.
Second, we do not know much about the supposed benefits of campaign-finance regulations. Despite a plethora of research on how money affects either electoral or policy outcomes, the quality of those studies is often wanting. Recently, important methodological advances have been made in the empirical analysis of the electoral consequences of campaign spending, although no strong consensus has been reached on the importance of money in elections (e.g., Grier 1989; Levitt 1994; Ansolabehere and Snyder 1996b; Erickson and Palfrey 1998; Gerber 1998; Milyo 1998a). In addition, several admirable empirical studies of campaign contributions focus on the allocation of funds by political action committees (PACs) to congressional incumbents (e.g., Snyder 1990, 1992 and 1993; Grier and Munger 1991a, 1991b; Grier, Munger, and Roberts 1994). Though not unimportant, PAC contributions represent a small and declining share of total campaign contributions--down to about 15 percent of all contributions to federal candidates in 1996. Further, no consensus exists in the research literature as to whether campaign contributions are the functional equivalent of bribes (Lowenstein 1996; Milyo 1998b). Finally, several relevant insights from the theory of social choice have not been applied to the question of how campaign finance affects the democratic process.
In this article I deal primarily with the last two questions: Are campaign contributions interested, and if so, should we care? I argue that contrary to the apocalyptic rhetoric of some reformers, interested money plays a less deleterious role in American politics than is commonly held.
The Conventional Wisdom
The corrupting influence of money in politics is a staple of media pundits, public-interest advocates, and even many politicians. The basic claim is that interested money perverts the democratic process in three ways: (1) campaign contributions buy legislative favors, (2) campaign expenditures buy elective office, and (3) popular disgust with the dominant role of money in politics causes ordinary citizens to withdraw from participation in the political process. Consequently, the current system of campaign finance is thought to undermine the twin democratic principles of representation and participation.
It is not difficult to find lurid examples and descriptive statistics consistent with the claim that money is the driving force in American politics (Stern 1991, 1992; Morris and Gamache 1994; Makinson and Goldstein 1996). For example, usually in electoral contests the candidate who spends more money wins. Further, when incumbent officeholders run for reelection, they usually spend far more than their challengers, and they usually win reelection easily. …