Money in Politics Is a Plumbing Problem

And right now, it’s flooding America’s basement.

Last week, I took a look at Elon Musk’s record $474 million bet on the American midterms. His side ended up losing—and I talked about how the sum he spent is tiny compared with the tens of billions that he lost.

You can catch up on that here:

Why Didn’t Elon Musk Spend More?

Now it’s time for The Professor Is In, where my producer, Augusta Chapman, brings me questions from the audience. Think of it like office hours: My door is open, come on in.

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Between the huge sums spent and the decisive election results, this piece got a significant response from our audience. So Augusta started with the question that folks asked again and again.

Money plays a much smaller role in elections in many other countries. Canada and the U.K. cap campaign spending and donations, and Australia’s new federal caps kicks in next year. Tullock’s puzzle asks, with so much money on the line, why isn’t there more money in politics? Could well-enforced caps help us solve this problem? Or will that money just find another way in?

The pressure won’t just turn off

Let me start with the part of Tullock’s puzzle that’s absolutely right. The fate of individual companies depends, to an extraordinary degree, on decisions that the government makes.

Should we let cheap electric vehicles in from China? If we do, Tesla’s stock will likely fall. Outlaw robotaxis and it falls again. Allow robotaxis without strong regulation and it rises. Tesla is worth hundreds of billions of dollars, so even a small change in profitability has massive effects.

There really isn’t a question that big corporate interests can gain (or lose) a fortune from an election. That isn’t something that regulation can change. But it can change if those big interests get to shape elections, or if they just respond to them.

Electoral plumbing

I come from one of those countries. Australia has never seen money like this, and it’s about to cap it. It’s a country with its own big interests, and lately some of them—particularly mining companies—have tried to get more involved in politics. But you don’t see anything like the donations we get in the U.S., and the same is true in Canada and Britain. The result is that regular folks have much more power relative to corporations.

This is a matter of plumbing. A plumber who installs your new sink can’t promise that not a single drop will ever escape the pipe. But right now, America’s plumbing has a big gaping hole, and water is flooding our (electoral) basement.

If we regulated well, we’d get a pipe that worked much better. Yes, there might be an occasional drip. The pressure will always be there. But letting it show up as a $474 million campaign spend is a choice.

Free speech makes it complicated

But this issue can get more complex. If Musk wants to spend a truckload of his own money telling Americans that electric cars make the world a better place, well, regulating that may not be right. This country takes a very different view of free speech than others.

What does free speech mean when some of us have millions of dollars to spend at their discretion? Some people get huge megaphones, while others get their most polite library voice. One person’s freedom can drown out the influence of others when it comes to the market for public opinion.

So—we can do things differently. The first step is deciding what we want to do. Personally, I am deeply uncomfortable with a massive concentration of wealth combined with campaign laws that let individuals spend enough to potentially determine elections.

Because even though Musk failed this time, this wasn’t his first bet. In 2024, he spent about $250 million. That money may have returned Donald Trump to the presidency. If so, Musk is batting one for two.

Other questions Augusta put to me:

• If money can’t buy many votes, does it buy access after the election instead?

• How does lobbying fit into Tullock’s puzzle? (Answer: Not with a steak dinner. Senators eat plenty of steak already. But it is a BIG deal.)

• What’s the random walk hypothesis, and why doesn’t a falling stock just drift back up?

Finally, why trust a one-day stock move?

Several of you noted that I measured Musk’s losses over a single day. Their point was: that value may come right back, so check back in January to see what really happens.

It’s a fair point, but by January we may actually know less. Between now and then, so much will happen: decisions by the Fed, changes in inflation, and whatever Elon tweets next. It looks like there be plenty of news about AI going forward. If Tesla’s stock is up or down 5% then, I won’t be able to tell you why.

That’s why economists run event studies. They’re what the name sounds like: Study a narrow window of time, sometimes a single day, when one big, important event happened. In this case, the window was Tuesday afternoon to Wednesday morning, and the big thing was counting votes. In a window that narrow, a 4% drop in Tesla’s stock is rare enough that we can be confident this change was more than just the usual noise. The more narrow the window, the more confidence we can have about what caused the move.

Watch the full episode for the rest.