Money Walks

Why campaign contributions aren't as corrupting as you think

The recent fund-raising excesses of President Clinton and Speaker Gingrich have become unlikely stalking horses for public financing of congressional campaigns. Both Clinton and Gingrich were engaged in "party building" activities that had no direct link to any congressional campaigns. Despite this, reformers point to these scandals as evidence that we need to overhaul the entire system of campaign finance. In the words of Ann McBride, president of Common Cause, the goal is to "harness the winds of anger and turn it into a demand for positive action." The president of Public Citizen, Joan Claybrook, cites "the orgy of party spending" as evidence that "immediate efforts to clean up the system [are] absolutely necessary." The McCain-Feingold bill, currently languishing in the Senate, embodies the change campaign finance reformers crave.

McCain-Feingold, also known as the Bipartisan Campaign Finance Reform Act, would outlaw almost all soft-money contributions to political parties--a restriction unlikely to survive judicial review. The Supreme Court has consistently held that contributions for "party building" activities are protected by the First Amendment.

The remainder of the bill--the part that could probably survive judicial scrutiny--places new limits on congressional campaigns. Political action committee contributions would be eliminated. And in case the Supreme Court strikes that provision, the bill lowers maximum allowable PAC contributions from $10,000 per candidate per election cycle to $2,000. McCain-Feingold would also force radio and televison broadcasters to provide free and reduced-rate air time to candidates who abide by spending caps and restrictions on out-of-state contributions.

The leadership of Common Cause, Public Citizen, and the newly formed Campaign for America have made clear that they view McCain-Feingold as an important first step toward their real goal: full public financing of elections. Even though reformers acknowledge that public financing does violence to free speech, they see it as a necessary, drastic measure to end what they feel is the unacceptably dominant role that money plays in politics.

Few conventional wisdoms are so widely and firmly held--and so little supported by evidence--as the chestnut that there exists a vibrant cash-and-carry market for both elected offices and legislative votes. The two fundamental tenets of this "flea market" view of money and politics are 1) special interests buy favors from politicians with campaign contributions, and 2) incumbent politicians then use this dirty money to buy re-election with massive campaign expenditures.

More often than not, the popular press treats these claims as self-evident. In place of rational argument, one is simply offered lists of contributor names and dollar amounts. Visit the Web sites of the Center for Responsive Politics, Common Cause, or Public Citizen, and you will be inundated with such "analysis." When the reformers do make arguments, they point to the ever-increasing amount of money spent on elections, the gaudy spending advantage enjoyed by congressional incumbents, the high re-election rates of incumbents, the dearth of able challengers, and the well-known correlation of contributor interests with the committee assignments and voting records of incumbents.

It is true that over the past 20 years, total campaign spending has increased faster than the rate of inflation. It is also true that during this time the turnover rate in Congress (defeats plus retirements divided by the number of seats) was quite low--less than 10 percent in 1984, 1988, and 1990. In fact, it is more common for incumbents to be unopposed than to be defeated. Further, even when incumbents are challenged, most races are one-sided. Incumbents take advantage of this lack of competition to build up large reserves of campaign cash for use in future elections.

Although those facts make campaign finance reformers hyperventilate, the inferences they draw from them aren't always accurate. For example, the increase in real campaign spending has not caused a decrease in turnover in the House and Senate. Since 1992, the turnover rate in the House has averaged about 20 percent--the highest average turnover rate in more than 40 years. Part of this increase is attributable to redistricting after 1990; retirements and defeats typically increase after redistricting, when some unlucky incumbents are suddenly faced with new and possibly even unfriendly constituents.

Yet current turnover rates are higher now than they were after each of the four previous decennial redistrictings. In fact, over the past 20 years, the turnover rates in both the House and Senate show a slight positive correlation with the average spending advantage of incumbents over challengers. This is the opposite of what the conventional wisdom would predict.

Of course, it is still true that in any given election year, winning candidates spend more than losing candidates. Reformers infer from this that campaign expenditures cause electoral success, but social scientists have been unable to establish a strong causal connection. The fundamental difficulty in measuring the electoral effects of campaign spending is that contributors are more apt to give money to candidates with a greater probability of victory. In 1996, for instance, PACs contributed about $130 million to congressional incumbents and only $26 million to challengers. It is therefore not surprising that winners outspend losers.

Further, such candidate attributes as leadership, integrity, and perseverence are important determinants of both fund raising and electoral success, but are difficult to quantify. Studies that ignore these unobserved factors produce biased estimates that exaggerate the electoral effects of candidate spending. For example, you might observe that candidates who spend more money fare better in elections, but how much of this is actually caused by the money alone? Surely, part of this correlation is due to the fact that the winning candidate was intelligent, articulate, and hard-working. Since those qualities help both fund raising and vote getting, part of the observed correlation is spurious.

The most promising approach to deciphering how large a role money plays in electoral success is to examine changes in candidate vote share associated with changes in candidate spending. To the extent that the other factors that affect elections are constant over time, they will not affect changes in fund raising or vote getting. Only factors that change matter. For example, my research has indicated that House incumbents who transfer onto powerful committees or are promoted to leadership positions receive an extra $50,000 in campaign contributions, all else constant. This windfall translates into higher campaign spending but does not lead to any significant increase in vote share. I have examined several other "spending shocks" for House incumbents, but they also produce no statistically significant increases in vote share. This suggests that at least for incumbents, marginal spending is unimportant. Challengers, of course, might be a different case.

The 2nd Congressional District in Utah provides a unique case study on the effects of challenger spending. In 1992, Democrat Karen Shepard beat Republican Enid Greene in a race for an open seat.

In a 1994 rematch, however, Enid Waldholtz (Greene had gotten married in the interim) defeated the incumbent Shepard. Soon after the election, it was discovered that the Waldholtz campaign had spent almost $2 million in stolen funds. (Because of the resulting scandal, Waldholtz declined to stand for re-election in

1996.) This provides an ideal experiment, since the infusion of illegal cash was not caused by Waldholtz's political acumen, but rather by the activities of her then-campaign manager and husband (and now convict), Joe Waldholtz.

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