Every time we make a decision about how to spend or invest our money, one of the fundamental cost-benefit analyses we conduct is the following: for every increase in ‘unit’ of spending, what will be the expected increase in value?  At some point, our own budgets, the quality of the product we are seeking to purchase, the law of diminishing returns and other behavioral and psychological factors–marketing, social pressure, etc–lead us to a choice. Generally speaking, when we spend more we expect to get more.

Consider, for instance, the electric shaver I recently purchased.  After doing my homework, I narrowed the choice down to three (3) models of Braun shavers (and no, I’m not being paid to advertise for Braun!):  the Series 3, which costs $70, the Series 5, which costs ~$150 and the ~$200 Series 7.  Looking at the features and price of each, I decided that the Series 3 lacked some of the things I needed, and the Series 7 came with whiz-bang technology from which my face would never benefit.  Put another way, had I spent the extra $50 on the Series 7, the marginal return would not have justified the additional price.

Okay, so far so good (and obvious).  But now let’s turn to the fundamental question of this post: does the same cost-benefit analysis apply to spending on U.S. elections?  As seen in the graphic below, the total spent on U.S. elections rose from $1,618,936,265 in 1998 to an expected $5,803,829,964 in 2012 (Open Secrets).  Based on this extraordinary increase in spending, we can make one of several assumptions: that the value to society of election spending has increased fivefold; that the value of each dollar contributed has decreased by ~28% (because, despite an increase in spending, we haven’t seen an increase in social/economic/environmental value); that election contributions from the wealthy and large corporations has increased as a percentage of total contributions, therefore leading to more cronyism and corruption; a combination of the above; etc.

Now comes the fundamental paradox of contributing to elections.  From the point of view of the individual or corporate contributor, the extent to which the giving is a good investment is a function of a) whether or not the candidate you support wins and b) whether or not, upon winning, the candidate will enact policies that will benefit you.  However, from the point of view of society at large, the total amount of money spend is a function of a) whether or not the total giving lead to an informed debate that is likely to advance the wellbeing of the country and b) the opportunity cost of all that spending (how else could the money have been spent, i.e., on charitable giving).

The paradox is that, under our present system, the more an individual or corporation gives, the greater the probably that he/she/it (as an aside, if corporations are people, then what personal pronoun should be used when talking about them?) will have chosen a) the winner and b) benefited from the policies of the winner, while at the same time, the greater the total spending, the LESS likely that society as a whole will benefit.  Of course, the influence of an individual donor giving $50 is NOT 1/1,000th of a person giving $50,000, because the larger contributor is likely to be better connected and have more direct access to the politician to whom he gives.  What’s more, a politician is more apt to spend his or her time courting the $50,000 donor than the $5 donor, if for no other reason than that the transaction cost of raising funds from smaller gifts is higher than the alternative.  At the same time, greater spending on elections does not necessarily mean that society will be worse off.

In practice, however, it’s quite obvious that today’s elections are no more informative and no more likely to lead to positive societal outcomes than those in 1998 or earlier.  Instead, what’s happened is a kind of spending arms race where, due to a complete lack of smart campaign finance reform, the incentive is for each side to give more in order to match the increase in giving on the other side.  It should be self-evident that more T.V. and radio ads, more robocalls and mailers, and more private dinners for wealthy donors do not benefit society as a whole.  Even worse, all the money being spent on elections could go towards foreign aid to fight poverty, infrastructure projects, social welfare programs, scientific research, education and other key investments in America.

Unfortunately, as long as the legal and political system allows for unlimited campaign contributions from corporations and unions, and as long as we rely on a kind of privatized system for funding elections instead of a publicly financed system, we will continue to propagate the paradox of political investments.  To sum up, on the one hand, under our present system the more given by an individual or entity, the more that individual or entity is likely to benefit; and on the other hand, the more that is given in aggregate, the less likely we are all to benefit as a whole.

This has real and profound consequences on the issues about which Capital Good Fund cares, namely, income inequality, persistent and endemic poverty, and a political system that is largely unresponsive to the needs of lower-income voters.  So for the sake a more transparent democracy, for the sake of a more just society, let us seriously take up the cause of campaign finance reform.  For I fear that without it, the task of ending poverty in America–which requires public policy changes, as well as substantial governmental and private funding–will be daunting indeed.