Government Financing of Political Campaigns
The corrupting influence of money in politics is widely deplored, and some reformers are seeking the superficial remedy, government financing of political campaigns
October 1, 2006
Fred Foldvary, Ph.D.

The trend of ever greater spending for political campaigns continues in the USA. In California, over $500 million is being spent for the November 2006 election, a record high. In 2004, the candidates for president spent over $880.5 million, up 66 percent from the year 2000. The special interests who provide the money include corporations, farmers, lawyers, unions, and ideological organizations. Living in California, where there are 13 state propositions on the ballot, any time I turn on the television, political ads dominate the commercials. Many of the ads are misleading, exploiting the ignorance of the voters. It's a crazy way to enact policy.

The corrupting influence of money in politics is widely deplored, and some reformers are seeking the superficial remedy, government financing of political campaigns. They call it "clean money," as it does not come from the special interests who seek and get privileges and subsidies in exchange for their funding.

But how clean is it to force taxpayers to finance negative and misleading ads? The government financing of political campaigns benefits the establishment parties, the Democratic and Republican Parties, who obtain almost all the money. Candidates of the challenger parties have a more difficult time gathering signatures and raising the funds that qualify candidates for the governmental largess.

In California, the tax for government funding of political campaigns proposed by Proposition 89 would be on corporations, making it seem like individuals would not have a personal tax burden. But a tax on corporate profits acts like an addition to the costs of production, and some of the tax is passed on to those who buy the products. To the extent that the tax is not passed on, the higher price reduces the quantity produced, creating a deadweight loss of wasted resources.

Fifty years ago, in October 1956, Hungarians revolted against Soviet rule. The puppet government fell, and hundreds of thousands of Hungarians took advantage of this window of freedom to flee the country. Soviet Union tanks came in November to crush the rebellion against tyranny. Americans applauded the revolt, but, distracted by the Suez crisis, did not prevent the reoccupation of Hungary by the USSR.

Tyranny can creep in less visibly via mass democracy. Government financing of elections creates a self-perpetuating elite who use tax money to get elected and then impose taxes and restrictions on the public. The election becomes a sham, preserving the forms of democracy while eviscerating the contents. In mass democracy, the real choice is made by those who set the agenda, the list of options presented to the voters. It's like being put in prison, where the warden magnanimously lets you choose which jail cell to live in.

Notice how sneaky are those who advocate government financing of politics. The use the corporate tax, as though the public did not end up paying it. They call it "public" funding, as though it came from the voluntary donations of the public rather than funds taken by force. They call it "clean money," as though using force to finance disgusting negative and deceptive ads is washed from political sin. This money is not free of special interests, as it comes from the greatest special interest of all, the ruling powers.

Government funding of election campaigns is usually tied to restrictions on private financing. Any restriction of private financing is a reduction of free speech, and the most important freedom of speech is precisely in choosing government officials and policies. Such restrictions end up being futile, as mass democracy has an inherent demand for huge campaign spending, and the supply from special interests is like water that flows through the cracks and around dams, and seeps underground to be tapped directly for issue ads.

There is only one way to extirpate — to pull out by the roots — a social problem, and that is to eliminate the cause. Mass democracy is the cause, and the antidote has to be the opposite, small-group democracy, where all voting takes place in tiny groups. Imagine only voting for your local neighborhood council. You know the candidates personally, and they don't need lots of money to hold meetings and distribute literature. If you don't like what they do in office, you can kick them out at any time.

Boobus americanus thinks that if he can't vote for president, he loses his political voice. His single vote will never decide who is president, and his letter advocating a land-value tax will never reach the president. The structure of voting creates the incentives that shape outcome, and if you don't change the structure, the incentives don't change.

Only with tiny voting groups does the voter get real leverage, as he can recall his village council and replace it with those who will recall the next higher level and so on. Physics tells us that a small force can lift a great weight only by using leverage.

But Boobus politicus does not learn from facts or logic, only from experiencing failure. It looks like we will have to suffer through a movement for government financing of campaigns, and then watch if fail. before Boobus learns that it does not work. It will be a difficult lesson, because Boobus first reacts to failure by wanting to do more of what failed, until the inherent failure becomes obvious.

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Fred Foldvary, Ph.D.

FRED E. FOLDVARY, Ph.D., (May 11, 1946 — June 5, 2021) was an economist who wrote weekly editorials for since 1997. Foldvary’s commentaries are well respected for their currency, sound logic, wit, and consistent devotion to human freedom. He received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He taught economics at Virginia Tech, John F. Kennedy University, Santa Clara University, and San Jose State University.

Foldvary is the author of The Soul of LibertyPublic Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research included public finance, governance, ethical philosophy, and land economics.

Foldvary is notably known for going on record in the American Journal of Economics and Sociology in 1997 to predict the exact timing of the 2008 economic depression—eleven years before the event occurred. He was able to do so due to his extensive knowledge of the real-estate cycle.