Do Huge Campaign Contributions Underline the Power of the Elite?

In 2016, the financial sector (comprising of finance, insurance and real estate) has contributed as much as $637 million in 2016 to candidates, candidate committees and outside spending groups, according to the Center for Responsive Politics.

The startling statistics reveal that this sector has dominated the list of largest campaign contributors across 13 sectors since 1990. A bulk part of this money has been raised in the form of soft/outside money, which has increased 17 times since 2010. The increase from $17.9 million in 2010 to $309.41 million in 2016 has largely been a result of the Citizens United Supreme Court ruling in 2010.

The sector not only leads in campaign contributions, but also ranks third for largest annual lobbying expenditures of $241.58 million in 2016. Industries included in the sector are insurance, securities and investment, real estate and commercial banks, with most lobbying expenditures across more than 80 industries, according to the data provided by the Center for Responsive Politics. Interestingly, many of these industries in the financial sector played a key role in worsening the events that led to the 2008 financial crisis. In a 2011 National Bureau of Economic Research study titled, “A Fistful of Dollars: Lobbying and the Financial Crisis,” it was revealed that “the political influence of the financial industry played a role in the accumulation of risks, and hence, contributed to the financial crisis.”

Before the 2010 Citizens United case, the role of money in political campaigns was received with mixed reviews, and only few studies found an existing correlation between lobbying expenditures and campaign contributions. But after 2010, the contributions by the financial sector started to amplify at alarming rates. Citizens United allowed unrestricted contributions to pour in through outside groups, with a condition that there be no coordination with candidate or candidate’s committees. Such groups are legally allowed to advocate for or against a certain candidate and have to publically disclose the sources of funds. Critics of excessive money in politics have argued against wealthy donors, disputing that unlimited contributions can become a problem when such money is privately funded, unrestricted and raised by a handful of wealthy individuals.

A 2008 working paper by the National Bureau of Economic Research disclosed that the congressional members who receive larger campaign contributions from the financial industry were more likely to vote in favor of the bank bailout legislation of 2008. So it won’t be incorrect to say that sometimes, unlimited campaign contributions from top contributors can override economic concerns only to safeguard their own interests. Such tremendous power to skew important regulations (that are made into law by one party only to be brought back later by the other) typically originate from affluent individuals, typically forming the top 1% or so of US wealth-holders.

A pilot study conducted in 2013 titled, “Democracy and the Policy Preferences of Wealthy Americans” indicated that the 1% of US wealth-holders are extremely politically active and are much more conventional than a vast majority of Americans with respect to important policies that include taxation, economic regulation and social welfare programs. The industries in the financial sector tend to mostly agree on common issues like opposing taxes and challenging excessive regulations for hedge funds or financial instruments, such as derivatives.

A deeper analysis of 14 million records (that included data on campaign contributions, lobbying expenditures, federal budget allocations and spending for the 2008, 2010 and 2012 election cycles) by the Sunlight Foundation showed the power of money in politics. The examination concluded that on an average, for every dollar spent influencing politics, the nation’s most politically active corporations received $760 from the government.

Between the period of 2007 and 2012, 200 of the United States’ most politically active corporations spent a total of $5.8 billion on federal lobbying and campaign contributions. In the completed 2013-2014 election cycle, the financial sector spent more than $1.4 billion through campaigns to influence decision-making in Washington. Leading lobbyists can often find loopholes in bills and soften the tough regulations that may benefit the economy as a whole. In 2013, it was reported that top bank lobbyists helped in softening the financial regulations by “helping to write it themselves.” In the past, through intense lobbying efforts, wealthy billionaires have succeeded in revoking some of the most crucial Wall Street regulations, which both parties have mentioned to either replace or bring back in their 2016 party platforms.

One such regulation is the 1933 Glass-Steagall Act, which was initially repealed purely because big lobbying firms lobbied hard to revoke it. The repeal of the Depression-era Glass-Steagall Act in 1999 under President Bill Clinton’s administration was a result of the $300 million lobbying effort by Wall Street banks. The repeal allowed deposit-taking activities to merge with risky speculative activities, introducing the era of deregulation and a series of bank mergers. Though the repeal was not the root cause of the 2008 crisis, it surely prompted the problem of “too-big-to-fail.” In 2016, both the Democrats and the Republicans want to bring their own versions of the Glass-Steagall Act to reduce risky activities of big banks. In 2016, the securities and investment industry was the largest contributor to campaigns with $321.66 million ($206.48 million as outside money) and lobbying expenditure of $49.22 million.

The second important Wall Street regulation is the 2010 Dodd-Frank Act, which became a law under the Obama administration after surviving the intense lobbying by some of the biggest banks on Wall Street. Regulations under the Dodd-Frank Law addressed the 2008 issues and laid down strict regulations to reduce systemic risk posed by big banks. After the introduction of Dodd-Frank, when President Obama signed the law, he said, “Passing this … was no easy task. We had to overcome the furious lobbying of an array of powerful interest groups and a partisan minority determined to block change.” In 2012, the top five finance industry groups, including Wells Fargo, JPMorgan Chase and Goldman Sachs, sent 406 lobbyists to Capitol Hill with the intention to dismantle the Dodd-Frank Act.

In 2016, even though the campaign contributions by commercial banks have halved from $61.88 million in 2012 to $30.98 million, the industry still remains amongst the top 20 lobbying industries. Besides trade groups like American Bankers Association, the commercial banking industry includes financial institutions such as Bank of America, Wells Fargo and JPMorgan Chase. In 2016, Republicans have chosen to replace the Dodd-Frank financial reform law.

Heavy lobbying for private benefits and big money through unlimited campaign contributions are some of the biggest problems of excessive money in political campaigns. Many of the Wall Street reforms that both Democrats and Republicans aim to bring back are closely associated with heavy lobbying by the wealthy in the past. Steve Israel highlighted this concern in an op-ed for The New York Times. He wrote,

This isn’t ‘Shark Tank.’ This is your democracy. But as the bidding grows higher, your voice gets lower. You’re simply priced out of the marketplace of ideas. That is, unless you are one of the ultra-wealthy.