No Free Lunch: Economics for a Fallen World: Third Edition, Revised

Chapter Fourteen: Decision-making in Democracy: Public Choice 345 popular. This may have some validity, however given the voter’s rational ignorance, it seems unlikely they are very happy with someone they often cannot even name. One way that politicians erect barriers to entry is akin to “brand names” that are well known in markets; the brand name product overcomes the voters’ ignorance as to the quality of the product by promoting a known quality to an unknown product. For instance, I enjoy eating Lay’s brand potato chips—I understand that a new flavor of chip will have a certain quality that I can count on. Similarly, if I’m on a long drive in an area I haven’t traveled before, I know that if I stop at a Wendy’s restaurant I have a reasonable expectation of what the quality will be since almost all Wendy’s are roughly the same. Political entrepreneurs brand first by party affiliation—no matter your political affiliation you have an idea what it means when someone says “democrat” or “republican.” These labels are a brand that reduces the information costs that voters have to pay to make decisions (reducing, not eliminating—recall our discussion earlier on bundling). While there are many advantages to incumbency that are not a direct barrier to entry (such as easier access to media coverage and associated name recognition), there are direct institutional supports that create barriers to competition. These include the franking privilege, where members of Congress have taxpayer support for mailings as well as taxpayer funding for travel to meet with constituents. While ostensibly for official purposes, mailings increase name recognition and always promote only a positive view of the member. These taxpayer-funded institutional supports give a leg up to incumbents and discourage opposition. This is in addition to the well-known reality that politicians will be able to secure larger campaign donations for their “services rendered” from official actions on committees. Given the tremendous institutional advantages of incumbency, only very strong challengers are likely to succeed unless the incumbent is exceptionally weak (due perhaps to a personal scandal or an occassional anti-incumbent mood in the electorate). Because of this, challengers must typically raise signficant funds to have any hope of being able to compete. Thus one of the most powerful barriers to entry are campaign finance restrictions which limit challengers’ ability to raise funds. Cato Scholar Brad Smith asserts, “The key spending variable is not incumbent spending, or the ratio of incumbent to challenger spending, but the absolute level of challenger spending. Incumbents begin races with high name and issue recognition, so added spending doesn’t help them much. Challengers, however, need to build that recognition. Once a challenger has spent enough to achieve similar name and issue recognition, campaign spending limits kick in. Meanwhile the incumbent is just beginning to spend. In other words, just as a challenger starts to become competitive, campaign spending limits choke off political competition.” -Cato Scholar Brad Smith