Are interest groups good for you?

“Contrary to the view of many, the models presented here suggest that even uninformed voters can respond rationally to political advertising and that campaign donations and endorsements by special interests tend to move the outcome toward, instead of away from, the median voter.

The following question naturally arises. If, as argued in this paper, campaign contributions by pressure groups aid the democratic process, then why do we see so many attempts like the McCain-Feingold bill to put limits on campaign financing? The answer lies in this paper, also. As we have seen, pressure group contributions to political campaigns hurt some of the participants – informed voters on average and those informed voters whose preferences run contrary to the median uninformed voter in particular, as well as those policy-preferring candidates whose preferences are more aligned with the median informed voter than with the median uninformed voter. It is not surprising that these actors and their supporters would be against unlimited campaign financing.

Pressure groups have often been viewed as the bad guys of democracy. But “special interests” is just a pair of words meaning self interest, and from Adam Smith onward, we know that “it is not from the benevolence of the butcher or the brewer … that we expect our dinner, but from their regard to their own interest.” Here I have argued that the invisible hand works for pressure groups also. Instead of viewing pressure groups as undermining the democratic process, it may be more enlightening to view them as institutions that reduce transaction costs. Just as speculators (who were once thought of as the bad guys of financial markets) are now seen as transaction-cost reducers, pressure groups need to be seen in a similar light. Once we have altered our perspective, we are primed for a new research agenda. For example, why efficiency would lead special interests to be organized in the way that they are and how or why they are different from political parties.

Perhaps even more important than the change in perspective on pressure groups is the added understanding on how uniformed voters can rationally respond to political advertising. This paper has shown how uninformed voters can make use of optimal rules of thumb that cannot be manipulated by candidates or pressure groups. Future work will no doubt consider still different information sets available to the uninformed and how the strategy of the uninformed voters changes in response to the changes in the information available.”