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Money in Politics: A Red Herring

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Campaign finance reform never works, unless its goal is simply to create new regulations and stifle political speech. But this is beside the point. As long as the government has the power to pick winners and losers in business, market-actors will have an incentive to invest, by whatever means necessary, in political influence.Soft money, hard money, issue ads, PACs, "bundling,""party-building activity," federal matching funds, and so on. The mere language of campaign finance reform is enough to confuse the most careful observer.

Yet one thing is always clear: no reform will ever work the way the would-be reformers want. As long as Washington possesses enormous power over business and consumer activity, individuals and groups with a large stake in how that power is used will continue to find loop holes in any campaign finance laws. Even before the Supreme Court's baffling approval of the McCain-Feingold campaign finance law late last year, Democrats began setting up "soft money" front groups that could raise and spend money in ways the party-proper no longer legally could. Prior reform efforts have had similar results.

Political Action Committees (PACs), for instance, emerged as a way to evade legal restrictions on direct political contributions by corporations, interest groups and labor unions. As political scientist Paul Light has written: "Money in campaigns is like mercury: push it here and it goes there; push it there and it goes here. Even the tightest campaign finance law leaves gaps into which the money can flow." (Sadly, McCain-Feingold's chilling restrictions on free speech will probably be more difficult to get around.)

But the problem is not that campaign finance laws contain loopholes. The problem is that we have allowed our central government to accumulate such vast power in the first place. Because our federal government is an apparently limitless source of rules, regulations, quotas, incentives, subsidies, licensing qualifications, labor laws, and so on, we should not be surprised that businesses, groups, and individuals spend millions trying to influence government officials by whatever means necessary.

Indeed, the $100 million spent each month in the first half of 1997 on lobbying , for instance, seems paltry compared with the roughly $87 billion the federal government dishes out annually in subsidies to private enterprises alone. And while some businesses may lobby merely to prevent new government regulations, others clearly hope to achieve through the government what they could not achieve in a free market.

For example, tobacco giant Philip Morris, one of the largest campaign contributors in the country, astonished some anti-smoking advocates last year by lobbying to give the Food and Drug Administration (FDA) new authority over tobacco quality, safety and advertising. "This is clearly a very different kind of momentum than what we've had before," said one (at least temporarily) bewildered lobbyist for the American Cancer Society. But a closer look at the legislation might have revealed something more understandable.

Makers of cheaper, off-brand cigarettes (not subject to the federal "tobacco settlement") have seen their sales quadruple since 1999--making significant inroads into Philip Morris's otherwise dominant market position. By imposing new regulatory and "quality" standards (the cheaper brands are made with a lower-grade tobacco ) and advertising restrictions, it's likely Philip Morris was hoping to cause disproportionate headaches and expenses for its cheaper rivals. As an official with competitor R.J. Reynolds stated: "It's pretty clear the competitive advantage that Philip Morris would gain through a regulatory package."

The sad fact about "money-in-politics" is that we have brought this problem upon ourselves. Beginning with the "Progressive Era" around 1900 and accelerating with the New Deal and the Great Society, many Americans have come to expect and want a strong, interventionist government. We call upon our politicians and bureaucrats to break up "trusts" and "monopolies," set fair minimum wages, establish labor standards, punish price "gaugers," and, when business activity slows, we expect our government officials to create new money and credit out of thin air, regardless of the boom-bust cycle this will inevitably set into motion.

As Ludwig von Mises wrote in 1944: "It is a fact that the policy of the New Deal has been supported by the voters. It is therefore not correct to say that the bureaucratic system carried its victory by unconstitutional and undemocratic methods." We have taken this path because we mistakenly believed that "progressive" and New Deal-type interventionism was, as Whittaker Chambers put it, intended merely to bring about "a shift of power from business to Government." Many people -- even today (buying into Marx's indictment of capitalism) believed this a good idea, so long as we were careful not to give excessive power to Government. We have tried to bring about, in other words, a "third way" between capitalism and socialism. But the whole premise behind this effort is flat wrong.

"Power" in a capitalist system does not reside with "business" at all. As Mises noted, in a society with a free market, the power to determine what is produced, in what quantity, and of what quality, in addition to the power to "determine the income of every member of the market economy," lies with the consumer, not with "business." It is the consumer who, through his "buying and abstention from buying decides who should own and run the plants and the farms. ... A superficial observer would believe that [the entrepreneurs] are supreme [under capitalism]. But they are not. They are bound to obey unconditionally the captain's orders. The captain is the consumer. [Consumers] are merciless bosses, full of whims and fancies, changeable and unpredictable. For them nothing counts other than their own satisfaction."

Yet the interventionists have always believed they were taking power away from exploiting "robber barons" and transferring it to beneficent government officials. But in acting on this belief they have dramatically weakened the most socially minded and cooperative phenomenon known to man: the free market. In the name of perfecting society, they have always made things worse. Their welfare programs have subsidized (and therefore increased) poverty, lethargy, and irresponsibility. Their safety standards for drugs and pharmaceuticals have hastened death for tens if not hundreds of thousands of people. Their price controls have created chronic shortages and black markets while their price supports have caused vast waist. Should it really surprise any of them that businesses invest millions, not on perfecting their products or meeting new consumer needs, but rather attempting to influence the government?

Lobby and campaign finance reform are true red herrings. As long as government has the power to interfere dramatically in the market, market actors will devote resources to influencing what government does. The only real solution is to respect constitutional limits on government activity and allow consumers to return to their natural role as the "bosses" in a truly free market.

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