David R. Henderson  

Campaign Spending Not that Effective

War on crime? Or war on the p... The Moral Case for Fossil F...

Binyamin Applebaum has an excellent article in the New York Times today, titled "Who Wants to Buy a Politician?", on the ineffectiveness, on the margin, of spending on political campaigns.


One reason is that buying elections is economically inefficient. Most voters, like most consumers, have defined preferences that are difficult for advertisers to shift. Chevron spent roughly $3 million during a recent campaign backing, certain City Council candidates in Richmond, Calif., where it operates a major refinery. Voters instead chose a slate of candidates who want to raise taxes. "Campaign spending has an extremely small impact on election outcomes, regardless of who does the spending," the University of Chicago economist Steven Levitt concluded in a 1994 paper. He found that spending an extra $100,000 in a House race might be expected to increase a candidate's vote total by about 0.33 percentage points. Investors appear to agree that companies can't make money by investing in political campaigns. A 2004 study found that changes in campaign-finance laws had no discernible impact on the share prices of companies that made donations.

One clarification on Levitt: Companies don't donate directly to the campaigns of candidates for the House of Representatives, the Senate, or the Presidency. That has been illegal since 1907. The previous year, a racist Democratic Senator from South Carolina, "Pitchfork Ben" Tillman, upset that corporations were giving money to Republican candidates who were critical of Jim Crow laws, introduced legislation banning corporate donations. It was signed by Teddy Roosevelt in 1907.
Applebaum covers ground that is covered in the entry, "Campaign Finance," in The Concise Encyclopedia of Economics. Here's one excerpt:
Every two years, public-interest groups and media pundits lament the fact that winning candidates typically far outspend their rivals. They infer from this that campaign spending drives electoral results. Most systematic studies, however, find no effect of marginal campaign spending on the electoral success of candidates.

How can this be so? The best explanation to date is that competent candidates are adept at both convincing contributors to give money and convincing voters to give their vote. Consequently, the finding that campaign spending and electoral success are highly correlated exaggerates the importance of money to a candidate's chances of winning. To gauge the causal relationship between campaign spending and electoral success, it is necessary to isolate the effects of increases in campaign spending that are unrelated to a candidate's direct appeal to voters. For example, wealthy candidates are able to spend more money on their campaigns for reasons that have little to do with their popularity among voters. Consider the experience of Senator Jon Corzine (D-N.J.), who defeated a weak Republican opponent to gain election to the Senate in 2000. Corzine spent sixty million dollars, mostly from his personal fortune, on his Senate campaign. Many observers pointed to this episode as an example of how a wealthy individual can buy elective office. Despite his record spending, however, Corzine's vote total ran behind that of the average House Democrat in New Jersey and behind the Democratic nominee for president, Al Gore, even though Gore did very little campaigning in strongly Democratic New Jersey. There is even some evidence that Corzine's wealth was a liability, given that many yard signs urged his Republican opponent to "make him spend it all!"

HT2 Tyler Cowen, who emphasizes a different, but also interesting, part of the article: Political spending just isn't that high.

Comments and Sharing

COMMENTS (7 to date)

To some extent the causation runs the other way: A candidate likely to win finds it easier to raise contributions. In this view a big contribution buys, not the increased chance of winning the election but, access to the politician once elected. A big donor can expect to get an appointment with a Congressman when an issue comes up.

I remember seeing reports that big donors on Wall Street make contributions to both Democratic and Republican candidates when the race looks like a tossup. Either way, the access is purchased.

Jeff writes:

There's quite a bit of research being done on corporate giving through PACs. Basically, the findings indicate that firms that have PACs outperform by 1% firms that don't in the year following an election. The action is at the congressional level and senatorial level, not the presidential level. Still an active area of research. Anyway, the smart(er) firms give equally to both parties, because they know that the PAC doesn't affect election outcomes.

David R. Henderson writes:

There's quite a bit of research being done on corporate giving through PACs.
As I note in my post, corporations don’t give directly to political campaigns.
Anyway, the smart(er) firms give equally to both parties,
No they don’t. See my post above.

Jeff writes:
There's quite a bit of research being done on corporate giving through PACs. As I note in my post, corporations don’t give directly to political campaigns. Anyway, the smart(er) firms give equally to both parties, No they don’t. See my post above.

I think I wasn't being clear in my comment. I'm not trying to say that firms can influence election outcomes. That's not what we (in finance) have examined anyway. What we look at is the benefit to the firm of creating/funding PACs. Lobbying money is another subject.

We do find, in most papers, that there is an economic benefit to the firm from supporting candidates through PACs. We also find the benefit is very cheap (~$25000 gets you a 1% increase in firm wealth in the year after an election). So the question, for finance people, is why don't more firms take advantage of this very cheap opportunity? The apparent bang for the buck is enormous!

One last thing: the benefit accrues to firms supporting candidates that are local. So Firm X in Michigan gets a benefit for supporting Michigan candidates, but not for supporting Alabama candidates (assuming no presence in Alabama).

I don't see where this literature contradicts anything you have written above.

Best regards,

ScottA writes:

Richard's point is a good one; a lot of the lobbying literature indicates that contributions are about access. In DC, a lot of people think of PACs mostly as 'table stakes' - you're not buying anything, but it's the price you pay to be heard and/or not be targeted. Much more about the risk of not contributing that the value of contributing.

There's a signaling explanation too; helps to indicate that you're on someone's side, so staffers will (maybe) be more likely to listen if you show up at their office.

Another finding: campaign contributions are mostly consumption goods (Stephen Ansolabehere's work is good on this). You're not buying anything except high-level participation (get to hang out with politicians, celebrities and other rich donors). That's more applicable to individuals than corporations. Might make you influential on the margins, but you can't tell politicians to do something that isn't electorally viable no matter how much you give them.

Jim Rose writes:

What about revealed preference?

The fact that business donates to politicians must have some survival value in competition!

LD Bottorff writes:

It is rather difficult for some of us to believe that Congress would tie the current budget deal to a provision that bankers, and only bankers, want. It is still a mystery that Congress continues to guarantee large mortgages. These are some of the issues on which political spending has had huge impacts. Too many people simply want to get money out of politics. That's not the solution. The solution is a better informed electorate and a press that actually looks into spending issues, instead of repeating the propaganda of their favorite politician.

Comments for this entry have been closed
Return to top