Thoughts on Campaign Finance

I used to be a huge supporter of campaign finance reform. I love the ideal of reducing the influence of money in politics, and the unseemly quid pro quos that it engenders. But I’m starting to wonder.

So far, the efforts to temper the importance of money in the political process have primarily addressed the source of money. The campaign finance law upheld yesterday by the Supreme Court, for example, is chiefly significant for its ban on soft money contributions, which had no legal limit and were thus generally enormous.

But, as the LA Times notes today, the law will probably have minimal effect in reducing the importance of money in politics. They’re right.

The law wiped out a vast source of unregulated funding, known as “soft money,” that became a subject of scandal in the 1990s as corporations, unions and wealthy individuals wrote large checks to political parties. But as opponents of the law predicted, much of that money is finding its way back into the political system through other means.

“This law will not remove one dime from politics,” said Sen. Mitch McConnell (R-Ky.), the law’s leading congressional opponent. “Outside special interest groups have become the modern-day political parties. Soft money is not gone — it has just changed its address.”

I can’t believe I’m saying this, but I have to agree with McConnell on this one. (Just goes to show that this universe is indeed big enough that everything happens at least once.)

I think that our efforts to date to limit the influence of money in politics have been very much like our efforts to reduce the amount of illegal drugs consumed in the US. This campaign finance law almost exclusively addresses the supply of money, just as the “war on drugs” tries to reduce the supply of drugs. As in the drug issue, however, trying to limit supply but not demand will do very little to the overall quantity consumed, because the supply is virtually perfectly elastic. For all practical purposes there’s an infinite supply of both drugs and political money.

As one piece of evidence simply take a look at the quantity of money that will be raised and spent in the 2004 election cycle. It will be far greater than the amount raised in 2000, despite the campaign finance reform. I doubt the reform has even dented the rate of growth.

There’s only one way to reduce equilibrium quantity when supply is infinitely elastic – reduce demand. So to reduce the influence of money in politics, I’m convinced that we will have to directly address the demand for money. Since the lion’s share of political money is spent to buy TV ads, I would argue that the only solution is to start limiting the quantity and/or timing of TV ads that candidates can run. Do that, and you have huge and meaningful campaign finance reform, because you’ll be cutting the demand for political money.

First amendment problems? Sure – huge ones. Which is why I don’t see it happening without a constitutional amendment, which means it will probably never happen in my lifetime. Which is also why I was basically agnostic on the Supreme Court’s decision on campaign finance reform. Neither decision would have made a difference to the amount of money in politics.