Secret money

This radical idea to fix influence in politics just might work

by Dylan Matthews on May 9, 2014

story,interview

"Sunlight," Supreme Court justice Louis Brandeis famously argued, "is said to be the best of disinfectants; electric light the most efficient policeman." It's a powerful metaphor: if the people know what people in government and industry are doing, they'll be spurred to action. But when it's been used to fight influence-peddling, sunlight has been losing for years. Congress has mandated campaign disclosures since 1910, when it passed the Federal Corrupt Practices Act in 1910, and has expanded them gradually since, but it's hard to find evidence the disclosure provisions in that law or its successor, the Federal Election Campaign Act of 1971, had any effect at all.

Maybe we've got this all wrong. Maybe the problem isn't too little information about donors and donations, but too much. That's the argument of Yale law professors Ian Ayres and Bruce Ackerman. They've been arguing for a decade that the key to fixing the campaign finance system isn't to strengthen mandatory disclosure rules but to abandon them in favor of a system where all donations are secret — especially to the recipients.

Why would you ban donation disclosure?

It sounds batty until you realize the authors' key insight: for a quid pro quo to work, the paid-off party doesn't just have to receive a kickback. They have to know they've received a kickback. In the current system, where you donate to campaigns by giving them your name and credit card number, or sending them a check with your name and signature, that's trivially easy to figure out. It only takes a few keystrokes for Barack Obama to find out that Hollywood producer and Democratic super-donor Jeffrey Katzenberg maxed out to him in the 2012 primary and general elections.

But if we were to make donations secret, that link would be broken. Katzenberg could tell Obama that he donated, but there'd be no way he could prove it. And next time Katzenberg needed an invite to an administration gathering to secure a business deal with Chinese officials, White House officials wouldn't know if he's actually someone they need to keep happy. Whatever special privileges he currently enjoys with the administration would greatly diminish in importance, if not vanish completely. "It's harder to buy influence when the candidate doesn't know who paid for it," Ayres tells me.

Their full plan, first laid out in their 2004 book, Voting with Dollars, has two parts:

  1. First, all campaign donations are made secret. Donors send checks to a central, private trust which dispenses money to campaigns on a regular — but not so regular as to reveal donors' identities — basis (say, once a week or once a month). Donors are also given a window within which they can (again, in total secrecy) withdraw donations after making them.
  2. Second, every registered voter in America gets $50 per election cycle to give to candidates for federal offices, whether they're running for president, the Senate or the House. Ackerman and Ayres call these vouchers "Patriot Dollars."

Why a voucher?

Without the vouchers, Ackerman says, the secret donation system would mostly serve to further entrench incumbents. "Incumbents have been there for many years, they're well known, and without a substantial amount of public financing of the kind we're describing it will be very difficult for insurgents to win," he surmises. Donation vouchers also mean monetary influence over elections is far more equitably partitioned across the citizenry. "We need Patriot Dollars, also, to make sure the source of the money is more democratically derived," Ayres says. "Even if we dial back some of the contributions in the current system, the money is normally going to be coming from people who make more than $90,000 a year."

That differentiates the plan from public financing schemes, like New York City's, which "match" small donations with public funds (NYC gives candidates $6 in public funding for every $1 in small donations they raise). Ackerman notes that this still gives wealthy Americans outsized influence. "Only people who'd think of giving $200 — meaning upper-class people — will have greater influence," he says. "People who are making $50,000 are perfectly sensible in saying, 'I should buy a new set of pants for my kid rather than give to the Democratic party.'"

The voucher component is by far the most widely accepted part of Ayres and Ackerman's plan, with Rep. John Sarbanes (D-Md.) sponsoring a bill combining a $50 campaign donation tax credit with NYC-style matching funds and Harvard law professor and campaign finance activist Larry Lessig arguing for a $50 voucher in his book Republic, Lost. Some, like law professor John Ferejohn and political scientist Kenneth Mayer, have expressed doubt that citizens would actually use the vouchers, but then again, that's also a concern with voting. Where Ayres and Ackerman start to really lose people is when they propose secrecy.

The case against transparency

Ayres and Ackerman hasten to note that the secrecy requirement would hardly be unprecedented. They love to analogize their proposal to the secret ballot, which is a more recent innovation than you might think. "Before 1880, in every country in the world, all voting was public," Ackerman explains. "You went into your precinct, and you went over to the Democratic representative and he gave you a party-produced ballot. You put it into the voting slot, and he then gave you a turkey." Secret ballots resulted in a marked drop in voting rates (Ayres pegs the drop at about 10 to 12 percent), which sounds bad until you consider the fact that the people no longer voting were those who only voted when they had a financial incentive to do so. Abandoning a system where 10 to 12 percent of voters were directly paid off is not insignificant progress.

"Before 1880, in every country in the world, all voting was public"

Anonymous donations, however, have been adopted a lot less frequently. Ayres notes that a few states used a similar system for judicial elections, but the post-Watergate wave of transparency reforms swept anonymity requirements away. What's more, the requirements were never that well-enforced. "Some of the states said that a judge should not know his donors, but that the judges' treasurer had to know, and in some cases had to publicly report the donations," Ayres says. "So it's not clear the judges were kept in the dark." If we have servers rather than individuals store the information, and don't allow public disclosure, that problem might go away. "With the net, all of this is possible," Ackerman says. "30 years ago it wasn't."

Still, it's rational to worry that absolute secrecy would be impossible even today. Indeed, this is one of the main critique fellow law professors like Pamela Karlan and Richard Briffault made upon the release of Voting for Dollars: absolute secrecy is just impossible. And it's easy to think of edge cases that appear to prove that point. If I give $1,000 to a campaign that's raking in $100,000 a week, and tell the campaign, there's no way under a secret donation system to verify that. But let's say I'm billionaire conservative donor Sheldon Adelson, and want to give $500 million to Newt Gingrich's presidential campaign. If he tells Gingrich, "I'm about to give you $500 million," and then that week's fundraising total is $500 million above average, there's not going to be any mystery about who's behind that.

The plan has two safeguards against this kind of shenanigan, however. One is that, while Ackerman and Ayres blow up a lot of the current campaign finance system, they do want to keep individual donation limits. They'd raise them, as limits are less necessary when the risk of influence-peddling is lessened. But a ceiling would still be needed to prevent donors from outing themselves through massive contributions. The second safeguard is an algorithm which would smooth out sudden spikes in donations in a given week or month (or whatever other interval at which donations are released to campaigns), so they don't appear to be spikes to campaigns. "We could just have a randomization algorithm, so that if a huge amount kicks in, you get it over 14 weeks," Ackerman says.

But what if Adelson, instead of giving the money to Gingrich, simply sets up a super-PAC? Wouldn't that be a way to spend tons of money on behalf of a candidate, and prove to the candidate you're doing it? Ayres and Ackerman also have an out there. They'd automatically increase the value of Patriot Dollars between election cycles such that they make up two-thirds of all campaign spending (including outside spending). "So long as the Patriot fund automatically increases each voter’s $50 grant to assure that the citizenry will continue to finance at least two-thirds of all private and public campaign expenditures," Ackerman says, "the new system will still require candidates to be responsive to the concerns of ordinary voters." Still, it's fair to wonder whether even relatively modest super-PAC spending would be enough to make candidates feel indebted to super-PAC funders.

A secret donation booth lets people make donations privately which they'd be embarrassed or frightened to make publicly

Chile has (partly inspired by Ackerman and Ayres) adopted a voluntary secret donation system in the past decade. Political scientist Joel Johnson has found that less than half of overall donations in Chile are made secretly, but that right-wing parties, particularly those close to the former Pinochet dictatorship, benefited disproportionately from secrecy. Only about 9 percent of donations to left-of-center candidates were secret, compared to nearly 60 percent of donations to the Independent Democratic Union (UDI), which fervently backed the Pinochet regime.

However loathsome UDI is, Ackerman and Ayres think this phenomenon is a feature of the plan, not a bug. A secret donation booth lets people make donations privately which they'd be embarrassed or frightened to make publicly, just as the secret ballot lets people vote for people they'd never openly support. "The CEO of Mozilla, Brendan Eich, lost his position because of a political position he took," Ayres notes. "And in a world with secret donation booths, there would not be a risk you'd lose your job because of a political contribution."

Pleasing the Supreme Court

A lot of campaign finance regulation — from limits on corporate spending to caps on individuals' total donations to public funds meant to help contenders running against wealthy self-funded candidates — have met an untimely end by the hand of the Supreme Court in recent years. So it's reasonable to worry that, even if Congress were to adopt Ackerman and Ayres' plan, it would suffer the same fate. Indeed, Mayer judged the donation booth "almost certainly unconstitutional," on the grounds that the First Amendment limits the government's ability to keep secrets.

But Ackerman and Ayres are optimistic. While they think the court's recent rulings have been foolish, they don't believe their own plan is threatened. "We think free speech is great. We think money is speech," Ackerman says, echoing John Roberts' arguments against fundraising restrictions. "We've designed this program on the merits, but it is perfectly constitutional under the Court's decisions."

"We're talking $2.5 billion a year to preserve the foundations of democracy"

Speech rights, they argue, aren't threatened by secrecy. Ackerman and Ayres wouldn't ban people from claiming they'd made a certain donation. They'd just make that claim impossible to verify. "Imagine what would happen if we mandated a secret contribution booth for car dealerships," Ayres elaborates, "and someone said, 'You should give me the keys to that Cadillac, I made a contribution."'I don't think car dealers would hand over keys."

What's more, it'd be totally legal for candidates to opt out of the secrecy requirement — so long as they're willing to forgo millions in Patriot Dollars too. "You can finance your whole campaign, Mr. Bloomberg, only you should know that if you decided to appeal to citizens for Patriot Dollars, you could have raised $600 million," Ackerman explains.

The plan isn't costless. Its monetary expense runs in the billions, and getting actual politicians in this country on board promises to be an uphill climb. But given the stakes, it's quite possibly worth the leap. "We're talking $2.5 billion a year for Patriot Dollars, to preserve the foundations of democracy," Ackerman says. "This is a new frontier, using 21st century technology to save the republic. I don't want to be melodramatic, but those are the stakes."

Dylan Matthews: Voting for Dollars came out ten years ago, and a lot has happened in the world of campaign finance in the meantime, so I wanted to start by asking you — together or separately, if there are points where you disagree — what your ideal world campaign finance system would look like now.

Ian Ayres: One of our two pillars is this idea of a blind trust, a donation booth that takes as a premise the idea that publicity isn't always the best policy approach. That's how we handle voting — with anonymous voting. It's a powerful way to deter corruption. We would preserve an ability of donors to say that they gave, but due to the blind trust mechanism, they couldn't prove it. It's just like voting now: you can tell Obama that you voted for him, but can't prove it.

Bruce Ackerman: The basic idea is that I can go on my computer and send $500 to candidate Ayres, and then say, "Hey Ian, I've just given you $10,000." Everyone's telling him they've given a ton of dollars, and every week the blind trust reports a total to Ian, but the reported amount is much less than the sums each individual promised and he doesn't know who gave and who didn't.

Ian Ayres: It's harder to buy influence when the candidate doesn't know who paid for it.

Bruce Ackerman: If I actually believed in the policies Ian was advocating and was not trying to get a corrupt quid pro quo arrangement with him, I can give him a sizable donation, say $15,000. But there are a lot of businesses that give money to both sides to buy influence from whoever wins. No one's going to do that anymore. I'll just give money to people I actually believe in, either because I have trust in their integrity or because I like their ideas.

If the blind trust works, there's going to be a lot less private money going into the system. Only serious people who are committed to the cause and don't want to buy influence from the candidate are giving money. So we can't advocate this program standing by itself. We also need a Patriot Dollar program where citizens get a personal $50 account they can spend to support candidates of their choice. That's about $7 billion per presidential cycle. This is perfectly constitutional.

If we put Patriot Dollars together with a blind trust, we have a system where people can give their own money to whoever they want so long as they actually believe in them, but most of the money will be Patriot Dollars. One person, one vote; one person, 50 Patriot Dollars. Ours is one of the few serious campaign finance programs that's constitutional. We think the Supreme Court made the wrong decisions, but they have not said anything that really constrains our Patriot Dollars plus secret donation booth plan.

Dylan Matthews: Do you still want donation caps? You were tossing around figures like $15,000 from a single person to a single campaign, which would be illegal today. And you called for capping donations for people paying a lower tax rate than the average worker, like Warren Buffett.

Bruce Ackerman: Yes, we would raise the caps, but very few people will give the maximum. We have, in our model statute, a provision that says the election commission should recalculate the number of Patriot Dollars each cycle such that two thirds of the money in the next election will be citizen-financed.

Ian Ayres: There is a small role for preserving caps, but they don't have to be as stringent as they are now. You shouldn't be able to give so much that it blows through the ability of the blind trust to conceal who the donor's identity is.

Bruce Ackerman: The other proposals we have made are Band-Aids. Most of the proposals from reformers dealing from the Supreme Court's decisions are Band-Aids on an increasingly plutocratic system. We think free speech is great. We think money is speech. Moreover, we give each candidate the right to opt out of our system. You can finance your whole campaign, Mr. Bloomberg, only you should know that if you decided to appeal to citizens for Patriot Dollars, you could have raised $600 million. That money is now going to be used by the candidate who's most competitive with you. You've just abandoned the field, and given up $600 million to your closest competitor. Does that sound very attractive? We've designed this program on the merits, but it is perfectly constitutional under the Court's decisions.

Ian Ayres: Another advantage of the secret donation booth, that I think played out in the last few weeks, is that it protects donors from retaliation and intimidation. One of the great things about the voting booth is that it reduced corruption, but also it prevented voters from being intimidated and retaliated against by employers. The same concerns are at play in regard to mandated disclosure of political donations. The CEO of Mozilla, Brendan Eich, lost his position because of a political position he took, and in a world with secret donation booths, there would not be a risk you'd lose your job because of a political contribution.

Bruce Ackerman: Readers should recognize that before 1880, in every country in the world, all voting was public. All voting was public. You went into your precinct and you went over to the Democratic representative and he gave you a party-produced ballot, you put it into the voting slot, and he then gave you a turkey. The secret ballot was invented in Australia, and we imported it, and it cleaned up elections. What we're trying to do is use the same idea to clean up private donations. And it has the same anti-coercion consequence. Someone can't say, "I see you've just given $2,500 to the Republican party, we don't like you."

Dylan Matthews: Is there any historical precedent for your plan? I think a fair question for skeptics to ask is, "If this is such a great idea, how come no one's adopted it?"

Ian Ayres: There is a little bit of precedent for it. Before the late '70s, this was mandated by a number of states with regard to judicial elections. People thought that, in the states, judges should decide on the merits and not on the basis of contributions for their election run. So we had experience for a number of years with secret donations in the United States. After Watergate, reformers started demanding more publicity across the board, and these statutes stopped being enforced. More recently, Chile has been mandating a refund booth, a secret donation option, really driven by the fact that you may get fired if you give money to the wrong side. You're allowed to give publicly, but there's a five-day cooling off period where you can go back and undo your gift.

Bruce Ackerman: The first generation of reform in the US was well-intentioned, but McCain and Feingold used a command and control model. It's a model in which benign administrators are going to monitor and control who gets how much when. The Supreme Court has swept this system away and has given Americans an opportunity to use the market for citizenship, by providing each citizen with Patriot Dollars. The current system is using the market to destroy citizenship, but our reform harnesses the market to enhance citizenship and uses secrecy, rather than publicity, to make sure people are giving their green dollars to candidates they believe in rather than ones they think will pay them off.

Citizens will be able to "vote with their dollars" just the same way they currently vote in the election booth. It's just that they do it both in the campaign and on election day, rather than only on election day. we simply reject the command and control model, and so has the Supreme Court, for very different reasons. [Harvard law professor] Larry Lessig and his allies have adopted Patriot Dollars — they call them "democracy dollars", but it's the same idea. They should also embrace the secret donation booth.

Dylan Matthews: Did secret donations actually reduce judicial corruption in states that adopted them?

Ian Ayres: We have better estimates of the impact of the secret voting booth; the estimates are that turnout fell by between 10 and 12 percent. One inference is that people were having their votes paid for, and they stopped voting once they weren't paid as much. I looked at the judicial election experience with Jeremy Bulow and the results of secret donations are muted, in part because the secrecy was not very well-mandated. Some of the states said that a judge should not know his donors, but that the judges' treasurer had to know, and in some cases had to publicly report the donations. So it's not clear the judges were kept in the dark. There were more than a few individual reports of judges who felt legitimately constrained by the regulation, but there's not rigorous social science on the plan's impact on the judicial branch.

Bruce Ackerman: One thing to do is to try it out in one or another state. That'd be an excellent idea. The kinds of ideas being enacted in states now don't distribute power in this very visible way to each individual voter. They say, "if you give $200, then we will have a fund that will give triple that amount to the candidate" or something like that. That's fine, but that means that only people who'd think of giving $200 — meaning upper class people — will have greater influence . People who are making $50,000 are perfectly sensible in saying, "I should buy a new set of pants for my kid rather than give to the Democratic party."

We should not triple the amount of money upper middle class and rich people give. Everyone should get $50, everyone who's registered to vote. Our proposal is much more democratic than current "reforms" going on in the states, giving each citizen the same financial say in elections.

Ian Ayres: Just to say a bit more about the feasibility of keeping it secret, I'd allow people to say whatever they want but I'm skeptical that candidates will be able to figure out who's lying and who isn't. Imagine what would happen if we mandated a secret contribution booth for car dealerships, and someone said, "You should give me the keys to that Cadillac, I made a contribution." I don't think car dealers would hand over keys, because many people will be promising to have paid. You might trust a few people, but there will be a lot more people saying they gave.

Bruce Ackerman: One of the elements is that there is a five-day cooling off period in which you can go to your computer and say, "Forget about the $50 gift to candidate Z." You're able to cool off and change your mind. With the net, all of this is possible. 30 years ago it wasn't possible. We're using new technology to empower voters in a market-like way, but for exercising their citizenship rather than destroying our democracy, which is what's occurring now.

Dylan Matthews: I mean, it's hard for someone giving $5,000 to prove that credibly, but if Sheldon Adelson calls Newt Gingrich and says, "I'm going to give you $500 million" and then $500 million pops up into Gingrich's campaign account, it's pretty clear where that came from.

Ian Ayres: Right. We can loosen the maximum contribution, but there will still be a maximum to make sure secrecy is interceded.

Bruce Ackerman: One other technical detail: let's say Ackerman is running for Congress and getting $60,000 a week in contributions, and then suddenly Mr. Megabucks says, "Bruce, I'll give you $50,000 next week." We could just have a randomization algorithm, so that if a huge amount kicks in, you get it over 14 weeks. If candidate Bruce looks at his weekly report from the blind trust , the report will only go up to, say, $72,000, and wobble around after that. It's a standard kind of programming problem. You get a number of smart programmers and you'd be surprised at how cleverly they insulate the system. This is doable. This is a new frontier, using 21st-century technology to save the republic. I don't want to be melodramatic but those are the stakes.

Dylan Matthews: Can you explain a bit more why you don't think the secret donation booth is workable apart from the Patriot Dollars system? I could imagine a skeptic saying, "Yes, sure, it'd reduce the amount of donations coming in, but maybe that's a good thing; maybe we only spend so much now because there's an arms race between campaign. So why not save the $7 billion and just make everything secret?" Why wouldn't that work?

Bruce Ackerman: First of all, if we take a four-year presidential cycle plus congressional cycles, we're talking $2.5 billion a year for Patriot Dollars, to preserve the foundations of democracy. If we only have the blind trust without Patriot Dollars, the sharp decrease in political funds would greatly favor incumbents. Incumbents have been there for many years, they're well known, and without a substantial amount of public financing of the kind we're describing it will be very difficult for insurgents to win. We already have much too strong an incumbency effect, which is further increased by all the big money pouring into the campaign coffers of sitting senators and representatives. We want to challenge a number of cherished but wrong-headed ideas people have about reform: that more information is always a good thing, and that we have too much money in politics. We're not spending too much money — the problem is that ordinary citizens aren't spending it. We're spending less money on politics [$6.3 billion in 2012] than automobile dealers are spending on advertising [$7.2 billion in 2012].

Dylan Matthews: How would you deal with the rise of super-PACs? Wouldn't they provide a way to credibly provide large amounts of monetary support to candidates?

Bruce Ackerman: The chief executives of super-PACs often have well-known affiliations with particular groups of big donors. And so it’s often quite easy for candidates to know who is supporting so-called "independent" campaigns on their behalf. This makes our model statute’s provision requiring recalculation of Patriot dollar allowances after each election especially important. So long as the Patriot fund automatically increases each voter’s $50 grant to assure that the citizenry will continue to finance at least two-thirds of all private and public campaign expenditures, the new system will still require candidates to be responsive to the concerns of ordinary voters.

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