Tuesday, October 16, 2012

The Case for A Second Square Deal: Kicking Special Interests Out of Politics


Author's Notes:
The following is a summary of the various insights gleaned primarily from two amazing books that I will recommend to any concerned American:
  • Winner-Take-All Politics, Jacob Hacker and Paul Pierson (2010)
  • Republic, Lost, Lawrence Lessig (2011)

A few other articles were incorporated into the article as well.

This took FOREVER to write and came out at a whopping 13.5 pages. Because of this, PLEASE give your comments and opinions on my interpretation of one of the most important issues of our time: an urgent problem that should galvanize Americans of all political stripes and that will determine the life or death of this nation.

UPDATE: I added a little blurb about the Republican's "fiscal conservatism." Another addition is marked by asterisks.

In the early months of 2011, the United States faced a myriad of urgent problems. The economy remained in the doldrums. Tensions in the Middle East precipitated by the Arab Spring triggered a spike in oil prices. Many issues remained unresolved: environmental legislation, sensible immigration reform, taxation, public debt, and even a budget. However, congressmen were vigorously debating the most consuming issue of whether or not to allow banks to charge fees for the use of debit cards.

To many Americans, this is another tired episode of a 30-year soap opera: the era when Washington began to serve the interests of the rich and connected rather than the poor and the middle class. Trust in government is chronically low today:  in 2008, 69 percent believed that government was run for the benefit of a few big interests, a far higher number than the 29 percent who believed it was run for the benefit of all. A bipartisan 75 percent believe that “campaign contributions buy results from Congress.” Gallup’s most recent “confidence on Congress poll” finds that only 11 percent have confidence in this Congress. That is lower than the level of confidence that the Russian Czar, King Louis XV, and King George III all had during the Bolshevik, French, and American Revolutions. 

The Problem

3 decades ago, technological improvements such as the television and polling caused the cost of campaigning to skyrocket. As private unions quickly lost ground to globalization, congressmen in both parties increasingly sought the solicitations of big businesses and wealthy individuals, who were able to use their influence campaign contributors to control the legislative process and shift legislation towards their narrow interests.

According to the Center for Responsive Politics, in the 2010 Congressional midterms, the 0.26 percent of Americans who made campaign contributions exceeding $200 provided 2/3 of the $2.2 billion given in individual campaign contribution; meanwhile, only .05 percent reached the $2,400 limit. In fact, a mere 10 percent of Americans made any donation. In other words, campaign contributors are very unrepresentative of the American populace as a whole.

Politicians' addiction to money for election and reelection has created a dangerous form of dependence corruption, which already causes three major inherent problems:


  • It distracts public policy away from the issues the public cares about. The public most deeply cares about social issues, macroeconomics and taxation, foreign policy and aid, education, and social welfare. However, lobbyists drive the agenda towards health care, finance, fossil fuels and pollution, foreign trade, intellectual property, and tax expenditures, ostensibly in order to maximize the rents they gain from the government.

  • It dramatically decreases trust in government. When asked why they didn’t vote in the 2010 midterms when they turned out with energy in 2008,  young people overwhelmingly explained that “no matter who wins, corporate interests will still have too much power and prevent real change.”
Internet Donations: A New Hope or Another Pipe Dream?

As Jacob Hacker and Paul Pierson hopefully noted in their book Winner-Take-All Politics, there has been optimism in skillfully using the Internet to garner large sums from small donors, which can help amplify the voice of the public. In 2004, despite Bush’s close circle of large donors, Kerry was able to match Bush dollar by dollar in spending by using the Internet. In 2008, the enthusiasm generated from President Obama’s campaign allowed him to garner an even greater sum of contributions from small donors.

However, there are four major shortcomings to relying solely on the energy of a campaign or the Internet to encourage small donations:

  • Contributions by moneyed interests still formed the lion’s share of Kerry’s and Obama’s coffers, and will do so indefinitely without campaign finance reform. Because small donors come from the energy of the campaign and are inherent in every election, they do not require politicians to dramatically adjust their stances on the issues. However, the remaining shortfall has far more marginal utility because it is sorely needed to run more political ads than the opponent and turn a close election. Because special interests expect some form of reciprocation, and failure to adjust accordingly would mean future withdrawal of financial support and potential contributions towards the opponent, politicians must govern far more “pragmatically” in practice than they indicate in rhetoric.

  • The effect of the Internet is likely to be muted during Congressional midterms, which generally engages fewer people than a general election. Moreover, after two years, voters are disillusioned by the current government, which is especially bad if Democrats control Congress: historically, nearly all mid-term elections resulted in substantial electoral losses for the incumbent party.

  • When the energy of a campaign or party fizzes out, small donors aren’t likely to donate as much. This is especially true of the 2012 general election, but usually applies to every reelection campaign. Because the president usually faces electoral losses during midterms and inevitably drops several campaign promises due to deadlock and political posturing, incumbents usually enter reelection with reduced popularity. If voters have less faith in the ability of the president to achieve his signature promises, then they won’t donate as much money.

  • Even when an election is won, special interests have disproportionate influence over the legislative process. While there is only one way to pass a bill, there are about a dozen opportunities to water it down or kill it altogether. Hacker and Pierson explain:
Powerful groups defending the winner-take-all economy--business coalitions, Wall Street lobbyists, and the medical industry--are fully cognizant of the massive stakes involved, and they are battle-ready after decades of training. Vigilant and highly skilled at blocking or diverting challenges, these organized forces possess big advantages over the disorganized.

Because Super PACs multiply the power of lobbyists by allowing their clients to contribute large sums of money to the opponents of reform, and because lobbyists disproportionately represent deep-pocketed special interests over poorly funded public interest groups, special interests will have a permanent advantage in the status quo. While mass and sustained public engagement (which successfully blocked SOPA/PIPA) can remedy this, it is excruciatingly difficult to replicate on the myriad of complex issues besieging our nation today.

Moreover, anti-reformers often outspend reformers by a wide margin. In his book Republic, Lost, Lessig named two examples: for climate change reform, a margin of 9:1; for intellectual property and copyright, a margin of 1000:1; for financial reform in 2010, a margin of 20:1; for the toothless Dodd-Frank in particular, 2.5:1. Even in public education, teacher unions gave a hundred times the level of donations of other reform groups.

From the Court that brought you Bush v. Gore… Super PACs!

In the landmark case Citizens United v. FEC in 2010, the Supreme Court arguably made the worst decision since the legalization and institutionalization of segregation. They opened the floodgates for unlimited independent expenditures, allowing corporations and unions to spend as much as they like to influence the outcome of an election. Justice Kennedy, in his opinion, stated that restrictions on campaign contributions undermined free speech and asserted that there was no evidence of quid quo pro (direct) corruption in money in politics.

The concept of money as a form free speech is ridiculous for three reasons. First, is it justified to allow deranged millionaires and self-serving corporations to use a megaphone to drown out the speech of the 99.74 percent? Second, does political equality still exist when the rich and businesses get to use buckets of money to visibly sway the outcome of an election? Third, doesn’t a deep dependence corruption far outweigh any benefits associated with “free speech?”

Unfortunately, the same voices pushing for “free speech” also staunchly avoid transparency. Karl Rove has danced with the boundaries of Super PAC ads, creating shell offshoots that are not required to disclose donors because “they are not primarily engaged in political speech.” According to The Economist, one donor “gave $1 million… through a shell corporation that was disbanded shortly after the donation was made.” At the same time, the Definitely Not Coordinating with Colbert Super PAC thoroughly illustrated the weaknesses of “non-coordination.”

While Super PACs were a minor phenomenon in the 2010 midterms (comprising only 2 percent of the $3.6 billion spent), they have taken a pivotal role in 2012. Even though the 2012 election isn’t even over, there has been $371 million in independent expenditures out of the $2.11 billion in total spending so far. In other words, Super PACs alone make up 17.5 percent of all spending so far, of which an overwhelming amount is devoted to negative advertising. The heavy presence of Super PACs in overall spending has multiplied the effect of lobbying: special interest groups are able to back their demands with a much heftier sum of money.

How Special Interests Neuter the Left

In 2008, when an energetic President promising to “change the way Washington works” was elected and the Democrats made further electoral gains in both houses, reaching the magical number of 60 seats in the Senate, many progressives were excited for the potential to finally start making reforms that would alleviate the serious distortions made by the winner-take-all economy over the last three decades. They hoped for a second progressive era to address the woes of the second gilded age that opened in the previous decade.

Yet, coming into 2012, change has become a sorry joke. The stimulus plan was far too small to jumpstart economic recovery. The ACA looks remarkably like a center-right plan backed by the Heritage Foundation in the mid-1990s. Financial reform was watered down and too big to fail still exists. There were absolutely no concrete efforts to combat climate change. No legislation was passed to arrest the alarming decline of private unions. The influence of special interests actually increased with the advent of Citizens United. Time and time again, moderate and cross-pressured Democrats, backed by powerful lobbyists, watered down reform or blocked it altogether.

Perhaps most importantly, President Obama’s failure to keep to his promise to “change the way Washington works” amounts to a colossal betrayal. He won the Democratic primaries by promising something different from Clinton, but then executed her playbook in office. To put it bluntly, the President, by making change such a central plank of his platform in 2008, might have permanently cast skepticism in the ability of the President to deliver campaign finance reform.

Over the past three decades, the Democrats have performed some heinous acts to react to the decline of unions and gain campaign contributions from corporations. Significant numbers of them backed the Reagan and Bush tax cuts, some of the most fiscally irresponsible pieces of legislation of our time. They backed financial deregulation in the 1990s, triggering the deep crisis we have today. They supported both the wars in Iraq and Afghanistan, which further added to our debts. They refuse to consider cutting defense spending, even though we spend more than the next 25 countries combined (and most of those are our allies).

All of this reached a head from 2008-2010, a colossal missed opportunity for serious reform.

Economic Stimulus and the Obsession with Austerity

The sorrows began with the stimulus plan. President Obama’s economic advisers recommended at least $1.2 trillion to turn around the freefall of the economy and resume economic recovery. They emphasized using most of this money to provide debt relief to states (so they don’t start shedding public workers to balance their budgets) and consumers (with consumer debt still at 117 percent of income, they have no flexibility to spend). Instead, the battered bill was only $787 billion to attract the votes of wavering moderate Democrats and the Maine senators, and the “stimulus” was very heavy in tax cuts, which would be used to deleverage and save rather than spend. This number was also artificially inflated by a scheduled $70 billion tax cut to prevent more Americans from having to pay the Alternative Minimum Tax. Between stimulus and the bailout overseen by the Obama administration, less than $75 billion was ever intended to go to homeowners, and in the end less than $4 billion did. Even Mark Zandi, who had advised the McCain campaign, admitted that the package was too small.

Meanwhile, as debt relief to the states and municipalities dried up, they were forced to shed millions of public sector workers and cut education spending in order to maintain balanced budgets. This raised unemployment, reduced economic growth, and dealt a severe blow to the political fortunes of the Democrats.

Because this watered down stimulus plan saved us from an economic freefall, but did not visibly improve our economic outlook, it became politically impossible to support further large-scale government spending programs; instead, the discussion has shifted from spending to austerity and budget balance. However, economic weakness in the Eurozone and the reduced economic growth in China and India have caused investors to flock to the U.S. bond, whose 10-year yields are at historic lows. We currently spend $224.8 billion paying interest on our debt; while that seems like a lot, it is only 6 percent of our total budget and 11 percent of our total revenue.

While debt is indeed an enormous problem in the long term, now we need to focus on economic growth and employment. The Eurozone provides an excellent example of what would happen under severe austerity: double-dip recessions will decrease revenues, creating a vicious cycle. Anything beyond moderate austerity should not even be entertained until the unemployment is at least below 7 percent, if not below 6 percent. As long as we do not play political brinkmanship with our debt ceiling, U.S. bonds will remain the safe investment of choice in the near future. Increased economic growth would provide the revenues the government sorely needs to balance the budget and reduce our debt-to-GDP ratio in the long term.

Health Care

The passage of the Affordable Care Act, however monumental, could not have been achieved without utterly bowing to special interests. The public option, the only viable way to control health care costs in the long term, was dropped from the outset. Right now, private insurers are incredibly consolidated:  a single private insurer has 70 percent or more of the private market in 24 of 43 states examined. Because a nationwide public insurer does not need to make a profit and generally has cheaper administrative costs, they can deliver quality health care at 70 percent of the cost of private insurers, forcing them to reduce costs or provide substantially better quality. The public option would also draw from the success in Medicare in controlling costs, whose costs have grown far less rapidly than the rest of health care in general. Moreover, the CBO projected that the public option would save the government $150 billion every year.

Unfortunately, moderate Democrats needing donations from private insurers first stripped the public option of price controls; Joe Lieberman then set the tone of the debate when he threatened to filibuster the bill unless the public option was removed. For the record, Americans of both parties, including Connecticut, overwhelmingly support the public option; however, private insurers have a different opinion, and they will be allowed to pocket most of the profit gained from universal coverage.

To add further insult to injury, the ACA prevented the government from negotiating with pharmaceutical industries for drug price, which could have saved $20-30 billion.

This stipulation has an unfortunate history. In 2003, the Medicare Prescription Drug, Improvement, and Modernization Act was meant to help the middle class. However, Part D was a $49.3 billion gift to big PhRMA. At the time, there was no ambiguity in Obama’s reaction. He was angry. Not so when the ACA passed in 2010. The Wall Street Journal reports:

Initially, the Obamateers and Senate Finance Chairman Max Baucus asked [big PhRMA] for $100 billion, 90% of it from mandatory "rebates" through the Medicare prescription drug benefit like those that are imposed in Medicaid. The drug makers wheedled them down to $80 billion by offsetting cost-sharing for seniors on Medicare, in an explicit quid pro quo for protection against such rebates and re-importation. As Pfizer's then-CEO Jeff Kindler put it, "our key deal points . . . are, to some extent, as important as the total dollars." Mr. Kindler played a more influential role than we understood before, as the emails show.

The Obama campaign believed that the ACA’s expansion of coverage would increase pharmaceutical profits by $100 billion every year; under the framework of the ACA, they will be able to pocket most of this profit.  In short, Obamacare, however necessary and infinitely better than the status quo, gives a $250 billion subsidy every year to private insurers and big PhRMA. Certainly not very progressive!

Financial Reform

In financial reform, capping the size of banks to fundamentally end Too Big to Fail was dismissed from the very beginning as the financial industry spent $205 million in lobbying during 2010. Dodd-Frank is better than nothing, but its overregulation will smother small banks while providing useful loopholes for bigger ones. Regulation in derivatives is dispersed over dozens of agencies. Right now, if any of the major banks were to come into financial trouble (from overleveraging of derivatives, perhaps), the economic costs would be so great that the only pragmatic option would be to bail them out again.

Moreover, big banks are perceived as safe due to their size and implicit government guarantee. Economists Oliver Hart and Luigi Zingales calculated that the 18 largest banks receive a $34 billion annual subsidy from lower interest rates. Dodd-Frank even designates certain banks as too big to fail (which would require government intervention in the event of their failure), the implicit guarantee will encourage the maximization of risk once again, and we could see a replay of the financial crisis in a decade or two. This is an inherently unfair market, and the subsidization of these dangerous banks is absolutely outrageous. The solution would be to repeal Dodd-Frank, repeal Gramm-Leach-Biley, centralize regulation of derivatives, and impose a cap on banks: 4 percent of GDP for commercial banks and 2 percent of GDP for investment banks would be a great guideline. That way, they can fail without taking the rest of the economy with it, and the market can operate a lot more efficiently.

Reforms That Never Stood a Chance

Efforts to combat climate change were an unambiguous debacle. The cap and trade bill emerged from the House already battered and heavily watered down, and Democrat senators in coal states mercilessly shot it down. As a result, we have NO coherent policy for combating climate change, which can kill millions in the near future through more hurricanes, flooding of Florida, and debilitating droughts. It also stops the U.S. from becoming a powerful leader in combating climate change; it will be very difficult to convince China to lower its emissions when we have no concrete reform ourselves.

The Employee Free Choice Act never took flight. Private unions are only a modest drag on the economy (0.4-0.6 percent of GDP), but they are a powerful voice for the middle class and would increase the wages of both union members and nonunion workers within the industry. Unions even increase voter turnout (unions distributed information to their members and bussed them to the polls). Ironically, the National Labor Relations Act, which enshrined the right to form unions, only allowed them to form within companies rather than throughout industries. This bill was designed to allow unions to form upon the consent of the majority of workers rather than hold an additional election; right now, employers divide and conquer workers through one-on-one intimidation and fire over 20 percent of employees actively involved in forming a union. It would increase penalties for employers discriminating workers due to union advocacy, and force the arbitration of a contract to enforce the power of a private union. However, it was never even introduced because it would never pass in a Senate where cash-strapped moderate Democrats would want to tout their pro-business credentials.

The Democrats will never be a credible advocate of educational reform because they are held hostage to teacher unions, which are ironically too strong. One of the best ways to improve education is to increase the quality of the teachers: measures must be made to attract the top talent and fire those who are underperforming. Merit pay does not work because it promotes competition and teaching to the test, but this has overwhelmingly been the proposed option over reforming tenure.

Most fundamentally, legislation to publicly fund elections never even passed the House. The Fair Elections Now Act only got so close because none of the representatives thought it would credibly pass the Senate; they voted for it because standing for campaign finance reform is usually politically beneficial. Measures to expose the donors of Super PACs or ban them altogether wouldn’t even stand a chance.


How Dependence Corruption Co-opts the Right: Contradicting Key Conservative Principles

Considering the adverse effects of special interests on the left and their complicity in shifting the Republican Party far to the right, you might be surprised that special interests also undermine basic conservative principles.

However, it should be noted that the objective of special interests is only to protect their wealth. If these groups are threatened by new innovations under the free market, then their free market credentials vaporize and they demand the protection of their market gains. Meanwhile, in an effort to gain an endless stream of funds, Republican politicians are willing to contradict fundamental conservative principles as long as it means staying in power.

In this section, four basic conservative principles would be examined: small government, simple taxes, free markets, and fiscal conservatism.

  1. Small and Efficient Government
Republicans seek to keep government big so that they can create a straw man to campaign against and garner lucrative funds from special interests by promising to make it smaller. Lessig clarifies:

Having lots of targets of regulation is actually a good way to have lots of targets for fundraising. And thus, so long as fundraising is a central obligation of members of Congress, there is a conflict between the interest of small government activists and the interest of the fundraising-dependent congressmen.

This is the textbook example of a moral hazard. Lessig adds that one Joyce Foundation study found that 84 percent of corporations reported that candidates pressed them for contributions at least occasionally; 18.8 percent said it happened frequently. As seen in most of this essay, donors coerce politicians, but in this case politicians were able to game the system to coerce donors. Neither case is conducive to efficient and accountable governance.

  1. Simplified Taxes
For many Americans, filing a tax return should be simple and could work like a credit card bill. Because employers report workers’ wages to the government, and banks report interest and dividend payments, the government should be able to send a draft tax form that is already filled out and can be freely contested. Not exactly postcard simple, but taxpayers need only review the information and only a few would need to make any changes.

However, after a successful pilot project in a Californian firm, efforts to implement the system throughout California quickly hit a stone wall. Why? Tax software companies, whose business in making it “convenient” to file tax returns was existentially threatened, rallied against the reform.

If special interests have blocked the IRS’s ability to send out tax forms the way credit card companies send out their bills, then can our tax structure be simplified? Not so: Republicans also have a vested interest in preserving the insane complexity of the tax code. This is precisely why Mike Huckabee, whose signature policy was the Fair Tax, had limited success in the 2008 Republican presidential primaries.

In addition, both special interests and politicians gain from obtaining tax expenditures and loopholes for narrow groups. The American Journal in Political Science found in 2009 that for a firm spending an average of $779,945 lobbying a year, an increase of 1 percent in lobbying expenditures produces a tax benefit of between $4.8 million to $16 million. That is a staggering 600-2000 percent return, making it lucrative for special interests to lobby and to give contributions to pliant politicians to keep them in power. Republicans, seeking to enrich their wealthiest donors, are able to increase their capacity to give campaign contributions, creating a vicious cycles. In fact, the tax code is full of tax credits and loopholes that overwhelming benefit the wealthy.

Politicians of both parties have also abused the sunset clause attached to these tax loopholes and cuts in order to maximize campaign contributions. When a tax cut or loophole is about to expire, corporations and individuals are willing to pay up to the amount they save under the status quo. Since the sunset clause was introduced as a compromise in 1981 to test the efficacy of the tax credit towards research and development, only two policies with sunset clauses were allowed to expire; one of these was passed during the subsequent Congress, which still gained the contributions of the special interest group. This system allows congressmen to use policies such as the tax credit for R&D or the Bush Tax Cuts as a source for infinite campaign funding.

  1. Free Markets
There are only two things that are guaranteed in a free market. First, new innovations and competitors will threaten the established parties. Second, entrenched markets will be strongly encouraged to use everything at its disposal, including the government, to protect their wealth from the market disruptor.

Neither the Republican Party nor its benefactors stands for the free market. Many Republicans voted for protecting the steel industry in 2001 and continue to protect agricultural subsidies and the sugar industry, all of which protect far fewer jobs than they cost. While Republicans were initially hesitant about TARP, the failure to pass the legislation the first time triggered a catastrophic drop in the Dow Jones. This gave the policy a handful of additional votes necessary to barely squeak past both Houses.

Moreover, the Republicans have a strong incentive to protect the $90 billion the federal government spends in corporate welfare every year (subsidies and regulatory protections granted to certain businesses and industries). Under this arrangement, whenever a challenge is made towards this significant sum of money, politicians would rush to the aid of the relevant special interest groups in an attempt to extract more contributions from them.

  1. Fiscal conservatism
Oddly enough, many Americans seem to believe that the Republicans are better than Democrats when it comes to fiscal conservatism. If you’ve seen Mitt Romney, that is clearly not the case. In fact, over the past 3 decades, the Republican presidents have authorized more spending increases or revenue cuts than Democratic presidents. Certainly not fiscally conservative!

No Republican politician gets far without signing Grover Norquist’s pledge not to raise taxes. Furthermore, nearly all Republican politicians are bent on sharply reducing tax intake; many of their plans disproportionately benefit the rich and uber-rich (e.g. hedge fund managers and company executives). During the debate with the stimulus plan, Jim DeMint offered the “American Option” as an alternative. This would have made all Bush tax cuts for the rich permanent; the Center for American Progress estimated that the plan would cost $3.1 trillion over a decade. Yet when it came up to a vote in the Senate, all but four Republicans voted for it.

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The Republican platform is actually very rational: they implement measures that would enrich their most ardent donors: Grover Norquist and his cronies, the Koch Brothers, Karl Rove, Sheldon Adelson, et. al. This in turn gives them more money to donate to Republican congressmen seeking election and reelection, creating a catastrophic vicious cycle.

“Reforms” that don’t work: Measures that are Impractical or Ineffective Alone

Campaign finance reform is not an easy issue with a simple silver bullet. Some believe that what matters is not who gives the money but rather whether or not the donor should be identified to the people or the candidate himself. Here is a summary of Lessig’s evaluation of two proposals: transparency and complete anonymity. This section will also cover why repealing Super PACs alone is not enough.

  1. Transparency
The problem with transparency is that it simultaneously tells us too much and too little. Too much, in that it produces pages after pages of all donations over $200, which by itself says too little about how the donors to candidates affect their ideologies. For instance, if candidates took contributions from businesses, energetic citizens, and unions, how would they adjust their platform accordingly (or would they adjust at all)? When it comes to money in elections, context is everything: a donation has limited influence if an overt expectation is not clearly telegraphed. Because intentions are usually illustrated by the presence of a lobbyist behind the contribution, transparency does not differentiate the vastly different effects between, say, a businessman who donates because he is impressed with the energy behind a campaign and a gun rights organization that has lobbied extensively on the issue and is trying to loosen gun restrictions. In addition, money need not be given or withdrawn from a single candidate in order to carry out a threat. Ethan Kaplan notes that the threat can also come from giving donations to the opposing candidate. Again, this dynamic is completely ignored by transparency.

Nonetheless, transparency is necessary and can be effective when complemented with other reforms that will be discussed below. To best illustrate its role, it is like the leaked camera of the BP well gushing millions of gallons of oil into the ocean: it exposes the muck and increases the recognition that a problem exists, but it cannot be a solution by itself. To maximize its utility, it is also advisable for the FEC to summarize contributions to a candidate and group funds by industry rather than by company.

Transparency is also more effective against Super PACs: many Americans believe that this particular entity, financed by huge contributions from a handful of deranged millionaires and businesses, is deeply corrosive to democracy. As a result, if political will is insufficient to pass an amendment repealing Super PACs, transparency measures such as the DISCLOSE Act are not a shabby alternative.

  1. Anonymity
An interesting idea that some have advocated is the completely opposite of transparency: making all funds anonymous to the politicians as well as the public. As the theory goes, if politicians don’t who gave his campaign what, it is impossible for him to give favors in exchange for the money. An important component is the ability for contributors to withdraw the fund at any point. By severely reducing the level of trust between the donor and the candidate, the market for favors would also be weakened.

Let’s ignore how this system can actually achieve complete anonymity for a moment. The problem is that anonymity might be too effective at curbing dependence corruption. To extent that money is used specifically to influence legislation (most of it is), anonymity risks causing the funds to dry up completely. This is precisely what happened in local judicial elections in Florida in 1972: as soon as donations were made anonymous, the flow of money was severely curtailed.

Even if this issue can be resolved, the system would be grotesquely complex. If it is confusing to even experts critiquing the idea, it is likely to be mind-boggling for the voter. In a nation where we are skeptical that voting machines even count ballots accurately, many will find it difficult to believe that the system actually works; it would require a leap of faith.

  1. Banning Super PACs
Many Americans realize that Super PACs have an incredibly negative effect on democracy and accountable governance. However, a sizeable number believe that simply getting rid of Super PACs would sufficiently solve for the distortionary effects of money in politics.

While Super PACs are undoubtedly harmful, campaign finance reform cannot stop at Super PACs. During the late 1970s and the 1980s, a concerted effort by businesses successfully blocked reforms that would have given necessary breathing room to declining private unions. In the mid-1990s, the finance industry successfully blocked 4 anti-derivatives bills, exempted all derivatives from regulation, and repealed the Glass-Steagall Act, effectively dismantling New Deal financial regulation. Then, during the Bush years, politicians concerned with rising income inequality associated with globalization and the decline of private unions loosened restrictions on credit to reduce consumption inequality, which facilitated the subprime mortgage bubble and drove up consumer debt. In 2003, big PhRMA still managed to obtain a $49.3 billion subsidy through Medicare Part D.

In other words, banning Super PACs alone does not even come close to solving a deeper structural problem. They are a symptom of a system that has allowed special interests to reign over public interest for most of the past 3 decades.

Reforms that Do Work

The most fundamental way to reduce the corrosive influence of special interests is to create a robust system for publicly funding elections. The Fair Elections Now Act is one option; Lessig's Grant and Franklin project is another. Here is how Lessig describes his reform:

Almost every voter pays at least $50 in some form of federal taxes. So imagine a system that gave a rebate of that first $50 in the form of a “democracy voucher.” That voucher could then be given [in part or in whole] to any candidate for Congress who agreed to one simple condition: the only money that candidate would accept to finance his or her campaign would be either “democracy vouchers” or contributions from citizens capped at $100. No PAC money. No $2,500 checks. Small contributions only. And if the voter didn’t use the voucher? The money would pass to his or her party, or, if an independent, back to this public funding system.

Fifty dollars a voter is real money: more than $6 billion an election cycle. (The total raised in 2010: $1.86 billion.) It’s also my money, or your money, used to support the speech that we believe: this is not a public financing system that forces some to subsidize the speech of others. And because a campaign would have to raise its funds from the very many, it could weaken the power of the very few to demand costly kickbacks for their contributions — what the Cato Institute calls “corporate welfare,” like subsidies to ethanol manufacturers, or tariffs protecting the domestic sugar industry. Cato estimates that in 2009, the cost of such corporate welfare was $90 billion. If cutting the link to special interest funders could shrink that amount by just 10 percent, the investment would, across a two-year election cycle, pay for itself three times over.

Lessig’s voting voucher has one primary advantage over Fair Elections Now Act. First, it doesn’t allow “‘your money’ to be used for speech you don’t believe in.” To put that into perspective, imagine the Fair Elections Now Act financing the campaign of Rick Santorum. Enough said.

Nonetheless, both would force politicians voluntarily participating under the system to accept a $100 cap on individual contributions and refuse PAC or Super PAC money. That would mean that with a majority vote in the House and 60 votes in the Senate, this system could be formed without first having to pass an amendment to ban Super PACs, which requires a supermajority in both houses. In fact, either system would create the political will necessary to pass such an amendment. Under either system, lobbyist would become a more benign agent for public policy: they would provide legislators information and policy expertise on complex issues.

*Without special interests taking both parties hostage, center-rights such as Arlen Specter can stop taking refuge in the Democratic party (where they water down or block Democrat-led reform) and regain control of the Republican party; they would allow the party to live up to its principles. Meanwhile, the reforms that progressive Democrats champion would be more universally supported within the party. Perhaps most importantly, compromise would return because the Republicans no longer have an incentive to say no to everything Democrats support. Even polarization would decrease because the distance between the center-left and the center-right is shorter than the distance between the center and the far-right.

Lessig continues:

If enough representatives were elected under this system, then whenever Congress did something stupid, it would be because there were more Democrats than Republicans, or more Republicans than Democrats, or more pinheads than patriots. But whatever the reason, it would not be because of the money. No sane soul could believe that special interest money was driving a result. Every sane soul could instead believe that the mistakes were democratic mistakes, correctable through a democratic response. This system builds a treadmill that gets politicians to worry first about what we, the voters, want.

How many representatives would opt under the system? In theory, every representative who genuinely believes that the government should be dependent on the people and solely on the people would participate. One thing is for certain: the way the American people revile special interests right now, any politician participating in the system would have a significant inherent advantage over any candidate backed by big money.

Moreover, state examples in Arizona, Maine, and Connecticut demonstrate tangible success with a publicly funded system. Lessig furthers:

Though the details of these programs are different, the basic structure of all three is the same: candidates qualify by raising a large number of small contributions; once qualified, the candidates receive funding from the state to run their campaigns.

…These “clean money,” or “voter-owned,” elections have had important success. Candidates opting into these public funding systems spend more time talking to voters than to funders. They represent a broader range of citizens than the candidates who run with private money alone. And they have succeeded in increasing the competitiveness of state legislative elections, making incumbents if not more vulnerable, then at least more attentive.

As with all solutions, unfortunately, even this solution has several key weaknesses. There are two problems with its very implementation:

  • It is almost impossible to get both Houses of Congress to pass this reform. Special interests groups will fight tooth and nail against a reform that would dramatically curtail their ability to obtain corporate welfare, seek rents, and obtain tax loopholes. Recall how the government spends $90 billion in corporate welfare alone every year; that would greatly lighten the wallets of many angry leeches. 

Many congressmen would also be hesitant to embrace an unfamiliar system. The vast majority of seats in Congress are safe seats, which would be disrupted by a charismatic candidate who is able to gain the support of the people rather than big money. Moreover, the ultimate goal of a number of congressmen and their staff is to enter the revolving door and become a lobbyist, which pays very lavish salaries under the current system. All that money would evaporate under the Grant and Franklin Project or Fair Elections Now Act.

  • Special interests have a deep arsenal and can use it to undermine the system. If the Fortune 500 companies spent 1 percent of their record corporate profits, they would already be able to levy greater than $6 billion.

Even if the voucher system were passed, it is likely that limited air space and further breakthroughs in campaign technology would cause campaign costs to continue rising. It isn’t inconceivable that the size of the voucher wouldn't be increased because special interests would actively attempt to subvert such additional reforms. As long as special interests were able to block an amendment that would ban Super PACs, they would be able to swamp the system with a torrential downpour of money, completely negating the efficacy of the publicly funded system.

Unfortunately, given a discouraged and unengaged electorate (which will be covered in a later post), it is excruciatingly difficult to garner the passionate and sustained public support necessary to push campaign finance reform through. America’s present crisis is not one of immediate shock: it will not forge the same unwavering unity the same way that Pearl Harbor, Sputnik, or 9/11 did. Today’s problems resemble that of the Gilded Age: an endemic decay of the integrity of institutions, slowly chipping away at the nation’s vitality but deceptively easy to overlook.

An uninformed and indifferent electorate poses a further problem: even if the influence of special interests was successfully cut, our nation would still face deep problems. Americans have such a distorted view of left and right that the Democrats would probably identified as left (with its recent addition of moderate Democrats, it is centrist to center-right in practice) and Republicans as right (when it is far-right in reality). As long as Americans continue demanding unaffordable entitlements, increasing spending, and light taxation, then politicians will not be able to deliver the tough medicine needed to begin reducing our debt-to-GDP ratio to a more sustainable level. In addition, special interests opposing reform will continue being better organized than their reformist, public interest counterparts; it is reasonable to assume that they would be able to better articulate their concerns. Regardless, campaign finance reform is clearly the root of the problem and solving it is the prerequisite to all other meaningful reforms.

A Grim Future

One century ago, the election of 1912 represented a major crossroads for American history. Just like today, special interests dominated government and corrupted governmental institutions. On the right stood the incumbent William Taft; under his tenure, special interests regained ground and threatened once again to compromise democracy. On the far left was Eugene Debs, a surprisingly successful socialist. In the middle stood the two Progressives: Theodore Roosevelt, the big-government reformer, and Woodrow Wilson, who advocated strong laws and even stronger antitrust than his counterpart. In the end, a combined 70 percent of the electorate voted for a progressive, making it a very successful referendum on the progressive movement.

Although the 2012 election also has an ideologically diverse field of candidates, it is unlikely to bring about the same fundamental change seen in 1912. An unpopular incumbent will likely trounce an inauthentic challenger, with few votes going towards the third parties. Regardless of who wins, special interests will continue to rule Washington at the expense of the broader segments of society. It may very well take a crisis of the magnitude of Sputnik before our nation is shocked into action. If it does, it may already be too late.

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