Back to political economy again. The recently finished US elections offered a unique perspective on what campaign money can and can't do.
And while the majority is worried that more money being allowed to circulate in campaign spending will inevitably result in the end of democracy, others claim that this election is proof that it won't.
There is an academic paper by Ansolabehere et al. (2003) "Why is there so little money in US politics", that claims that individuals, not interest groups, are the main drivers in campaign spending, that campaign contributions fall as a % of GDP, not rise, and finally that there is little relationship between money and legislator votes. They tend to overturn the traditional argument (conventional wisdom) that differences in campaign spending drive electoral outcomes. The strength of this argument in political science was exemplified by old regression models that could easily establish a positive relationship between money and electoral victory. However, with modern tools and approaches, newer findings, newer data and even field experiments money seems to play a significantly less important part in securing an electoral victory (assuming that an initial threshold has to be fulfilled). Garret Jones of EconLog has a nice sum up of the whole subject.
In addition, the divergence between voters in America fails to support the argument that their votes can be bought, even with undecided voters in swing states.
Is it a stimulus?
But what occupied my mind in the whole money and politics debate is the total amount of money spent by both candidates. This sums up to around $7.4bn just on TV ads. Counting in for all other spending, plus the spending in the Republican primaries from the beginning of the year, the aggregate amount spent is very likely to go up over $10bn. (Also check out this video of money bombs from The Economist).
|This is an estimate from OpenSecrets.org, run by the Center for |
Responsive Politics, which usually tracks campaign funding.
Their direct estimate on total campaign spending was $6bn.
So the main question is, should we consider this a fiscal stimulus to the economy? After all money was redistributed from the rich (donors) to the rest (media, gas, posters, etc). Think about it, those who directly made money were the media (and indirectly via attracting more audience); all those who printed badges, signs, posters; the gas companies who supplied all the gas to travel cross-country; the auto industry which sold new trucks (provided that the parties bought new stuff, and didn't re-use their existing vehicles); PR firms; design experts (someone had to design all the wonderful posters and logos), and so on, and so on.
In fact this sort of fiscal stimulus can be even more efficient than the usual type since there are no bureaucrats involved in distributing the funds to the real economy. The decisions on which product to buy are made based on price competition, not political favours (even though PR agencies are chosen a bit differently).
What does make it a stimulus is the fact that the political campaign was a perfect example of an artificial one-off allocation of resources towards favourable industries. Favourable in this case is completely randomly determined, since neither of these industries strive on election campaigns (well, apart from badge and poster makers, and political PR firms). Finally, it's also a fair allocation, since the money was distributed (voluntarily, which makes it more fair than taxes, at least) from the rich (this includes interest groups), to the "real" economy. Maybe even some jobs were created. Perhaps this drove the September unemployment figures downwards (recall a similar phenomenon in the UK with the 2012 Olympic games).
So will this significant fiscal stimulus help the economic recovery? No. Election campaigns, just like natural disasters, never before proved to have had any positive impact on economic growth or wealth creation. And since I mentioned the UK's Olympics job boost, the effect is likely to be similar for the US - temporary, and without any benefit in increasing confidence, reducing uncertainty, or inducing the banks to lend more.
In terms of stimulating the economy, the campaign money will fall under the category of what money can't do.
Does it boost chances to be elected?
People still say this is a huge amount of money. But to what extent was it crucial for re-electing Obama? In a divided electorate, featuring a milestone for the future of the country, and crucial issues such as healthcare, the fiscal cliff, and the economic recovery, campaign money couldn't have made much of a difference. Candidate positions, attitudes and gaffs did.
However, one might still say that in the primaries Romney won cause he had the most money riding for him, along with the biggest donor and organizational support. This is false as it fails to account for the omitted variable bias and reversed causality. As I've said before, Romney was from the beginning deemed the most electable candidate, so a majority of Republican donors with an interest to defeat President Obama immediately signed up to support Romney, seeing him as the most probable alternative. This means that strong candidates will attract cash as a sign of their strength and electability. More money won't cause their strength, it can only perpetuate it.
After all, when thinking of primaries we can go back to the elections of 2008, where the Republican party had the same case of one highly electable and probable candidate John McCain who attracted most of the party donations (and who had a much bigger across-party support than Romney ever did), whilst the Democrats had two equally deserving candidates pledging to win their party nomination: Hilary Clinton and Barack Obama. But it wasn't like this at the beginning of their campaign. At the beginning Hilary was the "most electable" candidate, as much as McCain was supposed to secure his nomination (or Mitt Romney). But the campaign of Barack Obama focused almost all of its initial spending on the first four states in the primaries. Obama won three (Iowa, Nevada, South Carolina) and tied in New Hampshire, thus gaining significant momentum. (This is where the importance of the initial monetary threshold comes in. It's all about how one uses the money).
So this wasn't a question of money that helped Obama secure his party nomination, but a unique strategy of his campaign that gained him the momentum.
Santorum tried to pull off a similar thing at the beginning of this year's Republican primary and out of nowhere became the main challenger to the front-runner Mitt Romney. Of course, it took him some time to gain that advantage and become the main challenger, but his initial win in Iowa (the first caucus state) ignited him and his chances. Before the victory in Iowa he had but a few percentages, where no one considered him a credible candidate to win. After that victory the donors came about. So again, money didn't cause him to gain strength, it emerged as a result of it.