Does unlimited campaign spending help the economy?

Answers to your questions about the news.
Nov. 1 2010 7:10 PM

The Citizens United Stimulus Package

Does unlimited campaign spending help the economy?

A Christine O'Donnell campaign ad. Click image to expand.
A Christine O'Donnell campaign ad

Campaign spending for the 2010 election cycle will probably surpass $4 billion, easily beating out the 2006 midterm total of $2.85 billion. The Supreme Court's Citizens United decision, which permitted unions and corporations to spend without limit, is partly responsible for the surge. Will all that spending help stimulate the economy?

Probably not. For spending to give the economy a boost, the money has to come from some less productive use. Buying a car, for example, is better for the economy than stashing your money in a vault. (Starting your own business might be better still.) When an individual gives cash to a political campaign for, say, an attack ad, those dollars end up going to a television station or production company. That business might in turn use the money to purchase a new set of video cameras, and the manufacturer of those cameras might invest in the design of its products. In theory, that cascade of activity should help the economy to grow. But most analysts say the gains would be illusory, since campaign donations are likely to reflect shifts in consumption habits and nothing more. Most political donors wouldn't otherwise be hoarding that capital. If they weren't supporting their favorite candidates, they'd be going out for fancy dinners or buying iPads. The effect on GDP would be the same.

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What about corporations and unions? Corporate donations may be a net minus for the economy when they come at the expense of more direct business investment. Target, for example, could be less inclined to build a new store in Gary, Ind., after having spent $150,000 to support a candidate for Minnesota governor. Those kinds of moves are bad for the economy, because investment dollars are very good at generating economic activity. (Corporate donors may view their expenditures as investments in beneficial economic policies, but that kind of stimulus is far too speculative for economists to measure.) Unions, for their part, don't really make those sorts of investments. Their political donations function more like shifts in consumer spending.

Even if all $4 billion in 2010 campaign spending came out from under mattresses across the country, the effect on our economy would be minimal. National GDP is $14 trillion (PDF), so $4 billion represents a mere 0.03 percent surge. (For comparison, the 2009 federal stimulus plan was $ 787 billion, or 5.6 percent of GDP.) If we generously assume that the overall effect of every dollar would double as it moved from buyer to seller, the 2010 election would grow the economy by 0.06 percent. To put that into perspective, most economists found last quarter's two-percent growth rate disappointing.

While campaign spending won't rescue the economy, it is a massive stimulus plan for local television stations. During most of the year, businesses have little trouble buying advertising time, even on short notice. The stations fill their available slots with low-cost, tentative commitments that can be pre-empted if someone comes in offering more money. But national political candidates, who desperately want their commercials to run in the days before an election, pay top rates to ensure that no one can bump them. If you called your local affiliate today, there's probably no amount of money that could buy you a slot. In addition, stations raise rates steadily throughout the campaign to squeeze as much money as they can out of their few remaining commercial spaces. The $3 billion to be spent on television ads this year will eclipse both the $2.4 billion in the 2006 midterms and the $2.7 billion during the last presidential election. As a result, some stations are ransoming their slots for two and a half times their 2008 prices.

Got a question about today's news? Ask the Explainer.

Explainer thanks Tobe Berkovitz of Boston University, Barry Bluestone of Northeastern University, J.D. Foster of the Heritage Foundation, and economics blogger Arnold Kling. Thanks also to reader Joel Y. for asking the question.

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