It’s Much More than the Appearance of Corruption
As we move into heavy campaigning season, let us reflect on Citizens United. Perhaps the silliest statement in the opinion written by Justice Anthony Kennedy is this:
For the reasons explained above, we now conclude that independent expenditures, including those made by corporations, do not give rise to corruption or the appearance of corruption.
The “reasons explained above” are in fact one reason: in an earlier case, Buckley v. Valeo, the Court ruled that a ban on direct contributions was justified to prevent corruption or the appearance of corruption, but that a ban on expenditures, as opposed to direct contributions, was not. Kennedy quotes Buckley:
“The absence of prearrangement and coordination of an expenditure with the candidate or his agent not only undermines the value of the expenditure to the candidate, but also alleviates the danger that expenditures will be given as a quid pro quo for improper commitments from the candidate.”
The naïveté, or something worse, of Kennedy and the concurring judge/politicians is breath-taking, as Stephen Colbert and Jon Stewart convincingly demonstrated. But this isn’t funny. There are a raft of academic studies showing that Kennedy and the rest of the CU majority are fools if they really believe what they wrote, and viciously political if they don’t. I reviewed a couple of them here, studies showing that political contributions and lobbying affect law enforcement against corporations and the humans who work for them.
Here are some more. I include some lobbying papers, because the two are closely related. I note that these papers don’t make the inane distinction between expenditures and direct contributions that Kennedy loves so much, probably because they live in the real world. I found all of these papers at SSRN. Quotes are from the abstracts; I haven’t read the papers.
Overall, the results suggest that corporate political contributions cause an increase in the equity value of the contributing firms, and the valuation effects of these contributions are larger for firms that make larger contributions as well as for firms more affected by government policies.
In August 2011, the United States brought a landmark antitrust lawsuit to prevent the merger of two of the nation’s four largest mobile wireless telecommunications services providers, AT&T Inc. and T Mobile USA, Inc. But why are so many elected officials asking the Obama administration to intercede in the Department of Justice’s lawsuit to force a settlement? Why are they approving a merger that would likely lead to higher prices, fewer jobs, less innovation, and higher taxes for their constituents? Does it have anything to do with the money they are receiving from AT&T and T-Mobile?
This Essay examines the recent lobbying efforts in the AT&T/T-Mobile merger. AT&T spent $11.69 million on political lobbying in the first six months of 2011. In addition to hefty campaign contributions, it lobbied lawmakers with $52 steaks and $15 gin-and-cucumber puree cocktails.
But lobbyists, as this Essay outlines, are not the problem. The problem is the combination of lax campaign finance rules and antitrust’s prevailing legal standard, a flexible fact-specific rule of reason.
… [A]dvertisements convey many messages – they attach meaning to products, suggest values, and spread a particular view of life. Advertisements create a failure in the democratic process; through advertising, commercial corporations intervene in the democratic discourse. Citizens are intensively exposed to the consumerist worldview while alternative points of view are scarcely presented in the communicative sphere. But commercial corporations are not legitimate participants in the public discourse in a democracy since they do not represent the political support of citizens. Presently, courts grant advertisements freedom of speech protection based on the importance of providing information for viewers. But by doing this, courts ignore the value-suggesting messages prevalent in modern advertisements.
In addition, my analysis finds a strong relationship between campaign contributions and judges’ rulings. Contributions from probusiness groups, pro-labor groups, doctor groups, insurance companies, and lawyer groups increase the probability that judges will vote for the litigants favored by those interest groups.
I then evaluate the relationship between campaign finance laws and political equality and find preliminary evidence that states with more stringent campaign finance regulations (particularly disclosure requirements) weight citizens’ opinions more equally in the policymaking process.
… As campaign spending for the presidential race reaches hundreds of millions of dollars, the potential for harnessing the power of psychological tactics becomes considerable. … [B]ehavioral decision research and theory provide strong support for the notion that expenditures do corrupt the political process, because there is a nexus between campaign spending, strategic manipulation, and sub-optimal voting decisions. …
… Beginning in 2002, mortgage industry campaign contributions increasingly targeted U.S. representatives from districts with a large fraction of subprime borrowers. During the expansion years, mortgage industry campaign contributions and the share of subprime borrowers in a congressional district increasingly predicted congressional voting behavior on housing related legislation. The evidence suggests that both subprime mortgage lenders and subprime mortgage borrowers influenced government policy toward housing finance during the subprime mortgage credit expansion.
…This paper argues that money spent on campaign contributions and lobbying efforts had a direct affect on the distribution of TARP money received in the 2008-2009 bailouts.
Using novel indicators of political connections constructed from campaign contribution data, we show that Brazilian firms that provided contributions to (elected) federal deputies experienced higher stock returns around the 1998 and 2002 elections. … We estimate the economic costs of these political connections over the two election cycles to be at least 0.2% of GDP per annum.
This study examines the determinants and shareholder wealth effects of corporate lobbying. … After controlling for factors known to influence firm value, results suggest lobbying firms significantly outperform non-lobbying firms. Further, excess returns are directly associated with the number of years that firms lobby, prior period investments in lobbying, and lobbying expenditures in excess of industry norms.
In this paper, we examine the hypothesis that hedge fund managers obtain an informational advantage in securities trading through their connections with lobbyists. Using datasets on hedge fund long-equity holdings and lobbying expenses from 1999 to 2008, we show that hedge funds that are connected to lobbyists tend to trade more heavily in politically sensitive stocks than do non-connected funds. Furthermore, using a difference-in-differences approach, we find that connected hedge funds, relative to non-connected ones, outperform by 1.6 to 2.5 percent per month on their holdings of politically sensitive stocks, relative to their non-political holdings.
First, we find that banks are more likely to lobby when they are larger, have more vulnerable balance sheets, are less creditworthy, and have more diversified business profiles. We also find that banks engaged in non-traditional businesses, e.g. securitization and trading, or in highly regulated businesses, e.g. insurance, hire more lobbyists and spend larger amounts on lobbying. Finally, we observe that the announcement of the Dodd-Frank bill led to increased lobbying by banks with higher trading revenues.
It’s really easy to ignore reality when you have a black robe.