Unintended Consequences 1, Good Intentions 0

The McCain-Feingold reform, or Bipartisan Campaign Reform Act (BCRA), is the most recent in a long series of attempts to control what can be said, and done, in elections. (For the text of the Act, click here. For a detailed description of current campaign finance law, check this out.) Supporters, including the Senate sponsors, John McCain (AZ) and Russ Feingold (WI), presumably had good intentions when they pushed this bill through Congress in 2002. Their goal was to reduce the power of special interests and the influence of money coming from those interests. That at least was the theory. How did the legislation work out in practice?

BCRA has been a failure even for supporters of spending restrictions, like Rep. Meeks and dozens of other members of Congress. BCRA has achieved three things, all bad:

1. 1. It actually enhances the power of narrowly focused, highly organized and well-funded special interests.
2. 2. It reduces the accountability of those interests by encouraging those groups to disguise their identities.
3. 3. It raises a nearly impenetrable financial force field of protection around incumbents.

Theory vs. Practice

BCRA banned so-called soft money, money which had been collected in unlimited amounts by parties and advocacy organizations. Before BCRA, soft money that was nominally earmarked for “get out the vote” efforts and other general uses was actually being used to influence individual elections. The goal of BCRA was to close this “loophole.” Corporations and unions have long been unable to donate to candidates directly.

So BCRA banned soft money, the conduit for grassroots organizations to influence elections. Paradoxically, BCRA simultaneously expanded hard money—contributions by an individual or political action committee directly into a single candidate’s campaign chest. But this expansion—a doubling of the limit from $1000 to $2000—was trivial compared to eliminating soft money and preventing potential challengers to solicit money from parties or other organizations.

Bringing soft money under the comprehensive umbrella of regulation was supposed to curtail the ability of special interests to affect political outcomes. But there was a hole in the umbrella: according to 116 Stat. 82, Sec. 203(c)2, organizations defined in section 527 of the Internal Revenue Code of 1986 are exempt from the provisions of BCRA.

And through this hole have poured a flood of uncontrolled contributions. So-called “527s” such as “Moveon.org” or “Swift Boat Veterans for Truth” have moved to center stage in American politics. Organized groups had a greater impact on the 2004 presidential campaign than in any other election in U.S. history. Total spending by the 527s alone in the 2004 election cycle totaled nearly $400 million. Now, one could say this is not all that much money, in terms of an ad budget. After all, we spent more advertising potato chips, yogurt, or toothpaste than was spent by all the 527s combined, on all races. But if (like the supporters of BCRA) you think that we spend too much money through unregulated channels, this torrent of special interest money is the opposite of what was intended when McCain-Feingold was passed.

Defenders of BCRA would argue that the 527 seepage was not what the intention of the law. But it was a predictable consequence of the law, because one of the fundamental rules of politics is this: Power abhors a vacuum. Restricting the ability of traditional political organizations to raise funds could never reduce the influence of money in politics. Even before the legislation passed, it was clear that it would simply redirect the force of that influence in other directions, with even worse consequences for democracy.

Less Accountability, Not More

There is a 527 called “Lead 21.” It intrigued me, so I did some research. At first I thought perhaps they just had the wrong atomic weight, and it should be “Lead 207.” But in fact Lead 21 is a small 527 in California. One web site (The Center for Public Integrity) I found claimed that Lead 21 was sponsored by some young Republicans, presumably 21 year-olds who want to lead. Another site (University of California ANR Leadership Development) said that it was part of California’s Department of Agriculture and Natural Resources. In either case, there’s no telling just what the group is, or what its goals are.

527s paid for attack ads in hundreds of television markets, and no one could figure out the source of the spending. Wait: that’s not right. You could figure out the source of the spending—it was MoveOn.org or Swift Boat Veterans for Truth, or perhaps Lead 21. But no one could possibly tell who they were or where their money came from. You can look up the individual contributions, and in some cases find out the sources for the funds (if not the identities of the contributors). But the 527 contributors are simply not regulated in the same way as all organizations, including parties. And that’s the problem: Parties, whatever you think of them, are permanent and have to run on their reputations. The shadowy 527 organizations can come and go like blue sky real estate companies, making claims and accusations and then simply folding up and reforming under a different name.

BCRA, and most other “reforms”, are based on a dodgy, feel-good assumption: the key to good democratic government is the total exclusion of all taints of interest, or money. So average citizens, local party organizations, and private groups of all kinds that have an identifiable affiliation or interest are squeezed out. Yet organized 527s with vague, untraceable names like “America Coming Together,” “Safer Together 04,” or “Americans for Better Government” can cry havoc, and let slip the hooded weasels of war.

Before BCRA, parties raised money and took responsibility for the quality of political discourse. After BCRA, “shadow parties,” short-lived organizations focused on a particular issue or election became the conduits for money and influence. The consequence of BCRA has been to reduce accountability, not improve it. (There have been several efforts at further “reform”, but at this writing none of them have reached full floor consideration in either the House or the Senate.)

Incumbent Protection Act

The American system of elections has long tilted toward incumbents. As public choice research has shown for decades, any “equal” limit on spending hurts challengers. Incumbents have so many nonmonetary advantages: franking privileges, free media access, committee powers, and so on. Hard money contributors are notoriously unwilling to contribute to a candidate unless that candidate is already very likely to win.

But BCRA makes it even harder for challengers to make headway against incumbents. Rather than merely regulating the source of contributions, BCRA goes much further, asserting in effect that there is too much unregulated speech. According to the BCRA, the most important time for speech to be regulated, and incredibly even outlawed entirely, is in the period 60 days before an election. Columnist George Will (“Litigating Freedom of Speech,” Dec. 2, 2002, Washington Post) quotes a number of politicians who found the heat of a competitive campaign unpleasant. But rather than fight (or get out of the kitchen), incumbents preferred the BCRA solution of simply getting rid of annoying negative ads financed by soft money:

• Sen. Wellstone, D-Minn.: “These issue advocacy ads are a nightmare.”‘
• Sen. Cantwell, D-Wash.: BCRA “is about slowing political advertising and making sure the flow of negative ads by outside interest groups does not continue to permeate the airwaves.”
• Sen. Jeffords, I-Vt.: Issue ads “are obviously pointed at positions that are taken by you saying how horrible they are.”
• Sen. Daschle, D-S.D.: “Negative advertising is the crack cocaine of politics.”
• Sen. McCain, R-Ariz.: Negative ads “do little to further beneficial debate and a healthy political dialogue” and BCRA will “raise the tenor” of elections.

Will points out that “BCRA is government’s—the political class’—assertion of a right to fine tune the ‘tenor’ of political speech, to make it ‘healthy’ and ‘beneficial’ by suppressing speech by ‘outside interest groups.’ ”

What exactly is a “beneficial” debate? Any incumbent can give a simple answer: one the incumbent can win, or at least can dominate with superior spending power. Consider Ford, or IBM, or U.S. Steel. They would all love to have government make it harder for competitors to enter markets and challenge them to raise the quality of their products. In fact, firms make these kinds of requests all the time. Why should we be surprised that political incumbents have the same desires to be sheltered from competition?

The difference, and the problem, is that Ford doesn’t get to decide what anti-trust laws it operates under. Congress does. BCRA is the evisceration of political anti-trust law, written to ensure that incumbent monopoly power over office-holding is protected. The “electioneering” BCRA outlaws within two months of an election is simply the cold, scolding wind of competition.

Final Word

BCRA is bad politics, bad regulation, and bad democracy. The law as it now stands makes narrowly focused interests more powerful than they have been at any time in U.S. history, because of the power of money and television. Where political organizations at one time had to work mostly on mobilizing partisans, in the 21st century electronic means of communication have reduced the transactions costs of politics to the point where organized interests can focus on single issues.

Worse, BCRA has failed to meet its own stated objectives of increasing accountability. Contributions from 527s dominated the 2004 presidential election, and we knew less about the source of those funds than in any previous election since the initial passage of FECA in 1971.

Finally, the overt restrictions on speech in the BCRA hurt the competitiveness of the electoral system. The restrictions on “electioneering” mean that incumbents cannot be made to answer for unpopular positions, unless hard-money contributors find it in their interest to support a challenger. Soft money contributions, billboards, web sites, and blogs….all these avenues of political debate are closed off in the current system.

The inevitable temptation will be to close the 527 loophole as Senators McCain and Feingold have proposed. But they are chasing a chimerical political world devoid of money and influence. Instead of reducing the explicit role of money, we ought to encourage more political speech. Power and influence in politics can only be controlled by increased transparency and competition.