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Unintended Consequences of Campaign Finance Reform:

It is hard not to shake your head at the absurdities spawned by campaign finance reform.

First there was the bizarre episode earlier this week where Bob Corker asked the RNC to stop running an ad criticizing his opponent that he characterized as "tacky and over the top." The RNC has finally relented. Assuming that Corker's protests are sincere, this sort of problem arises because campaign finance regulations prevent candidates from coordinating their messages with the parties. If Corker's protests are bogus, then this gives him plausible deniability to allow these sorts of attacks to be made while the candidate denies any responsbility for their content. Either way, it is hard to see how this improves political campaigns.

Today Brad Smith and John Lott note another major loophole in the campaign finance laws--if you own a media network. They cite the example of Air America, which just filed Chapter 11 and has failed as a business enterprise. But they suggest that it never really was a business enterprise, rather it was a political enterprise:

When is a campaign donation not a campaign donation? Apparently if you spend the money to run a radio program instead of paying for campaign ads that run on that same program. Just look at Air America. With $41 million in losses since 2004, and $9.8 million owed just to Robert Glaser, RealNetworks chairman, Democrats who bankrolled this "company" weren't so much investors as campaign contributors. The losses are seen as simple business ineptitude, but Air America effectively, and perhaps intentionally, cleverly avoided the campaign finance limits which Democrats had worked so hard to pass.

With McCain-Feingold's "hard money" donation limits of $2,000 per candidate and "soft money" limits to party campaign committees of $57,500, there is no way that Mr. Glaser or other wealthy Democratic donors could have legally given such large sums directly to Democrats. But Air America provided a vehicle for their multimillion-dollar political campaigns.

Take Al Franken's show last Friday, the very day the network was declaring bankruptcy. The program devoted two-and-a-half hours to "Meet the Democrats," where five U.S. House and Senate candidates explained why they were the people for the job. Two-and-a-half hours straight of candidates talking is hardly stirring radio, but it is the Democrats' version of religious radio. Hardly meant to make a profit, but there to inspire the troops. After all, when the network started in 2004, Al Franken announced that: "I'm doing this because I want to use my energies to get Bush unelected."

Since Air America started, successful radio entrepreneurs — most notably Rush Limbaugh — have argued that Air America never had a business model that made sense. But perhaps it had a model that made political sense.

The concern, of course, that rather than admitting defeat, the regulatory crowd will simply redouble their efforts to close these loopholes. Lott and Smith note that two radio talk show hosts in Seattle have already been found guilty of violating Washington state's campaign finance regulation.

Please be aware that improper Comments will be deleted.

Update:

A couple of Comments asked an interesting question, which is whether Corker's protests, and the RNC's decision to stop running the ads, violates the coordination rules of McCain-Feingold. So I sent the question along to Brad Smith one of the co-authors of the above-cited article (btw, Brad is also the Chairman of the Center for Competitive Politics, http://www.campaignfreedom.org/ which has further commentary on the Air America issue today). Here's Brad's response to my question about whether this would violate the law:

This arose in past cycles when the DNC quit advertising in Wisconsin at Feingold's request. Arguably, yes. However, the counter argument, I think generally accepted, is that in order to coordinate, you must spend. If someone asks you not to spend, and you stop, then you have not made an "expenditure" in coordination.

However, suppose the RNC just changes it's message and goes back on the air? Now it is arguably changing its message at the candidate's request, which looks more like a coordinated expenditure.

But there is another caveat- is it coordination if Corker merely publicly condemns the ads, which is all that appears to have happened? Some "reformers" would like to say so, yet I don't think the First Amendment allows the government to stop a candidate from making public statements, or others from acting on them. If Bob Corker says e.g. "I hate these ads. I wish the RNC would stop running them," is it illegal coordination, any more than if Harold Ford publicly says, "This campaign is about change," and the DNC responds by running ads saying, "We need change in Washington?" I don't think so.

FantasiaWHT:
*is ashamed of having Feingold as a senator*
10.26.2006 2:12pm
gorjus (mail) (www):
You only note two "unintended consequences," and both were around long before McCain-Feingold. For instance, in the 2000 Mississippi judicial races, the U.S. Chamber of Commerce ran advertisements that some argued were in contravention to state law. Then Chief Justice Lenore Prather implored the group to pull the ad they aired in her favor--they refused. (She later lost).

Secondly, Air America is simply like owning a newspaper, television station, or--dare I say it?--a blog. It's the press. Simply because there is an avowed and/or recognizable ideological slant does NOT mean that it is campaign contributions, and under such reasoning we would see a drastic curtailment to general business enterprises, the press, and access to information.

For instance, let us say the Volokh Conspiracy was a $1 a month; as a fan, I'd pay. Let us then say that VC was identified as a "conservative/libertarian" site, and repeated pro-libertarian articles for a particular candidate appeared. Would by $12 a year count towards the maximum personal amount I might donate to a particular candidate? Or, would it only apply to the percentage total of posts about her (say, 1 in 1,000?).

This is economically unfeasible. A press outlet is simply different than a direct campaign expenditure.
10.26.2006 2:19pm
Realist Liberal:
Considering that the law is already way too confusing, trying to close every loophole is just going to make the law completely incomprehensible. This is going to result in even the most honest politicians (assuming there are any) fearing every action they in campaigns. The goals of campaign finance reform are really laudible but it's time to realize that we need to start over or give up on the idea entirely.
10.26.2006 2:21pm
anonVCfan:
The concern, of course, that rather than admitting defeat, the regulatory crowd will simply redouble their efforts to close these loopholes

Does this mean that you're for or against admitting defeat? Based on your first sentence, I tend to think that you're against further attempts in this direction, and that you would like the campaign finance reformers to take their ball and go home.
10.26.2006 2:21pm
Falafalafocus (mail):
I'm still somewhat confused about the Corker incident. Under the McCain-Feingold law, isn't Corker in violation? After all, he intentionally sought to have the ad pulled. Wasn't he therefore coordinating his message with his party?
10.26.2006 2:30pm
Falafalafocus (mail):
I only mean to point out that if Corker can't coordinate on his message, it seems to lead to the situation where, if he comments on the ad put out by the RNC, then he should be in violation but if he says nothing, then the public assumes that he agrees with the ad.
10.26.2006 2:31pm
W.D.:
Hmm. Is the Washington Times a "business enterprise"? How about the NY Post? Both operate at astronomical yearly losses, thanks to the huge largess of wealthy political players. Both predate McCain-Feingold considerably. Curious that they would single out Air America. I guess it's only really a business if the pockets are deep enough.
10.26.2006 2:56pm
AppSocRes (mail):
I still like Ann Coulter's observation, anent this discussion, that the Supreme Court has found political speech to be an unprotected exception to the First Amendment's broad protection of obscenity.
10.26.2006 3:00pm
Paul Sherman (mail) (www):
gorjus,

Prof. Zywicki's title refers to the unintended consequences of "campaign finance reform" generally. It's important to note that McCain-Feingold was not Congress's first stab at "reform"; the first federal campaign finance legislation (the Tillman Act) was passed nearly a century ago.

As for the press exemption, increasingly strict campaign finance regulations have place it under enormous pressure, as can be seen in the Seattle talk radio case and in the Wakulla Independent case. For anyone interested, there's a bit more legal analysis on the issues raised in the Smith/Lott op-ed at the Center for Competitive Politics' blog, which I won't recapitulate here. Suffice it to say that while "It's the press" should be a rock solid defense, our current campaign finance regime has made things more complicated than that.
10.26.2006 3:03pm
Justin (mail):
Of course, a blog post is not the place to deal with serious, complex, and interesting legal differences - so to some degree Prof. Zywecki can be excused.

I'll only go on to note that it would be unconstitutional to REQUIRE the RNC to coordinate with the Corker campaign - and thus his first example cannot be an attack on campaign finance law. Even if the RNC and Corker COULD coordinate their expenditures, the RNC could overrule Corker and push for a stronger messsage, and even if it was bogus, that would be an accepted excuse by the media, at least to the extent that nobody really believes the current rules are being followed. But if the law is ineffectual, that doesn't mean its also negative - its just neither good or bad.

I've written on an issue closely related to the second point at 4 Conn Pub Int LJ 281 (2005). Basically, there's a difference between money and speech, and that's too complex to mention. But when it comes to organizations speaking on their own, that may or may not have a serious EQUALITY issue, but it has a far more limited CORRUPTION issue. The reason for that is because the speech is only as compelling as the speaker and the speaker's reputation. In the Air America example (though I would think Fox News and ClearChannelTalkRadio would be far better examples, but so be it), Air America is only going to compell people based on those people's willingness to tune in and listen. They are not BUNDLING their political message, the way a television ad on NASCAR is bundled into the race. If you want to hear what Air America has to say, you tune in, and if you don't, you tune out.

Only if the idea is to purchase radio stations that play general information and intersperse those programs with political advertisements would you have a corruption issue. But this seems like a very uneconomical way to get around financial restrictions, and nobody has taken the plunge as far as I can tell (the NRA has considered it, but from what I can tell rejected the idea as unworkable).

In other words, while there are serious questions about the effectiveness of campaign finance restrictions on corruption, Zywecki's examples are irrelevant. More important would be Issacheroff's "money pump" theories, some of David Strauss's theories, and (though I completely disagree with them), some of Persily's "not that big of a deal" arguments.

Still, I think in the end, its Ian Ayres that gets it right.
10.26.2006 3:05pm
Zywicki (mail):
anonVDfan:
Lott and Smith sum up what may be the only two stable equilibria:

How to solve this problem? One solution — we'll call it the First Amendment solution — is to deregulate the system, let the voters hear what people (even those with "big money") have to say, and trust the voters to choose wisely. The alternative is to extend restrictions to the press.
10.26.2006 3:07pm
Justin (mail):
A more interesting question, though at this point solely academic, is whether Corker's protestations themselves violate the coordination rule.

I think the answer is clearly no (you construe the rule narrowly to avoid the constitutional problem), but if so, the assumption of coordination plus the prohibition on even public coordination would lead the public to be less informed about the candidate's views and positions.
10.26.2006 3:07pm
Justin (mail):
NB, I'll copy my argument. I used to be a somewhat verbose writer, so I hope you will forgive. :)

On the other hand, it is true that key constituents and newspaper editorialists may have the power to make a lawmaker move away from the Burkean focal point. However, unlike campaign contributions, their ability to influence voters is directly related to the popularity of their positions. A union leader who tells her union to vote for a certain candidate is only sending the message that the candidate is good for the union; without the money component, it simply is a description of public choice theory at work. If union leaders make their endorsements based on other factors, such as in return for calling off an investigation on the union leader, this too is corruption, but it hardly means that campaign contributions are not.

Furthermore, the value of an endorsement goes to the credibility of the endorser, established over time, and is worthless if the endorser lacks credibility. Editorial endorsements are a more convincing argument, although they present less of an issue because editorialists also
gain a certain reputation over time that a thirty-second spot ad does not. Readers who do not agree that such reputation has merit are not likely to be persuaded by the endorsement. The essence of the public choice theory relies on the idea that one's voice is valued by a proper perception of one's trustworthiness. Money is not corrupt to the degree that it does so. However, because we cannot accurately gauge the connection between a campaign advertisement and what the candidate did to pay for
it the way we can endorsements from The New York Times, Rush Limbaugh, and the Sierra Club, money presents a risk of corruption unique from that of a non-monetary endorsement. Instead, money can be used in ways that circumvent the public choice theory in terms of why the money was originally received. A candidate who receives a donation from a labor union can use the money to advertise her record on the death penalty, or use the money for generic things such as get-out-thevote
drives. Even so, some scholars critical of campaign contributions [sic - probably should have read limits] argue that editorial endorsements are similar to contributions. Once again, that one may be corrupt does not make the other not corrupt.

I left out the footnotes, but I do want to nudge readers to check out Herb Klein, The Power and the Promise: Editorial Endorsements in a Multimedia Age, NATIONAL REVIEW ONLINE, Oct. 18, 2004.
10.26.2006 3:16pm
JohnAnnArbor:

The goals of campaign finance reform are really laudible but it's time to realize that we need to start over or give up on the idea entirely.

How about this: no limits, but instant reporting of contributions in an easily-searchable manner.
10.26.2006 3:18pm
Justin (mail):
John Lott may be a schmuck, but Brad Smith (though I completely disagree with) is at least intellectually honest. I assume the use of Air America was an attempt to convince the political stripe that would be normally opposed to their argument to (if they believe the argument) understand the consequences to their own political identities.
10.26.2006 3:18pm
Brent Logan (mail) (www):
The fact that owning a media outlet (regardless of its success or failure) is seen as a "loophole" in campaign finance laws is a clear indication that campaign finance laws are overbroad.
10.26.2006 3:20pm
AppSocRes (mail):
There's a very simple way to allow unlimited campaign contributions without any possibility of corruption: Establish a blind trust for distributing all political contributions. Contributors make deposits to this trust, naming who they want the deposits to go to. The trust then pools the contributions for individual candidates and gives them to the candidate, minus any indication of where the money originally came from. It is thus possible to support a candidate without any possibility of a quid pro quo, because no candidate will know from whence came his monetary support.
10.26.2006 3:29pm
John Chelen (mail):
You've made several good points about the flaws in current campaign finance laws. Let's look at a related problem. Shouldn't the IRS reject Fox's tax returns if they deduct cable "news" show costs as legitimate business expenses? They look to me like campaign contributions, or at the least, personal politically-motivated expenditures not deserving treatment as ordinary business expenses.
10.26.2006 3:35pm
John T (mail):
They are not BUNDLING their political message, the way a television ad on NASCAR is bundled into the race. If you want to hear what Air America has to say, you tune in, and if you don't, you tune out.

Justin:

But certainly media outlets do engage in bundling. If you have one local newspaper, then if you want to read the local news, you also get that paper's editorials. If you want the paper's coverage on X, you also get its coverage of Y. Sure, you can always not read the editorials, but that's just as true of ads. You can always ignore ads and commercials too.

However, unlike campaign contributions, their ability to influence voters is directly related to the popularity of their positions.

But certainly this applies to ads bought on behalf of a candidate or to attack one, unlike political contributions directly to a candidate. An independent issue or attack ad's ability to influence voters is also directly related to the popularity of its position. So your argument, as far as it goes, works fine for direct campaign contributions but not for independent expenditures and ads.

Secondly, Air America is simply like owning a newspaper, television station, or--dare I say it?--a blog. It's the press. Simply because there is an avowed and/or recognizable ideological slant does NOT mean that it is campaign contributions

gorjus:

What's the difference between owning a press, and merely temporarily renting or hiring a press to play one's ads? I'd argue that the real difference is that one has to be a lot more wealthy to own a press than to purchase an advertisement. Do we really want to tip things in favor of the wealthy? Granted, blogs do a bit to balance things.

But perhaps gorjus and Justin oppose the attempts in McCain-Feingold and elsewhere to restrict independent ads by groups.
10.26.2006 3:36pm
John T (mail):
Shouldn't the IRS reject Fox's tax returns if they deduct cable "news" show costs as legitimate business expenses? They look to me like campaign contributions, or at the least, personal politically-motivated expenditures not deserving treatment as ordinary business expenses.

And I'd say the same thing about CBS News and the New York Times.
10.26.2006 3:38pm
gorjus (mail) (www):
Paul Sherman--you are absolutely right. By (possibly over-)emphasizing Prof. Zywicki's post (as in, "you only name two possible unintended consequences, so that means you don't think there are any more), I ignored the very real fact that McCain-Feingold is a sprawling and difficult piece of work.

And thanks for pointing out those two ongoing cases, neither of which I had yet read about. I greatly oversimplified the evolving legal standards of what actions are "press-like" and aren't.

And, to revisit Prof. Zywicki's post and your note about the existence of previous campaign finance laws, the statement "this sort of problem arises because campaign finance regulations prevent candidates from coordinating their messages with the parties" has long been true (as I noted in my 2000 example).

The greater question for me, as someone who advocates some restriction on campaign finance (normally slanted towards transparency and disclosure--perhaps like JohnAnnArbor noted, or a searchable and free database)--is how to actually do it. The "Barron's Rule" of "more money = getting elected" is not necessarily true, but it is certainly a huge factor.

I've always thought a fun philosophical point would be to not cap individual gifts, but TOTAL expenditures. The argument here is that we all start out equal (or with a possible equal point), and true competition would drive the creation of new and innovative ways to reach voters or transmit a message.

In other words, it wouldn't be 20 pieces of direct mail, but one or two narrowly focused. The best argument against this is that we squelch the dissmination of information by monetary restriction--but this might also restore the press to a place of paramount importance, reporting on races and investigating candidates.
10.26.2006 3:40pm
Roger Schlafly (www):
Why do you say that these are "unintended consequences"? The campaign finance reformers may well consider these anecdotes to be predictable and desirable consequences.
10.26.2006 4:16pm
Buck Turgidson (mail):
TZ is supposed to be an economics expert and he tosses a howler that Air America Radio "has failed as a business venture". This is an interesting way of looking at bancruptcy--certainly not the way he's looked at it in the past. The point of Chapter 11 filing is a temporary protection from creditors in an attempt to prove that the venture is not failed. And TZ, with his expertise, should know better than almost anyone else that the "business failure" following Chapter 11 filings is nowhere near 100%. Consider the major airlines, virtually all of which have been under Chapter 11 protection at some point (including currently) since December 2001. Are all of them "business failures"? Ford has not filed for Chapter 11, but they've been a failed business for many years, which is why they were finally faced with losing $6 billion. Fox News was bleeding red for a decade before finally approaching profitability, but they never filed for Chapter 11 because they were being carried by other businesses and deep pockets of its investors. Was Fox News a failed business before it wasn't? Amazon.com was losing money for a decade and was projected never to become profitable. Is Amazon.com a failed business? It was certainly claimed to have been a failed business model.

And to take the Washington Times whining about any other media group being a "campaign contributor" is a joke and the height of hypocrisy. It's almost as bad as refering to the Pacific Research Institute or the Heritage Foundation as a "non-partisan think tank".

Even this little problem aside, the media has had a giant loophole in the campaign process since Reagan and this has nothing to do with McCF. McCF did not remove the Fairness Doctrine--Reagan's FCC did. Let's put the blame where it belongs, shall we?

Now, on to Bob Porker Corker. There are a couple of interesting twists to this story. First, the ad was not "tacky", it was intentionally racist. I find it as amusing seeing right-wingers come to the defense of the ad in the same way they came to the defense of Rush Limbaugh's inexcusable comments on the Michael J. Fox ad. At least, when it came to Limbaugh, most talking heads had the good sense to keep quiet. Not so with the Porker.

It gets worse. RNC tried to replace the "bimbo" ad with another that has been running concurrently but has not cause as much of a stir. What's the problem with that second spot? It's factually false on all counts. Guess what? It got blocked by several TV stations until RNC can demonstrate that the claims in the ad are not fabricated (not likely to happen, since the claims are false). The same happened with several other RNC spots, including a major one in Ohio. In that case, even DeWine publicly stated that the ad was false and asked for it to be pulled. Some stations did pull it, but RNC refused to withdraw it.

But for Porker himself. He has his own brush with racism, so, I would say, no, he's not sincere in his complaints about the RNC "bimbo" ad. Take a look here.
10.26.2006 5:08pm
Buck Turgidson (mail):
One more thing on the media--since when has it become a problem for media outlets to endorce candidates? Last I checked, every newspaper tried to endorse at least major candidates in every election. AAR is a national outlet. Why should they not endorse candidates in their markets? Is the Washington Times going to stop endorcing candidates? How about Pat Robertson? Is he going to stop his political blather?
10.26.2006 5:12pm
Falafalafocus (mail):
Justin,

Thank you for the explanation regarding my concern. I still find the situation odd, but at least now I have some foundation as to how Corker can ask the RNC to pull the ad without being in violation of the McCain-Feingold law.

Buck,

Thank you for the anti-Republican diatribe. I really did not think that a person could lambast Corker, Limbaugh, Reagan, the RNC, Professor Z, and the Washington Times all in the same post. Not to mention the shout out to Pat Robertson. I once doubted the ability of some of the VC posters to toss needless mud on all political opponents regardless of how topical it may be. You have allayed my fears. For that, I thank you.
10.26.2006 5:24pm
eddiehaskel (mail):
Here's a slightly kinky question: Why is giving money to a campaign considered "speech"?

But to cut to the chase, since this is really about television and the huge amounts of money required to mount television campaigns, and since television is certainly more regulated vis a vis non-obscene matters, why not mandate that anyone using the airwaves or any regulated broadband grant a certain amount of airtime to political "advertising" and be done with it.
10.26.2006 5:38pm
Lawstsoul:
"Buck,
Thank you for the anti-Republican diatribe."

Get with the program Buck. Damning you with faint praise may appear petty and condescending, but enlightenment is the true goal of pro-Republican diatribes.
10.26.2006 7:29pm
Falafalafocus (mail):
Lawstsoul:

I must have missed the pro-Republican diatribe that I clearly rhapsodized about incessently. Can you quote some of my more pro-Republican comments that I made on this topic? Obviously they were entirely off base. I therefore want to retract those comments, specifically, when I defended Newt Gingrich, Tom Delay, and Richard Nixon. I just can't seem to find my comments on these people in this topic header. . . Can you help me?
10.26.2006 7:52pm
Falafalafocus (mail):
As for "appearing petty and condescending," I fear that I am not active enough on this blog if I only "appear condescening". However, I promise to work harder to eventually become "is condescending".

While we are at it, how about that Rick Santorum? Isn't he the greatest Republican ever? (I figured that I need to get in my obligatory pro-Republican diatribe).
10.26.2006 8:05pm
ReaderY:
A fundamental problem is that speech supporting a candidate is suspect, while speech attacking an opponent is not. Who can be surprised if discourse becomes negative?
10.26.2006 9:08pm
ReaderY:
A fundamental problem is that speech supporting a candidate is suspect, while speech attacking an opponent is not. Who can be surprised if discourse becomes negative?
10.26.2006 9:08pm
ReaderY:
A fundamental problem is that speech supporting a candidate is suspect, while speech attacking an opponent is not. Who can be surprised if discourse becomes negative?
10.26.2006 9:08pm
trotsky (mail):
I had not heard about that Wakulla story. The bureaucrats at the Florida Election Commission are insane.
10.26.2006 9:31pm
David M. Nieporent (www):
Eddie, if you think that's "kinky," I feel very sorry for your wife. :)
10.26.2006 10:57pm
John T (mail):
However, Buck, Air America is the only company of the ones you listed that blatantly embezzled money from a Boys &Girls Club in order to stay in business.
10.27.2006 12:39pm
Andy Freeman (mail):
> The trust then pools the contributions for individual candidates and gives them to the candidate, minus any indication of where the money originally came from. It is thus possible to support a candidate without any possibility of a quid pro quo, because no candidate will know from whence came his monetary support.

While that system makes it possible for a candidate to get money without knowing where it came from, it doesn't guarantee that a candidate doesn't know where the money came from. After all, a donor can easily send the candidate a receipt for the money donated.
10.27.2006 12:42pm
Andy Freeman (mail):
> A press outlet is simply different than a direct campaign expenditure.

Okay - how do I distinguish them?

Suppose that I want to elect Whigs. If I start/buy a publication and start running pro-Whig stuff, does that make my spending a campaign expenditure? BTW - I'm cheap, so I run non political ads and publish non-political articles to get readers to pay for my publication.

Or, suppose that I owned a profitable publication and then decided that I wanted to elect Whigs so I started running pro-Whig stuff. Am I making campaign expenditures?

Does the answer depend on whether I consult with Whig candidates?

Suppose that I own a profitable publication and we agree that I can editorialize on behalf of candidates without that being termed a campaign contribution. Can I hire folks to write said editorials? Can I accept said editorials for free from candidates? Can I accept money for running said editorials?
10.27.2006 12:52pm
ray_g:
".."It's the press" should be a rock solid defense.."

Why? Are you assuming that just because a business happens to be "the press" that they may never attempt to bribe a candidate by giving them an endorsement, say for a favorable tax break for their business? (Or to be topical, immunity from prosecution for leaks?)

Arguments for press exceptions seem to have the unstated assumptions that if, say, an oil company buys an ad expressing support for a candidate that it is always for nefarious purposes, while a similar editorial never is.
10.27.2006 1:39pm