April 30, 2005

Correcting the Bizarre Incentives Created by Campaign Finance Reform Laws

Donald B. Hawthorne

Carroll Andrew Morse has a terrific, focused posting entitled First They Came for the Radio Talk Show Hosts... that gets to the heart of the latest fallout from campaign finance reform here in Rhode Island. Once again, we have an example of how legislation has unintended consequences that, in this case, affect our freedom of speech.

Dating back to the post-Watergate reforms in the 1970's, I continue to be amazed at how people think it is possible to construct ways to limit the flow of money into politics. And so we have concepts such as hard money, soft money, donation limits by individuals, donation limits by corporate entities, political action committees, 527's, etc.

Like water flowing downhill, money simply finds new ways to flow into politics after each such "reform." Does any rational person really think all these limitations have reduced the influence of money on politics? Surely not. Have all these limitations changed behavioral incentives for people or organizations with money? Quite clearly, as the 527's showed in the 2004 elections. But all we have done is made the flow of money more convoluted and frequently more difficult to trace. Are we better off for all the changes? Hardly. And, the adverse and unintended consequences will only continue into the future.

What can we do differently? Here is an alternative, and arguably more straightforward, view of the world:

1. Government has become a huge business, which means there is a lot of money for various interest groups - of all political persuasions - to grab, some for legitimate reasons and much in the form of pork. Money flows into politics to buy influence because so much is at stake financially. While no one wants to talk about it openly, the flow of large sums of money into politics is yet another unfortunate price we pay for allowing government to become such a pervasive part of our lives. If we truly had limited government, the pressure to buy influence would be much reduced. It is nothing but foolish ignorance to seek limits on the flow of money without first reducing the structural incentives that currently give people an economic reason to buy influence.

2. Since money is going to flow into politics, one way or another, then we should stop setting up barriers to free speech like Morse notes have come out of the latest campaign finance reform law. Rather, why not take all limits off political contributions in America in exchange for requiring ALL details about such contributions be posted in a standardized report format on the Internet within 24 hours of receipt by either an individual politician or by a political party? Total transparency and accountability, unlike today. If a George Soros or a Richard Scaiffe contributes vast monies, anyone paying attention will see it and the public scrutiny will be immediate. No more PAC's, no more 527's, no more hard versus soft money distinctions, etc. Eliminate the incentives to play fundraising games like the alleged misdeeds by Hillary Clinton's Senate campaign. More on the latter can be found here and here.

Such reform even has the potential to weaken the power of incumbents in both parties and create real competition in our political races. Think about Eugene McCarthy in 1968 and Ronald Reagan's various campaigns where each challenged the status quo and all of which were the result of having committed financial sponsors. Today many candidates have to be wealthy so they can spend their own money. Limiting the pool of candidates does not result in a better pool of candidates.

Total transparency and accountability in politics, with the potential for greater competition. Should not those be the policy objectives underlying our campaign finance laws? And, if successfully implemented, wouldn't that be a novel concept?

Of course, it is sadly ironic that achieving such transparency, accountability and competition will only happen if our incumbent politicians vote for new laws. Yet, given their own self-interest, our politicians have no incentive to support such changes and that lessens our freedom as American citizens. Yet another price we pay for big government.