The Millionaires’ Amendment and the Law of Unintended Consequences

Even more than the law of supply, the law of demand, or the law of diminishing marginal utility, economists love the law of unintended consequences. A brief editorial in the New York Times provides a nice illustration of that law.

One of the McCain-Feingold campaign finance reform laws was an exception to campaign finance limits for the case in which a rich candidate contributes a large amount to his or her own campaign. The idea is simple: campaign finance laws generally govern how candidates for office can raise money from others, but don’t restrict how much money they themselves can spend on their own candidacy. Therefore, if one candidate is of modest means while another is rich, campaign finance laws that make it harder for the poorer candidate to raise money implicitly help the richer candidate.

To solve this problem, McCain-Feingold lifted campaign contribution limits for candidates facing a challenger who spent more than $350,000 of his or her own money on the campaign. This provision of the law is now being challenged as unconstitutional by Jack Davis, a millionaire who ran unsuccessfully for Congress in 2006. Davis claims that the effect of the law is to deter rich people from public service.

The Times editorial makes the following rebuttal:

There is also no sign that the amendment is discouraging the wealthy from running or spending. The very rich are represented in Congress in large numbers. Contrary to Mr. Davis’s claims of “chilling,” the number of candidates who spent more than $1 million of their own money actually increased after the amendment took effect. It is now common for party recruiters to seek out “self-financing”—or wealthy—candidates.

Consider the structure of the two arguments here. Davis argues a theoretical point: that allowing opponents of rich candidates to raise more money will have a “chilling” effect on millionaires running for office. The Times seeks to refute that point with empirical evidence: that the number of wealthy candidates has increased since the amendment was passed.

Now, a fun part of thinking like an economist is being able to parse arguments like this. Here are some questions that get you started.

1. Is Davis’s argument internally consistent? That is, holding all else constant, would you expect this amendment to have a “chilling” effect on millionaire candidates?

2. The amendment cited in the article was part of broader legislation limiting campaign fundraising. What effect would this have on the incentives political party recruiters face when choosing to seek out “self-financing” candidates?

3. Does the Times make the most convincing possible case against Davis? How might you argue the point differently? What is the strongest argument you could use to refute the Times’ point?

4. Think about the goals of John McCain and Russ Feingold, the authors of the campaign finance legislation. How do you think they feel about the fact that one effect of their legislation has been an increase in the recruiting of wealthy candidates? Based on that increase, do you think they would want more or fewer provisions like the Millionaires’ Amendment?