Who Wants to Buy a Politician? With Mike Munger
2015-01-03 · Guest: Mike Munger (Duke University economist) · 52:40
Campaign finance and money in politics
Bob Zadek and Duke University economist Mike Munger discuss the reality of money in politics, debunking the popular narrative that there is “too much” spending compared to commercial advertising. They explore the Citizens United case as a victory for freedom of association and explain how government power creates the incentive for “rent-seeking” and “regulatory capture” by established corporations.
Topics: Campaign Finance, Citizens United, Rent-Seeking, Regulatory Capture, First Amendment, McCain-Feingold, Freedom of Association, Public Choice Economics, McConnell v. FEC
Speakers: Bob Zadek, Mike Munger, Caller (John)
The Incumbent’s Advantage [00:00]
Bob Zadek: Hello everyone, welcome to the Bob Zadek Show every Sunday at 9:00 AM. Thanks so much for listening. I’m your host, Bob Zadek. Nice to be back with you. 800-345-5639 to join my conversation at any time. All calls are welcome. We are, as you know, the show of ideas, not attitude. No, sirree, Bob. No attitude here. We are the only live libertarian talk radio show on the air all weekend and proud to be so.
Just imagine that you were a business and had a new product that was going to, let’s say, a better-tasting cola than Coke or a better-manufactured product than the Apple iPhone. And you knew it was the best, and the first task you have is to get the word out so that the public will learn about your new product and perhaps buy it so you can attack the established market leaders in whatever business or trade you’re seeking to enter. So the first step would be you would advertise, and you would have to get the word out. You would budget a whole lot of money for marketing and advertising because you could have a good product or service, but if there’s no way to let the public know, then you will be a stillborn and your product will go nowhere.
Imagine further that there was a statute whereby the existing market leaders, those whom you are seeking to attack with a better product—a better phone, a better cola—assuming they could, by simply voting, prevent you from advertising, or they could limit your advertising. You would never get off the ground, your product would die, and the market leaders with the now-inferior product would remain market leaders and they could avoid all competition. That would be a detriment to the marketplace, a detriment to the free market, it would hurt all consumers, but it would certainly help the market leaders. Outlandish? Of course it is. However, that is the world that politicians try to live in—a world where politicians can prevent other politicians with a better product, that is, a better politician, from getting in front of the public.
Is There Too Much Money in Politics? [01:53]
Bob Zadek: The subject, of course, is campaign finance. Campaign finance laws in this country are written by those in office, obviously. And if you were in office and if you were writing campaign finance laws, wouldn’t you do all you can to stack the deck so that those who want your job could not get the word out? That’s the world we live in today. The subject is campaign finance and how important is money in politics. Is the deck stacked in favor of the incumbents?
Who better to explain this topic than Professor Mike Munger? Professor Mike Munger has a PhD in economics from Washington University. He is a professor at Duke University and has been for many years. Mike ran for Governor of North Carolina in 2008 as a Libertarian, a third-party candidate, and he worked as a staff economist at the Federal Trade Commission. Mike, thanks very much for joining us this chilly Sunday morning.
Mike Munger: It’s great to be on the show.
Bob Zadek: Mike, campaign finance and campaign finance reform—those words are used so often together they ought to be hyphenated. Campaign-finance-reform. Now, I introduced the topic by suggesting that politicians use campaign finance reform as a way to keep out the competition. Is that an overstatement or a reasonably accurate summary of the world we live in today?
Mike Munger: Well, it’s completely accurate. I think it is one thing that I might quarrel with in your characterization is I don’t think that politicians actually think of this as being in their self-interest. I think they genuinely think it’s in the public interest because one of the reasons they’re politicians is they genuinely believe they’re better public servants than the other people because the other side is going to tell untruths and implement bad policies. So they believe that they’re actually protecting the public, and that’s actually how the Spanish Inquisition worked out also.
So the thing that terrifies me the most—if they were self-interested, maybe they could be bought off, maybe there was some way around it. What terrifies me is that they think this is the public interest. And so they’re able to work themselves up into a moral indignation and a lot of voters, I think, are taken in by that. “We have to get money out of politics.” Well, let’s look in a—let’s try to see, is there—let me ask this question: Is there too much money in US politics? How would we tell?
Well, if you look at other countries—Israel, Japan—there’s a lot of democracies that spend far more than we do. So why does money matter in politics? I think the answer has to be voters are less than fully informed about the alternatives that are being presented to them. So it’s information. And when you think of it in those terms—not all of it is, a lot of these are attack ads, some of these maybe are telling untruths—but the main reason we need to be solicitous of the place of money in politics is we have an adversarial system. So there’s no state newspapers that are saying, “Here’s the truth about this person’s position.” The only way for me to run against an incumbent is to present an alternative, a well-articulated alternative to what the incumbent is trying to do. The incumbent already is in office. The incumbent already has a platform, the bully pulpit from which the incumbent can speak. The only way an adversarial system can work is if an alternative can be presented.
Well, if that’s true, we’re looking at the amount that we spend—it’s not nearly enough. We spend more on advertising yogurt and toothpaste than we do every year, every election year, on all of the elections in the entire United States combined. Now, maybe yogurt and toothpaste are important, but electoral politics is probably also important. So I think what’s disturbing from the outset is the presumption—and you said it well—campaign finance and campaign finance reform are really the same thing. The presumption is there’s too much money in politics. The reason is not that there’s too much money in politics; the reason is that incumbents find competition to be quite inconvenient.
Information vs. Content Restrictions [05:50]
Bob Zadek: And just to flesh out what you said about how little we spend, there was a statistic pretty widely circulated: 2014 was said to be the most expensive election in American political history. And yet the total amount spent—I believe this is correct—the total amount spent on all federal elections in 2014 was less than Procter & Gamble spent in its advertising budget in 2014. Just to put all of this into perspective.
Mike Munger: Well, one Super Bowl ad is the equivalent of 10 House races. 10 US House races is a 30-second Super Bowl ad.
Bob Zadek: My goodness. So, and the purpose and campaign spending is really—it’s obviously advertising. And while some advertising is pure puffery and has no content, but a lot of advertising does have content. And the fact is, why would the voting public want to throw out the baby with the bathwater and say, “Let’s limit the amount of content because so much of it is puffery or attack ads, negative advertising?” We are starving for information. You cannot have too much information. And if you think it’s too much, turn it off and don’t listen to it. But to limit access to the marketplace of ideas by limiting campaign spending denies voters who don’t live and breathe politics their exposure to the information they need if they want to be conscientious voters. Why would you want to snuff out information?
Mike Munger: We all start from the premise there’s too much money in politics, and we have, I think, a mental image of democracy in an idealized setting like a New England town meeting. So there’s 20 of us here, each of us stands up and says what they think, and then afterwards we all decide, and there’s no money in that. It would be unfair if one of us had a loudspeaker or a microphone where I could drown out the others. All of us ought to have an equal voice. That’s the view that people have that is actually nonsense in a geographically large democracy. No democracies work that way.
The United States has chosen an odd system, I admit. We have relatively weak parties. So we’re candidate-centered rather than party-centered election system. So other nations that spend less are much more focused on party. You don’t really get a choice of candidates; you choose one candidate or the other like in a parliamentary system. So if you look at other systems where it’s one person, one vote and you’re voting for an individual who comes from a district, I don’t know how we would decide whether we’re spending too much.
One of the things about your introduction that was interesting, though—and this is outside of our subject for today, but I want to sort of draw a line around it—is ballot access. So, you know, we’re all worried about freedoms, but it’s almost impossible for a third party to run any kind of effective race because they can’t get access to the ballot, they don’t participate in debates. So it’s very difficult for a new product to come in that way because our ballot access is more restrictive. That’s an even bigger argument for why campaign finance is the only way for new ideas to come into the system because we don’t really allow third parties. So campaign finance requires that the primaries are a place where incumbents might get challenged and new ideas can be raised by not just making contributions to the candidates themselves, but independent expenditure. So I can buy an ad and I can express my views, just like I can in the town meeting.
Because if we start with 20 people and then we go to 300 and then 500, at some point we’re going to need microphones. So instead of being something unfair, the microphone becomes essential. If you have a microphone and I don’t, that’s really a problem. The only way we can make sure everybody has access to a microphone is to open up the campaign finance system, and then everybody can stand on their soapbox and say what they believe. Some of them are going to be stupid. That’s the way it works in a democracy. I don’t want some government agency deciding a priori, “This is too stupid to be said, this is okay.” I don’t want them signing off in a kind of censorship about what speech is going to be acceptable. Let’s let the voters decide what’s too stupid to listen to.
The Duopoly and Citizens United [13:11]
Bob Zadek: And you ran, of course, as a capital-L Libertarian, as a Libertarian Party candidate for Governor in 2008. So of course you speak with a lot of firsthand knowledge about third-party access to the political marketplace. I observed—I did a show on third parties about four years ago—and I observed at that time that if business had the same power that the political parties have, they would be purely in direct violation of antitrust laws.
Mike Munger: It would violate the Sherman Act.
Bob Zadek: It would violate the Sherman Act, and we tolerate—we are more protective of exposure to toothpaste than exposure to political ideas. The country has denigrated the opportunity to have new political ideas by allowing the two major political parties to control the marketplace for ideas, where we would not allow the two major manufacturers of detergent control the marketplace. It is bizarre that we value detergent more than we value ideas.
Mike Munger: And I think in the court system, what’s surprising to me—I’ve spent a lot of time participating in court cases, and I actually—we rewrote an amicus brief for Citizens United that Justice Roberts actually directly referred to in Citizens United. And so one of the things that surprises me in participating in court cases like that is that there’s no explicit recognition of the problem of conflict of interest. At a minimum, the Democrats and Republicans are first in charge of deciding the rules for campaign finance, but second, they’re participants in the game that they’re designing. And so, you know, if the referee is also a player, that’s really a problem. So why aren’t we more solicitous of this conflict of interest problem? And the answer is, that’s really part of the basis for Citizens United is they’re saying, “Wait a minute. The referee doesn’t get to play.”
Bob Zadek: And if it were not for the genius of the Founders, as demonstrated by what you just said, which is without the checks and balances of the judicial system acting as a check on the legislative branch, without the genius of checks and balances, we would have the legislature in an unfettered way writing the rules of the game with a profound bias for incumbency. So thank heaven for the Supreme Court, for the system we have, as demonstrated by the Citizens United case. Now, we’re talking about Citizens United because you and I live and breathe politics. Let’s just explain to our listeners, those who may not recall the very important Supreme Court case of Citizens United, because it bears directly upon the subject of money in politics.
Mike Munger: Well, I think it’s one of the most misunderstood cases in recent years, and it’s often mischaracterized. Let’s briefly go back to the late ’90s, and at that time there was a debate about a piece of legislation called McCain-Feingold, or the Bipartisan Campaign Reform Act. And so we usually call it McCain-Feingold. I was privileged to testify in the US Senate before the Rules and Administration Committee about the fact that McCain-Feingold actually creates a situation where we would restrict freedom of speech that was not just express advocacy.
Now, express advocacy means “I like Smith and I don’t like Jones.” But it also would restrict electioneering. And electioneering is purely information. Electioneering says, “There’s an election next week and Smith and Jones are both running.” Politicians—McCain, John McCain—found competition so inconvenient in McCain-Feingold, they even restricted electioneering. Even any ad that mentioned a candidate’s name was not allowed within 60 days of the election. And I just thought this was patently absurd. There’s no way that’s consistent with the First Amendment to the US Constitution.
Now, in 2001, McCain-Feingold was passed, and then it was contested in a Supreme Court case called McConnell v. FEC. And I think the court decided McConnell v. FEC wrong. They allowed that provision of the McCain-Feingold Act which restricts—I mean, let’s understand how important this is. It means that I cannot express my views on politics within 60 days of an election. Well, within 60 days of an election is precisely when we want people to be able to express their views on politics. That’s what McCain-Feingold outlawed. Not contributions, not express advocacy—information. They explicitly outlawed information.
So, not long after that, a guy named Michael Moore, a filmmaker, made a movie called Fahrenheit 9/11. And it was a long excoriation of President George W. Bush, and that’s fine. I think Michael Moore has every right to do that. I actually went and saw Fahrenheit 9/11. I don’t know if you saw it, but it was like Rocky Horror Picture Show for liberals. They’re standing up on their chairs, reciting the lines, they were dressed up, throwing pieces of toast. So, fair enough. They get to have the ceremonies they want. I thought it was a little creepy, but okay.
But it was basically a long campaign ad saying, “Don’t vote for President George W. Bush in the 2004 election.” Now, that appeared to violate McCain-Feingold. Now, I think McCain-Feingold is unconstitutional, but it appeared to violate it. So an organization called Citizens United brought a complaint against Michael Moore to the Federal Election Commission saying, “Well, look, he can’t do this.” First, the Federal Election Commission said, “Well, it’s not within 60 days of the election, so it’s okay,” which is sort of weaselly. And then they issued a second decision in 2005 saying that this was a commercial enterprise because it was being shown in movie theaters. And so it wasn’t really within the scope.
So Citizens United said, “We’re going to come up with a test case.” And they made a stupid movie—let’s admit, it’s not a very good movie—called Hillary: The Movie. And it was about what a bad person Hillary Clinton was.
Bob Zadek: In other words, it was a pure documentary.
Mike Munger: It was an hour and 15-minute documentary saying, “Here’s the reasons why we think Hillary Clinton is a bad candidate.” So it’s an expression of information. Now, you know, maybe it’s incorrect in the sense the interpretations are wrong, but it was factual. And so they were going to show it in movie theaters. But it was within 60 days of the 2008 election, and the Federal Election Commission said, “No, you can’t show it. You’re not allowed to show that, you’re not allowed to show it on television, and in fact, you’re not allowed to advertise for it within 60 days of the election.” And the reason is because of McCain-Feingold.
Now, let me say, the Federal Election Commission was correct. That’s a correct interpretation of the law. The law is unconstitutional, but since the law had been upheld in McConnell v. FEC, the Federal Election Commission was correct. Hillary: The Movie was a violation of McCain-Feingold of the campaign finance law because it mentioned Hillary Clinton’s name and it actually did sort of express advocacy too—it said she’s a bad person. Now, you’re entitled to have that opinion. Other people are entitled to have their opinions. We each get a microphone.
What Citizens United did was they came together as a group, as a nonprofit corporation, and that’s one of the rights that’s guaranteed in the First Amendment to the US Constitution: freedom of association. They came together for the purpose of expressing their views politically because it’s more effective to be able to express your views as a group, to pool your money, your resources, and to try to reach the public and inform them about these issues. Federal Election Commission correctly under the law said, “Nope, you can’t do that.”
Well, the case wends its way through the courts and it finally gets to the Supreme Court. And the question that I and some other people wanted the Supreme Court to ask was: What about a book? What if it had been a book? Cambridge University Press, the prestigious academic press—suppose they had published a book and it contained the sentence “Hillary Clinton is a good candidate” or “Hillary Clinton is a bad candidate” and it was published within 60 days of the election. Well, the court asked that. We got them to ask that. And the Solicitor General of the United States, and again correctly, said, “Nope, that would be—that would outlaw. We would burn that book. We would ban the publication of that book. It would not be allowed.”
And there was silence in the courtroom. I think, you know, to realize that that was an implication of the law, and it always had been, is remarkable. So they had a rehearing of the case. And after the rehearing of the case, they sort of reassembled, and the decision that was written by Anthony Kennedy, I think you can criticize as being overly expansive because he expanded the issue from nonprofit corporations to for-profit corporations. But most importantly, they overturned McConnell v. FEC, which was unconstitutional in the first place. It was a bad decision. So saying that they overturned a precedent—well, of course they did, because it was stupid. I don’t think people understood this implication that you can’t publish books that express a political opinion within 60 days of an election.
So we have to be solicitous of that kind of information coming forward. So what freedom was it that was protected in the Citizens United decision? Almost anybody that I talk to on the street, a bar, they say, “Oh, it was just stupid. You can’t say that corporations are people.” It doesn’t. “Corporations are people” never appears anywhere in the decision. The decision is based on freedom of association. A group of people can come together, they can pool their resources, and they can express political views. And in fact, what Kennedy said in the opinion was, “If the First Amendment has any force—has any force—it prohibits Congress from fining or jailing associations of citizens for simply engaging in political speech.” Now, surely that’s right. Well, that means Citizens United was correctly decided. What’s protected is freedom of association, and I can’t say that often enough to the listeners. It’s not true that corporations are people. That has nothing to do with the decision. The decision is based on the right of freedom of association. Corporations are a kind of association. As such, they’re able to express views. And the centerpiece of our freedom is political views. They’re able to express political views.
Bob Zadek: Exactly right. And it should be mentioned that if one person has freedom of speech, a group of persons have the same freedom of speech. It’s nothing more sinister than that. This is Bob Zadek. I’m talking with Professor Mike Munger. We are talking about money in politics—too much, too little, good or bad. 800-345-5639 to join the conversation. We’ll be back in 60 really short seconds.
Rent-Seeking and Government Power [14:15]
Bob Zadek: Welcome back to the Bob Zadek Show every Sunday at 9:00 AM. I am happily your host, Bob Zadek, glad to be with you. 800-345-5639 to join my conversation with Professor Mike Munger of Duke University. Mike is an economist, of course. We are talking about the effect of money in politics, too much or too little, good or bad. And we had a short discussion about the Citizens United case. If you’re on the left, you would say the infamous, wrongly decided Citizens United case, which allowed individuals acting collectively through a corporate form to have political speech. That should not be a headline, but it was, at least on the left.
Now, Mike, one interesting side note: people on the left ridicule and don’t miss an opportunity to discuss the fact that, chuckle, chuckle, “corporations are not people, don’t be absurd,” which of course is a false narrative. Nobody says that they are. But yet those same people on the left will always talk about “greedy corporations.” And if corporations aren’t people, how could a corporation be greedy collectively? And if a corporation can be greedy, I wonder, can it also be depressed, maladjusted, insecure? Does it also have other emotions or just greed? Just an aside, not inviting a conversation. I see we have a caller, Mike. Let’s just see what John in Mountain View has to offer us this morning. John, welcome to the show.
Caller (John): Hey, how are you? I wanted to point out that money in politics is incentivized by the power of the government. The more power the government has over our lives and the sphere of our activity, the greater the incentive of money to go towards government and try to gain control of that power.
Bob Zadek: Oh, you’re exactly—that’s a wonderful, wonderful point, John. You’re exactly right. The reason, one of the reasons, like bees to honey, that there is money in politics is because when you are—if you are successful in obtaining some kind of political power through money, well then the rewards could be enormous, whether it’s tax benefits or trade embargoes, the power of government to—
Caller (John): That’s right. And the more spheres of our life that government controls, the people who have the money, their incentive is to allocate that money such that it maximizes their value. So if I’m a person or a corporation, I’ve got X dollars on my hands. I can either be a political entrepreneur and spend it to influence the wheels of government, or I can be an economic entrepreneur and spend it to create some other product. I’m just going to make a return on investment calculation and allocate my money accordingly.
Bob Zadek: John, that’s a very, very astute observation. You’re very wise to make the point. Mike?
Mike Munger: Well, not only is he very wise, I think the question is, suppose you wanted to be a “responsible”—and I’m making air quotes, which is bad radio—a “responsible” corporation and not engage in political rent-seeking. Now, rent-seeking is sort of a term of art. I’ve done a video about rent-seeking.
Bob Zadek: A wonderful video, I should add.
Mike Munger: So if you just look for “Munger and rent-seeking,” it’ll come up to try to describe what that is. But basically what John just said is a perfect summary of the decision calculus that a corporation has to make. So I have two choices. Now, I’m an existing corporation. I already have a mature market. I have two choices. I can invest in engineers and I can have a better product, I can make it more cheaply, and I can provide better service to my customers. And that’s one way to increase profits. But that’s hard because other people are doing that too. Or I can invest in lobbying. I can make campaign contributions.
And the government is selling. The government is actually available. They have said, “We’re happy to receive your contribution.” So if I make a choice, I’m probably going to be able to increase my profits more by buying what the government is selling than trying to sell to consumers. So what we need to do is have the government not be so involved. And this is exactly what John said. The more that the government is involved in regulatory policy, in licensing, in deciding like the FDA does whether a new product is acceptable to market, the more that firms are forced to redirect their investment activities towards rent-seeking and away from actually making new products. So the problem is not that there’s too much money in politics. The problem is there’s too much politics in the way that we spend our money on investment. So the politics has encroached.
Bob Zadek: And Microsoft discovered that big time in the middle to late 1990s, when Microsoft had almost no presence in Washington until there was antitrust activity against Microsoft. Then, boom, in no time, Microsoft had a massive Washington presence when before that they were just spending money on building their product and marketing, and now they had to spend money defensively, to be sure, but just to protect themselves not from competition, but from government. So that’s a perfect example of John’s point.
Mike Munger: Well, and there’s one more step, and that’s the sustainable question. If I am the CEO of a corporation, I have a fiduciary duty to try to maximize the value of shareholders. Fiduciary means that I am trusted. I’m trusted by shareholders to try to increase the value of their investment, and that’s how stock price goes up. I’m obliged, like Microsoft did, to spend money on government programs. I’m obliged to approach members of Congress because that increases my profits more. So you can’t blame the corporation. That’s like blaming a dog for eating out of the garbage. That’s what dogs do. They try to maximize profits. What we need to do is change the playing field so that the incentives for making these kinds of campaign contributions are less because government needs to stop prostituting itself. Government needs to stop selling policy. But the benefits to members of Congress of selling policy to the highest bidder are just too high. So I don’t see this as a market failure. I see this as a government failure. The reason that there’s so much money in politics is that our elected officials, because there’s no competition, have put policy up for sale.
Regulatory Capture and Dodd-Frank [19:45]
Bob Zadek: And they do so—I did a show on this about a year ago, and it was actually a segment on 60 Minutes on the same topic—of how the legislature actually adopts a legislative program that is designed to induce competition by having what they used to call “tax extender bills,” where instead of enacting legislation that gives a permanent tax break or a tax benefit, they enact it every single year so it’s up for reauthorization each year, requiring those companies that get a benefit to lobby every single year to make sure the legislation gets passed. So this is all well-orchestrated by those in power because they have the power to affect the economics of American business. So business—the money that businesses put into politics to some degree—it’s almost protection money. They are victims where they have no choice. If they are going to survive, they have to do more than just have a good product or service; they must survive the onslaught of government. So they are forced to pay protection. So I don’t find businesses as being the bad actors; they are the victims.
Mike Munger: They respond to the set of incentives that are presented to them. They’re trying to maximize their accounting profits. And the big problem we have is the way to make profits in the United States right now is to try to partner with government and instead of selling products, get subsidies that are taken from taxpayers at gunpoint. So the way Solyndra made a lot of money—Solyndra never sold a product. They never sold solar panels. But they went to hundreds of millions of dollars that were taken from taxpayers at gunpoint by the government. And it makes perfect sense. It’s hard to sell a product to someone voluntarily because I have to make them better off. But it’s easy for me to sell something for a subsidy from the government because they collect it for me and then send me the check.
Bob Zadek: So government makes the decision instead of the marketplace. And it turns out in many industries, it’s a lot cheaper to spend your dollars at government affairs level rather than at a marketing and building a better product level.
Mike Munger: Not only is it cheaper, it’s an arms race problem. If my competitor does it, I have to. And that’s what Microsoft found.
Bob Zadek: Now, there’s been a lot of economic analysis on whether or not spending money—those people who spend lots of money, think Steyer, who is a liberal Democrat who spent, I forgot, $50 or $60 or $80 million in the last election cycle, mostly backing losers because he was very strongly committed to the environmental movement. There’s been a lot of analysis on whether those organizations or individuals who spend a lot of money actually get any bang for the buck. Is that money well spent for the most part?
Mike Munger: The difficulty with this is that the amount of money that’s spent by an incumbent candidate is almost unrelated to the way that he or she actually does in the election. What affects elections is how much challengers spend. Now, what I think is interesting is that if you look at the simple correlation, that is the relationship between the amount of spending and how well you do, it’s negative. The more you spend, the less well you do. Now, there’s an explanation for that: it’s because people spend more in close races. But it’s not true that the more you spend, the better you do. A lot of people who spend more end up losing.
The other question—so that’s at the level of campaign spending. What about campaign contributions? Why is it that companies give this money? One reason is the protection racket. But the other reason is that I want to be able to have access. My business is so completely tied up with government regulation that I want to be able to have access to key members of Congress that are on the key committees. So if you look at the pattern of campaign contributions, both corporations and unions are much more likely to give to members of Congress who serve on the committees that have regulatory oversight over their activities. So the people who regulate me, I want to make sure I contribute to them. That’s not necessarily because they give me more favorable regulation, but they might give me less unfavorable regulation.
But if you again look at policies, there’s no relationship. The economists that have looked at this—and I’m one—there’s no relationship between policy and contributions. Now, sometimes you may be able to find something that looks like that, but it tends to be reversed causation. And what I mean by that is I tend to give—I’m a corporation or a labor union—I tend to give to people who agree with me. And of course, they vote the way that I would want them to vote, but they would have voted that way anyway. The amount of money that we’re talking about is so small it can’t be the reason they voted that way. So I can give $10,000. That’s not enough to buy a senator.
Bob Zadek: There was a New York Times article very recently, “Who Wants to Buy a Politician?” in the New York Times article in December 9th, 2014. And actually, that’s the article that got me interested again in this topic. And the article really concluded, just as you have said, that you really cannot—the money in politics rarely buys a politician because it simply is too small an amount. And there’s very little instance of writing a check and getting a direct benefit. Yes, you get access, but access doesn’t necessarily equal a benefit. And it’s regretful that you have to spend money to get access. That’s regretful, but there’s no direct quid pro quo.
Also, in talking about money in politics, a lot of the attention, at least on the left, is focused on the corporations as if they are the bad actors. But of course, to the extent that there is a quo for the quid, as in quid pro quo, to the extent that there is a quo, that means the politician receiving the benefit has to actually respond to it. Much akin to—now, it’s not a bribe in the legal sense, but the politician actually has to be corrupt enough to say, “I got money, therefore I will give the giver of the money a benefit.” So the bad actor is at least equally, if not more so, the politician rather than those who are forced to pay the protection to begin with. And politicians always seem to get a free pass in that alleged transaction.
Mike Munger: It really is interesting how much some of the largest recipients of campaign contributions from corporations do get a free pass. So one of the people in the US House who got year after year by far the largest contributions from Wall Street corporations and finance companies was Barney Frank. And Barney Frank was the one who wrote, or participated in writing along with Chris Dodd, the Dodd-Frank regulation after the housing bubble crisis 2007-2008. And Dodd-Frank was supposed to be this was going to be new regulation and it was going to save us all. Well, if you look at Dodd-Frank, it actually doesn’t regulate the activity of the large firms at all. What it says is there’s a bunch of compliance and reporting requirements that have the effect of raising the costs of entry into this industry. And so it’s hardly surprising that the large companies—Goldman Sachs and others—benefited enormously from Dodd-Frank. They gave money to Barney Frank. Barney Frank wrote, like the lapdog that he is, he wrote the legislation that protects the large financial firms and makes it more difficult for new firms to enter. And Barney Frank is a hero on the left. It makes me crazy.
Bob Zadek: And Elizabeth Warren worships at the altar of Dodd-Frank as if that will save us from everything. The subject, of course, my regular listeners will recognize the concept as being something called regulatory capture, a phrase that I’ve used on the show many times. That’s simply describes a situation where the industry or entities which are regulated have obtained control over the regulator, so the regulator does the bidding of the regulated for the benefit of the regulated. It came up with the oil spill in the Gulf of Mexico with the BP oil spill. There was a lot of complaint about regulatory capture in that case. And Dodd-Frank is the poster child for regulatory capture where, in effect, the big financial institutions to a large degree wrote the bill, and the bill was wonderful for them because it snuffed out any danger of competition from community and local banks, smaller banks. So it was an industry-drafted, industry-sponsored bill that was marketed as one to protect us from “too big to fail,” but in fact, it was a boon to too-big-to-fail banks.
Mike Munger: And I think the remarkable thing about this is that the people who write it and who benefit from these corporate contributions—which are basically a shakedown—then become heroes of the left. Sarbanes-Oxley, the previous regulation, also was just a way of increasing compliance and regulatory costs. Here’s the difficulty and the reason that regulatory capture is so general: there’s two groups of value creators. One is existing companies. And the other is the companies that don’t exist yet that would be nimble and innovative and create things much more cheaply. Well, by definition, that second group doesn’t exist yet, and so it’s difficult for politicians to collect any money from them. But they can collect from the existing firms. And so you’re always going to see capture, even though it would be better from consumers’ perspective to have the value creators of the future be what we’re worried about. Politics is always going to reward the value creators of the past. Markets are focused on the future; politics is focused on the past.
Campaign Strategy vs. Candidate Quality [44:25]
Bob Zadek: That’s a very interesting—I hadn’t thought of that. That’s quite an interesting observation. Now, on the subject of money in politics, are there any statistics on how much value the spenders on these political campaigns get in a pure political campaign? Do they really get good value? Is it a bargain? And I guess it’s anecdotal. Sometimes it’s a great bargain where you spend a relatively small amount of money but get profound governmental benefits. Other times, it’s a total waste of money and it’s defensive in nature, where campaign funding is spent for both candidates just as an insurance policy to make sure that you have access irrespective of who wins.
Mike Munger: Well, by and large, the surprise—and that’s the thing that the New York Times Magazine article did such a good job of talking about—is that there were these doomsday predictions about the consequence of Citizens United and other regulatory changes. There would be an avalanche of independent spending and we would lose control of our elections. And none of that happened in 2014. There was quite a bit of spending, but it tended to go through the parties and a lot of that was just regular campaign contributions.
And let me say, Citizens United didn’t change the laws about contributions. Corporations still cannot make contributions directly to candidates. These are only about independent expenditure. So there was no flood of that released. So under the existing law, a corporation can only make $10,000 in contributions. Now, they can bundle, they can put together money from executives, and there certainly are some hijinks like that that go on. But it’s going to be rare that they spend more than $40,000 or $50,000. They spend $40,000 on an executive retreat in Aspen on a weekend. This is budget dust. So the amount that they’re spending—sure, yes, they probably get $40,000 worth of benefits. The way that people who are advocates of so-called reform always pitch this is they add up all the money across all the races and say, “It’s millions of dollars, and they must be getting something for it.” Well, at $40,000 worth of access, that’s a retainer for a lobbyist. You’re paying the lobbyist more than that. So I don’t think that the amounts, once you disaggregate them and you look at particular candidates and particular policies, the amount of benefits that the policies create dwarf the amount of the contribution. So maybe it’s a really good investment, except that there’s no quid pro quo. These are things that for the most part, these members of Congress would have done anyway. The campaign contributions are just a way of getting access or supporting that person to make sure that they get re-elected. Over time, having our elections focus on these sorts of policies, I think, does affect the set of policies that we have because our elections don’t work very well. But that’s because of a lack of competition. So we’ve kind of come full circle. The way to solve this is more competition, not less.
Bob Zadek: You know, we only have a couple of minutes left. You were a retail politician. You ran for the office of Governor of North Carolina in 2008. I’d ask you to comment on a feeling or an observation that I have had. During the last election cycle, there was a lot of inside-the-beltway kind of conversation that this candidate or that candidate had a “good ground game” or ran a very effective advertising campaign or had a wonderful database and used social media effectively, and therefore they won. And when I read these news broadcasts, I said to myself, “In other words, it’s not a question of the best candidate; it’s a question of the one who’s got the best campaign staff.” And is that a way we pick our governors, those who govern us, by ground game and not about ideas and not about the person, the candidate themselves? I scratch my head and I say, “That’s how our—the leaders of our country are selected, based upon who has the most clever campaign strategy?” Ouch.
Mike Munger: It has always been true. It really started in 1828 with the election of Andrew Jackson. Martin Van Buren then was the contributor by 1840 to putting together parties as organizations, and that’s ground game. What a party does is it gets its members to go vote. If you had a basketball game—here at Duke, basketball is a big thing. So when Duke plays UNC, a lot of people want to see it. If you had a basketball game that was five guys against another five guys, nobody would come. But if you have Duke versus UNC, it’s a battle of good versus evil. So what parties do is they get people to participate. They get people to come out to the polls. Now, in 1840, that meant you went around with a wagon and a barrel of whiskey and people would ride to the polls and drink the whiskey and then come back. Now, some earnest young person knocks on your door and says, “Have you voted yet? You should go vote.” But it’s the same thing. It’s the—is your organization able to put out enough people that you can induce your partisans to go to the polls?
And I’m not sure that that’s a bad thing, but it has nothing to do with the abilities of the candidate. It has to do with the organization of the party. Well, you know, maybe it’s okay, maybe parties are a good thing, but parties in the United States are really weak. So my idea for campaign finance reform is: all right, let’s not have any contributions to candidates at all. Let’s just have contributions to parties. Let’s be honest. What we’re really voting here is a party, not a candidate. And let the parties fight it out, because then the parties would have more of an incentive to say, “Here’s what our program is.” But of course, that’s not what anybody on the left wants. What they want is to get rid of money in politics completely so that unions and other kind of labor organizations will have a big advantage because they tend to have more volunteers. And so I think it’s really craven.
Bob Zadek: Mike, we have only a minute to go. How do our guests follow your blogging or writing?
Mike Munger: Well, the information, if you wanted to go somewhere, is on MichaelMunger.com. Just MichaelMunger.com. And I have a bunch of links to videos there. I have a blog called Kids Prefer Cheese, and my Twitter, which is really where I sell most of what it is I say, is just @mungowitz. M-U-N-G-O-W-I-T-Z, @mungowitz.
Bob Zadek: This is Bob Zadek. I’ll be back next Sunday. My special guest will be John Allison, the president of the Cato Institute. We’ll be discussing John’s new book, The Leadership Crisis and the Free Market Cure. If you wish to follow me, BobZadek.com is the way to keep track of updates. You can sign up. I will send you an update once a week letting you know about the upcoming show. I’m not selling any toothpaste, just offering you ideas. Please sign on to the website and subscribe to our updates. Thank you so much for listening. Thanks again to Professor Mike Munger for giving us an hour of his time. I’ll be back next Sunday. Thanks so much for listening. Have a good day.