Economics: A Contemporary Introduction 9th Edition by William McEachern

Exercise 13

Case Study: Campaign Finance Reform The motivation behind campaign finance reform was to limit the influence of special interests. In what sense could that legislation have the opposite effect?
Reference Case Study:
Public Policy
Campaign Finance Reform Critics have long argued that American politics is awash in special-interest money. Most Americans seem to agree. Two-thirds of those surveyed support public financing of campaigns if it eliminates funding from large private donations and organized interest groups. Since the 1970s, presidential campaigns have been in part publicly funded, but not congressional races. Candidates who accept public funds must abide by campaign spending limits. But, by rejecting public funds, candidates can ignore spending limits.
Senators John McCain and Russ Feingold proposed a ban on so-called soft-money contributions to national parties. Soft money allows political parties to raise unlimited amounts from individuals, corporations, and labor unions and to spend it freely on partybuilding activities, such as get-out-the-vote efforts, but not on direct support for candidates. Hard money is the cash parties raise under rules that limit individual contributions and require public disclosure of donors. The McCain-Feingold measure was approved as the Bipartisan Campaign Reform Act of 2002. The act bans the solicitation of soft money by federal candidates and prohibits political advertising by special interest groups in the weeks just before an election. The contribution limit to a presidential candidate is $2,300 for the primary and $2,300 for the general election, or a combined $4,600 for both.

Limits on special-interest contributions may reduce their influence in the political process, but such caps also increase the advantage of incumbents. Although there was anti-incumbent sentiment in the 2010 congressional election, historically about 95 percent of congressional incumbents usually get reelected. Incumbents benefit from a taxpayer-funded staff and free mailing privileges; these mailings often amount to campaign literature masquerading as official communications. Limits on campaign spending also magnify the advantages of incumbency by reducing a challenger's ability to appeal directly to voters. Some liberal and conservative thinkers agree that the supply of political money should be increased, not decreased. As Curtis Gans, director of the Committee for the Study of the American Electorate argued, "The overwhelming body of scholarly research... indicates that low spending limits will undermine political competition by enhancing the existing advantages of incumbency." Money matters more to challengers because the public knows less about them. Challengers must be able to spend enough to get their message out. One study found a positive relationship between spending by challengers and their election success but found no relationship between spending by incumbents and their reelection success. So campaign spending limits favor incumbents. The U.S. Supreme Court in 2010 ruled that the federal government may not ban certain types of political spending by corporations and labor unions, ruling that: "When governments seek to use its full power, including the criminal law, to command where a person may get his or her information,... it uses censorship to control thought."
Barack Obama and John McCain together spent a little more than $1 billion in the 2008 presidential race (with most of that spent by Obama). More than a billion dollars sounds like a lot of money, but Coke spends at least twice that on advertising each year. The point is that even well-meaning legislation often has unintended consequences. Efforts to limit campaign spending may or may not reduce the influence of special interest groups, but by reducing a challenger's ability to reach the voters, spending limits increase the advantage of incumbency, thus reducing political competition.