What impact does election spending have on the economy?

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Listener Jennie Inglis from Cleveland, Georgia, asks:

I have been wondering for some time how gross spending – and I mean that in all senses – on US elections affects our economy. To me it is a misallocation of talent and resources. How is it “sucked out” of the regular economy to fuel the campaign economy?

The 2020 election cycle cost $14.4 billion, making it the most expensive ever.

We'll have to wait and see how much this cycle has cost, but spending by outside groups is already on track to break records, Sheila Krumholz, the former executive director of political money tracker OpenSecrets, said in an interview with Marketplace in 2023.

Campaign spending boosts some parts of the economy, keeps local newsrooms afloat and creates temporary jobs that support a politician's campaign. But all those billions have no tangible impact on the U.S. economy as a whole, experts told us.

Campaign teams will buy ads on television and radio because that's where they reach the most engaged voters, says Robin Kolodny, a professor of political science at Temple University.

Kolodny said older voters regularly watch the 5:30 a.m. news, the 6 a.m. news and the 11 a.m. news, which feature campaign ads throughout.

“When you do political advertising, you really want to reach the right audience,” Kolodny said. “There's a reason you don't see a lot of political ads on 'American Idol' or 'Dancing with the Stars.' A lot of non-voters are probably consuming them.”

Vice President Kamala Harris and former President Donald Trump, along with various allies and super PACs that support them, plan to spend a total of $500 million on radio and television in the final two months of the campaign, the New York Times reported.

A significant amount of money also goes to digital advertising. In the 2020 election cycle, President Joe Biden spent a total of about $192 million on online advertising, while Trump spent more than $268 million.

On the campaign trail, presidential candidates visit local stores, restaurants and hotels, boosting their sales, says Peter Brusoe, assistant professor of political science and economics at the State University of New York at Delhi. Some businesses that host politicians get embroiled in minor controversies that can lead to bigger publicity and profits. (See: The Four Seasons Total Landscaping debacle of 2020.)

Local printers would also benefit from providing campaign materials, Brusoe said.

But all those restaurant visits, TV ads, and billboards only account for about 0.06% of U.S. economic output. While campaigns and their donors spent more than $14 billion in the last presidential election, GDP in the fourth quarter of 2020 was $22 trillion.

“They're not really making a difference when it comes to GDP growth or job creation in the country,” says Reilly White, associate professor of finance at the University of New Mexico.

Are there more productive ways to spend all that money? Let's say small donors could no longer contribute to campaigns. A large portion of their money would go to consumer spending, and some would go to nonprofits and charities, White said.

But overall, it still wouldn't make much of a difference to the economy. “Cutting off small donations to political candidates isn't likely to inject cash into a struggling local business or suddenly provide a massive infusion of capital into the nonprofit sector,” White said.

Now let's look at corporations. Big business donated $3.5 billion during the 2022 midterm elections. They could use their money to hire more employees instead, White said.

Corporate self-interest can prevent consumers from making their own choices and halt growth in other industries, White said. For example, car dealerships delayed the electrification of the auto industry when they donated $60,000 to former New Jersey Governor Chris Christie. whose government helped block Tesla's ability to sell directly to consumers back in 2014.

Companies want policies that make it easier for them to do business and increase value for their shareholders, White said. Crypto companies have poured $119 million into federal elections this cycle in hopes of loosening regulation of their industry, Vox reported. A bill they support would put cryptocurrencies under the oversight of the Commodity Futures Trading Commission instead of the Securities and Exchange Commission.

“Investing in an election can bring above-average returns to these companies,” White added.

Election campaign spending has no major direct impact on the economy, but states that allow more political spending pursue more growth-promoting policies, according to a 2023 National Bureau of Economic Research working paper. That can lead to higher wages, more hiring, and higher corporate revenues.

Elections also create a lot of jobs, albeit temporary. “Campaigns hire tons of staff, strategists, analysts, field organizers, volunteers, all of whom benefit from this temporary job boost,” White said.

However, since this is temporary employment, one could argue that it would be better for the economy if people had permanent employment, says Brusoe.

U.S. campaign teams typically hire part-time staff in the last quarter of the election cycle and then lay them off, Kolodny says.

The United States could follow the example of other countries. Political parties would hire full-time employees and treat them like civil servants with a salary, pension and health insurance, Kolodny said.