The Political Economics of Campaign Finance.

• Author: MILYO, JEFFREY

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. Also, PAC contributions flow disproportionately to incumbents, and those incumbents often vote in ways that please the sponsors of their donor PACs. The funding advantage of incumbents is compounded because the absence of serious competition permits many incumbents to build up large stockpiles of unspent campaign funds. To the extent that those war chests deter future challengers, the incumbents become more securely entrenched in office. Finally, turnout in elections has been generally decreasing and campaign spending generally increasing. Yet, notwithstanding the foregoing familiar facts, more systematic evidence and more sophisticated analysis tend not to corroborate the conventional wisdom.

Empirical Studies of Campaign Finance

The conventional wisdom on the role of money in politics stands in disturbing contrast to the findings of most academic research on the topic (to the great frustration of those of us doing the research). In short, most academic experts would agree that it is very difficult to find consistent and convincing evidence that interested money buys either elections or policy favors (e.g., Sorauf 1992; Levitt 1995).

One important implication of recent empirical research on campaign finance is that the marginal value of a campaign contribution is quite small, both to the recipient and to the donor, because current law limits the size and source of contributions and because marginal campaign spending appears to have little effect on electoral outcomes (Levitt 1994; Milyo 1998a). Corroborating evidence comes from studies that demonstrate that neither candidate wealth nor campaign war chests deter challengers (Ansolabehere and Snyder 1996a; Milyo and Groseclose 1998). Therefore, it is not surprising that there is little evidence that PAC contributions influence the roll-call voting behavior of legislators (e.g., Bronars and Lott 1998; Levitt 1998).

These findings are consistent with the fact that relatively little money flows into political campaigns. For example, aggregate contributions to federal candidates and parties during the 1995-1996 electoral cycle totaled just over...