A group called SpeechNow.org is suing the Federal Election Commission to allow individuals to contribute as much as they want to the group’s effort to buy TV advertising. Their argument, loosely paraphrased, is that billionaires can spend as much as they want to on TV advertising, so why shouldn’t “ordinary” folks be allowed to pool their money in donations of more than $5,000 (the current legal limit). This is a case where I believe the best regulatory approach by the government would be “forced transparency” – instead of artificially limiting the amount that can be contributed, just make it a requirement that all donors must be identified individually by name (no hiding behind entities would be permitted). In the age of the Internet the requirement should be for the data to be on a web page for the organization, ideally in a microformat that makes gathering up the data easy. Any ad run by the organization would then have to include the organization’s URL. It would in fact be easy to make this regulation apply to ALL advertising so as to not have to get into the morass of whether any particular ad is political or not.
One of the great powers of the Internet is to change how regulation can work. Sticking with the previous case a bit more, there is no particular reason why the same principle should not apply to candidates directly. Let candidates raise as much from individuals or even corporations as they want to but require detailed disclosure in “machinable” form (don’t even need a central registry). The beauty of this approach is that it does not have any of the strange and unpredictable side effects of much other campaign finance reform – for instance, it doesn’t push money that would otherwise go to candidates into murky places. Let candidates be the judge of how much they want to accept and from whom. Then let the public be the judge of whether candidates are likely to be unduly influenced based on how much they took from whom.
This notion of “forced transparancy” would also work well in the financial markets. For instance, instead of asking companies to come up with formulas for valuing their stock options, simply require a complete disclosure schedule that lists all options in sufficient detail so that investors can form their own assessment of what the impact of those options is likely to be now and and in the future. This does not mean individual grants would have to be shown (unless they exceed some materiality threshold) but rather the total number of options outstanding for any given strike price. Here too the same principle could apply to a large number of financial items (e.g. funding for retirement plans) that currently give companies huge opportunities for misstating their earnings and investors huge headaches in trying to sort out operational performance.
So instead of coming up with arbitrary cutoffs or formulas that can have huge swings depending on arbitrary assumptions, regulators should come up with “forced transparancy” requirements.
