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Jon Talton

Analysis and commentary on economic news, trends and issues, with an emphasis on Seattle and the Northwest.

October 7, 2013 at 10:40 AM

The McCutcheon case is bad for the economy, too

The next big campaign finance case, McCutcheon vs FEC, will begin oral arguments before the Supreme Court on Tuesday, government shutdown or not. It is at least as bad as 2010’s Citizen’s United, which struck down more than a century of restraints on corporate and union money in elections and affirmed “corporate personhood.” With McCutcheon, the plaintiff is asking that limits on individual contributions to candidates be struck down. As Michael Hiltzik, business columnist of the Los Angeles Times pointed out, these limits are a longstanding attempt to keep corruption out of politics. Even under current law, an individual could spread up to $3.5 million among candidates.

Both Citizens United and McCutcheon carry economic consequences. They ensure that America will be less fair and capitalism will be less competitive.

Today’s inequality, the worst at least since the Gilded Age, didn’t just happen and it isn’t merely a consequence of globalization and the rise of the creative class. It was purchased by the already unprecedented money in politics. One result is the least progressive tax system in decades, encouraging vast sums to be gambled in world capital markets rather than be used to expand existing companies, seed new ones and create jobs. Another is the increasing phenomenon of “rent seeking,” where giant corporations use their power to extract government subsidies and laws that allow for massive executive compensation, a near free ride while profiting from environmental destruction, taxpayer backing of a risky financial sector and thwarting competition.

Rent-seeking, which happens in myriad ways and on a vast scale, is the redistribution of income from one part of society to another, and this mostly comes at the expense of wage earners and lower-income Americans. Think of the big banks and the recession: They are more profitable (and bigger) today than ever, while the median household makes less than it did in 1989. Rent-seeking also hurts growth, as Nobel laureate Joseph Stiglitz wrote:

Rent seeking makes nothing grow. Efforts are directed toward getting a larger share of the pie rather than increasing the size of the pie. But it’s worse than that: rent seeking distorts resource allocations and makes the economy weaker. It is a centripetal force: the rewards of rent seeking become so outsize that more and more energy is directed toward it, at the expense of everything else.

Big money in politics has also helped create highly concentrated industries in numerous sectors, from finance to media. For them, it is a profitable loop: Money buys lax antitrust enforcement which allows for greater size which infuses ever larger amounts of money into passing legislation favorable to these quasi-monopolies, cartels and oligopolies. The price of entry for new competitors is prohibitive. Business formation suffers. And it’s much easier to hold down job creation and keep people desperate just to hang onto their stagnant-wage jobs if they have them.

These changes have been happening for more than 30 years. Their damage to democracy should be obvious. But they’re bad for the economy, too. And inequality and a fixed market will only grow worse if McCutcheon becomes the latest piece of judicial activism from the Roberts court.

And Don’t Miss: U.S. default seen as catastrophe dwarfing the fall of Lehman | Bloomberg

Today’s Econ Haiku:

Boeing in Asia

A350 in the back

Et tu JAL?





Comments | More in Law and the economy, Supreme Court | Topics: Citizens United, McCutcheon, Rent-seeking


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