Supremes end some campaign finance limitations, arguing that free speech trumps concerns of money in politics

Posted on April 2, 2014 by


The Supreme Court today released its opinion on a case limiting how many candidates could be supported by a wealthy individual.  Prior to its ruling, campaign limits were such that

Under the current limit, a donor can’t give more than $123,200 to candidates, parties and political action committees. Of that, just $48,600 can go directly to candidates.  That means if someone wanted to give the maximum donation, he could only contribute to nine candidates.

While many howl that money corrupts politics, Justice Roberts reply was:

“Money in politics may at times seem repugnant to some, but so too does much of what the First Amendment vigorously protects,” the chief justice wrote. “If the First Amendment protects flag burning, funeral protests, and Nazi parades — despite the profound offense such spectacles cause — it surely protects political campaign speech despite popular opposition.”

I wouldn’t be surprised if my fellow Berean Dr. Smith has some comment on the constitutionality of this ruling, but I wanted to share some political economy thoughts on campaign finance, copied from my forthcoming introductory economics textbook (coming soon to a web near you!):

Political Barriers to Entry

Are profit-seeking monopolists only active in the market arena, or can they exist elsewhere? Not surprisingly, many aspects of life feature attempts to limit competition, to include erecting significant barriers to entry. Islamic nations make proselytizing illegal, and charges of defaming their prophet are punishable by death. Most “cults” mandate members’ separation from outside influences to stay “pure” to the cause. Unions push for “prevailing wages” legislation to force government to only hire union workers in all its construction projects. Male suitors may threaten violence to competing males in the dating game, and increasingly we see similar behavior by females. Clearly, monopolists in the market place are not alone.

Politicians also engage in erecting barriers to entry to preserve their political power. How do you explain that Congress is habitually unpopular and yet incumbents almost always win (90% in the House of Representatives in 2012)? The conventional wisdom is that while Congress as a whole is unpopular, individual members are personally popular. This may have some validity, however given the voter’s rational ignorance, it seems unlikely they are very happy with someone they often cannot even name.

One way that politicians erect barriers to entry is akin to “brand names” that are well known in markets; the brand name product overcomes the voters’ ignorance as to the quality of the product by promoting a known quality to an unknown product. For instance, I enjoy eating Lay’s brand potato chips—I understand that a new flavor of chip will have a certain quality that I can count on. Similarly, if I’m on a long drive in an area I haven’t traveled before, I know that if I stop at a Wendy’s restaurant I have a reasonable expectation of what the quality will be since almost all Wendy’s are roughly the same. Political entrepreneurs brand first by party affiliation—no matter your political affiliation you have an idea what it means when someone says “democrat” or “republican.” These labels are a brand that reduces the information costs that voters have to pay to make decisions (reducing, not eliminating—recall our discussion earlier on bundling).

While there are many advantages to incumbency that are not a direct barrier to entry (such as easier access to media coverage and associated name recognition), there are direct institutional supports that create barriers to competition. These include the franking privilege, where members of Congress have taxpayer support for mailings as well as taxpayer funding for travel to meet with constituents. While ostensibly for official purposes, mailings increase name recognition and always promote only a positive view of the member. These taxpayer-funded institutional supports give a leg up to incumbents and discourage opposition. This is in addition to the well-known reality that politicians will be able to secure larger campaign donations for their “services rendered” from official actions on committees.

Given the tremendous institutional advantages of incumbency, only very strong challengers are likely to succeed unless the incumbent is exceptionally weak (due perhaps to a personal scandal or an occassional anti-incumbent mood in the electorate). Because of this, challengers must typically raise signficant funds to have any hope of being able to compete. Thus one of the most powerful barriers to entry are campaign finance restrictions which limit challengers’ ability to raise funds. Cato Scholar Brad Smith asserts,

“The key spending variable is not incumbent spending, or the ratio of incumbent to challenger spending, but the absolute level of challenger spending. Incumbents begin races with high name and issue recognition, so added spending doesn’t help them much. Challengers, however, need to build that recognition. Once a challenger has spent enough to achieve similar name and issue recognition, campaign spending limits kick in. Meanwhile the incumbent is just beginning to spend. In other words, just as a challenger starts to become competitive, campaign spending limits choke off political competition.”

-Cato Scholar Brad Smith

Seemingly fair limitations thus lock in place the institutional advantages favoring incumbents, while impeding challengers’ ability to compete.

But just as market players’ attempts to put barriers to entry in place are usually not successful over time, so too do political entrepreneurs find other ways to work around the barriers that incumbents may put in place, such as the recent rise of “527” groups making independent expenditures. Modern social networking and communication technologies are one example that is revolutionizing how political competition takes place. Ron Paul was aided in his 2008 anti-establishment presidential campaign by so called “money bombs.” These small Internet contributions were bundled together on a specific day to give small donors the opportunity to be part of something bigger, and tended to shock the political establishment. President Obama excelled at using social media to promote his 2012 re-election campaign. Whether in political or economic markets, barriers to entry are seldom permanent.

My suggestion to those wanting to get money out of politics is simple:  Bees flock to the honey.  If you want to get rid of bees, you need to remove the honey.  In other words, as long as you make political capture of Washington DC worth trillions of dollars collectively, you are going to have rent seekers trying to get their “cut of the take,” and they will use legal and illegal means to do so.  So if you want money out of politics, you need to shrink government.