The previous two chapters have documented the conditions that affect rent acquisition and rent retention by U.S. Senators. The amount of money that changes hands in Senate campaigns is substantial and is driven by the electoral needs of incumbents. Interest groups often give based on partisan and ideological grounds. In this chapter, we assess the impact of spending on Senate elections. Contrary to popular belief and unlike the phenomenal reelection rates enjoyed by House incumbents, tremendous turnover has occurred in the U.S. Senate. Table 4.1 reveals that from 1951 to 1993 the number of first-term Senators elected in a Senate class fell below 20 percent on only three occasions: 1961, 1983, and 1991, and went over 35 percent on ten occasions. In 1981, over half of incumbent Senators were serving their first term and 18 were newly elected. From 1981 through 1993, approximately one of every four Senators in each election class were freshmen. Between 1980 to 1992, 64 of the 231 elections held (27.7 percent) sent a new Senator to Capitol Hill. In fact, only 40 of the U.S. Senators holding office in 1993 served in the Senate before the administration of Ronald Reagan; and a number of incumbents opted not to seek reelection in 1994 for various reasons.

Political scientists have devoted substantial energy to describing the roles played by the major political parties as well as political action committees (PACs) in funding congressional campaigns. Mirroring the assumption succinctly expressed by Madison in The Federalist Number 10 that self-interest motivates political behavior, the national parties and PACs have a strong incentive to provide financial support to their preferred candidates (Herrnson, 1989; Eismeier and Pollack, 1986a, 1986b). Under existing campaign regulations, we can readily observe similar benefit-seeking behavior among politicians, especially incumbents who attempt to exploit their office to garner financial support (Jacobson, 1989; Sabato, 1985). Although a myriad of factors may influence the ability of incumbents to acquire campaign contributions (see Munger, 1989; Poole and Romer, 1985; Gopoian, 1984), the conventional wisdom and empirical research suggest the motivation for legislators to engage in those market exchanges is primarily to protect their reelection prospects (Fiorina, 1989; Mayhew, 1974).

The previous chapter demonstrated the encroachment of rent-seeking behavior throughout the Senate term and identified indicators of efficiency in rent seeking by Senators. In this chapter, we analyze the allocations of economic interests to incumbent Senators through political-action-committee (PAC) contributions. In particular, we are concerned with identifying the sources from which Senators obtain their rents and identifying the criteria by which PACs allocate campaign contributions as variable benefits.

Rent provision by economic interests

In order to examine the subtleties of the relationships between legislators and organized interests in the context of rent seeking, it is important to delineate the constraints and facilities that will affect a legislator's ability to garner rents. Presumably, organized interests seek the lowest-cost, highest-yield providers of policy options. The degree to which a legislator can provide sufficient policy to an interest at a competitive price with other members of the policy oligopoly will dictate the amount of rents the legislator will obtain in the aggregate. Therefore, member attributes that affect the costs of providing different types of policy should influence the decision by cash-providing interests to provide substantial rents to that member.

Targeting rent provision by major interests

Other factors impact on the ability of legislators to provide policy outputs to benefit-seeking interests.

Economists have long held that potentially contestable assets will attract investment in direct proportion to their production capabilities. A standard assumption in the public choice literature is that the relationship between politicians and economic interests can be modeled in a manner similar to market exchanges. Presumably, politicians are in a position to extract rents from interested parties by providing selected benefits such as regulatory policies favorable to industry or other stakeholders in the political process. Our analysis demonstrates how the concept of rent seeking enhances understanding of political-action-committee (PAC) strategies, since PACs possess the capability of allocating financial resources to candidates as differential rents. Among legislators, the ability to produce policy outputs for particularized interests can be viewed as an exercise that allows members to place an implicit price on outputs. Benefit-seeking interests can bid for outputs in an effort to gain additional remuneration in the market through government subsidy or other implicit wealth transfer, such as monopoly regulation.

The contemporary debate that surrounds the conduct of congressional elections has its origins in an enduring argument about the importance of money in politics. Among his numerous sage observations about the American political scene, the late Samuel Clemens noted, “Ours is the best Congress money can buy!“ Nonetheless, although a burgeoning literature has emerged examining campaign contributions from organized interests, the lack of a robust, theoretical paradigm that accounts for the dynamics of legislator and interest-group interaction in the context of funding elections is troubling. Arguments over the nature and consequences of proposed changes in the approach to financing congressional elections are often waged without an underlying point of theoretical reference. Reform proposals are presented and bandied about with little consideration for their impacts relative to each other, or collectively, on the political system.

This volume seeks to provide a theoretical yardstick for evaluating those proposals. We contend that the behavior of legislators in seeking financial support for their reelection campaigns can be viewed in the same fashion as profit-seeking firms. Senators are members of a highly exclusive legislative body, whose policy imperatives have farreaching economic and social consequences.

Adequate and fair representation has been at the center of the democratic debate in the United States since the Founding. In the intervening two centuries, a variety of disputes have arisen regarding the representative nature of the system, often attacking its real or perceived inequitable outcomes. Although the struggle for electoral participation by women and minorities has dominated the debate over representative democracy in the United States since the Civil War, how money affects elections and, therefore, the creation of public policy is also an important question. In this volume, we examine the role of money in campaigns for the contemporary U.S. Senate. Given the centrality of the Senate in policy making, combined with the tremendous powers enjoyed by individual Senators, it is appropriate to delineate the role played by money in contemporary Senate elections. In order to fully test the impact of rent seeking in the campaign-finance system on the political system, we also examine how rent-seeking behavior affects electoral outcomes.

In Chapters 3 and 4, dealing with models of routine politics, we treated parties and voters as oriented to identifiable goals regarding inflation, unemployment, and income growth. We drew on the familiar misery index and showed how it could be modified to represent different kinds of preferences, and even to represent a conception of social welfare or the public interest. In doing these things, we accepted goals and preferences as given, as predetermined, and as clearly defined. In this chapter and the next we shall step back and ask where goals and preferences come from and how well defined and authoritative they are. In this chapter we consider official public definitions of national economic goals, as well as what economists say about various targets of macroeconomic policy.

These chapters will provide an argument that there is no basis for an unambiguous or uncontestable definition of the public interest, and there is no basis for an authoritative social welfare function. This argument will undermine assertions that there are costs and pathologies of democracy. Without authoritative definitions of what public policy ought to be, there is no solid basis for comparing the outcomes of democratic politics to the best or the most appropriate outcomes. It is difficult to argue that democratic political processes lead systematically to inferior outcomes when superior outcomes resist precise and authoritative definition. In fact, the goals of public policy are defined and redefined in a continuing and fluid political process.

Partisanship models have received considerably more attention and empirical support than electoral-cycle models. Leading scholars, such as Alberto Alesina and Douglas Hibbs, have argued that partisanship is the most fundamental basis for political influence over macroeconomic policy and outcomes. There are, indeed, systematic partisan differences, but economic movements are so fluid that party differences often are overwhelmed by larger tides of change. A limitation in most of the existing studies of macroeconomic partisanship is that they have assumed that party differences regarding goals have remained fixed or constant. That assumption has rarely been documented or demonstrated, and I shall argue that partisan goals are in fact variable. Even fixed goals may be relaxed under certain circumstances that make them unusually costly, but I contend that partisan goals are themselves variable, subject to conditions that are still only poorly understood.

Also, the institutional framework in which American parties operate is not constant. Changes in the institutions in which fiscal and monetary policies are made are likely to affect the implementation of alternative partisan goals, even if those goals were to remain constant (see Chapters 7 and 8). Most of the empirical demonstrations of partisan differences have focused on presumably fixed differences between the Democratic and Republican parties regarding control of the presidency. But a growing literature has argued that other patterns of variations in the control of office are also consequential. Most prominently, divided partisan control of the presidency and Congress can affect policy outcomes.

This book has investigated macroeconomic policymaking in order to make inferences about the nature of democratic institutions, to get a grasp on problems that may be inherent in them, and to understand how alternative formulations of these institutions might affect performance. It has focused on recent experience in the United States. The concentration on macroeconomic issues has facilitated the evaluation of performance. The concentration on one nation has facilitated an understanding of the importance of process in democracy, and it has permitted an assessment of the consequences of institutional changes over time in that country.

However, economic performance is only one of the many values that may be facilitated or hindered by democratic institutions, and a focus on one country obscures an understanding of the ways in which alternative institutions that vary across countries can affect performance. In this final chapter, we shall consider some ways in which the single country focus may be complemented by further investigation, though without speculating beyond macroeconomic issues. But first a reflection on some of the implications of the methodological approach used in much of the analysis.

DEMOCRATIC POLITICS AND ECONOMIC METHOD

The book has used economic analysis in a sense that goes beyond the obvious character of the subject matter. A fundamental characteristic of economics is the method of constrained optimization. Economics is about how to identify the choices that will maximize welfare functions or minimize loss functions, subject to the constraints of possibility.