Vote Buying, Election Spending and Money Supply Growth

At the Library of Economics and Liberty, Ms Emily Skarbek cited an interesting study that correlates vote buying with money supply growth: (bold mine)

Traditional theories of political business cycles - Nordhaus (1975), MacRae (1977), Persson and Tabellini (1990) - predict monetary expansions in the run up to an election. Stimulating the economy, they argue, can help the incumbent politicians win elections. These theories suggest that the growth in M1 is a result of deliberate manipulation of the money supply leading up to the election as a means of gaining support.

But what if that isn't the story in countries with weak institutions? What if the increase in the monetary aggregate occurs actually as a by-product of outright vote buying, which happens concurrent with the election because of increased cash demand? This is the hypothesis for democracies outside the OECD put forward by Toke Aidt, Zareh Asatryan, Lusine Badalyan, and Friedrich Heinemann in a recent working paper.

The paper looks at month-to-month fluctuations in the growth rate of M1 in 85 low and middle-income democracies. The evidence shows a sizeable increase in the growth rate of M1 in election months. Their mechanism to explain this is vote buying in machine politics, where vote buying means outright payments or gifts in exchange for voting in a particular way or for showing up to vote.

The idea is that vote buying requires significant amounts of cash to be disbursed right before the election is held. This increases the demand for liquidity and affects M1 in several ways. First, resources to buy votes could come from converting illiquid assets into cash. This substitution from broad money into cash or deposits directly increases M1. Second, vote-buying funds may come from the shadow economy. Once this is used to buy votes, a fraction of it ends up in bank deposits. Third, incumbent governments may simply run the printing press. Each of these would result in a spike in M1 very close to the election date.

What they find is that systematic, large-scale vote buying has short-run effects on aggregate measures of the money supply. But to be an effective electoral strategy, vote buying requires weak democratic institutions, poorly monitored elections, and an electorate willing to "sell" their votes. Their pattern of evidence supports this, finding no effect of this mechanism in established OECD democracies.

I'd expand the issue as not just direct vote buying but also indirect vote buying or overall election spending; particularly campaign materials (shirts, tv ads, wrist bands etc), campaign spending (travel expenses, food lodging, etc), cost of mobilization of campaign machinery and more.

Let us see how this applies to the Philippines. Below are changes in M1* 1 year prior to national elections

* note M1--consists of currency in circulation (or currency outside depository corporations) and peso demand deposits (BSP).

2004 national elections (presidential and senatorial)

2007 senatorial elections 

2010 national elections (presidential and senatorial)

2013 senatorial elections

2016 national presidential and senatorial elections

Hmmmmm

Why the Election Winner Through Plurality Votes Is Not the Preferred Candidate

Elections function as an outlet for regime change through peaceful means. 

Yet democratic elections are supposed to "represent" people's choice. This would be true under a majoritarian vote. But under a plurality vote setting, this would hardly be the case. Reason? The outcome would most likely be different under a two way runoff elections.

Using the Kenneth Arrow's impossiblity theorem as previously posted here, Professor Don Boudreaux at the Cafe Hayek writes to the expound on the theory

(bold mine)

It’s a common (and understandable) mistake to read a vote cast for candidate A as being only a vote for candidate A. But a vote cast for candidate A might well be – and in practice certainly often is – motivated more by opposition to candidate B than one motivated by enthusiasm for candidate A. If candidate A wins an outright majority, this reality creates no problem under the rules of majoritarian democracy, for even if all votes cast for candidates B, C, … N are motivated exclusively by utter hatred of candidate A rather than as enthusiasm or support for the candidates who received those votes, the fact remains that a majority of the voters prefer candidate A over all other available candidates. But if candidate A wins only a plurality and not a majority of the votes, then – as students of collective decision-making have long known – there is no good reason to declare the plurality vote-getter as the winner. Again, the reason is that the chances are high enough that those who voted for the other candidates did so more to keep A out of office than to install in office one of the candidates B, C, … N. And given Trump’s huge negatives, this possibility is even more likely with him than with more quotidian candidates who win only pluralities.

Put more succinctly (and ignoring the countless other flaws that infect all collective-decision-making processes), a candidate who wins a majority of the votes can at least be said to be preferred over any of the other candidates by most of the voters. The same cannot be said of a candidate who wins only a plurality. Most of the voters might well prefer above all to keep that candidate (A) out of office even if most of the voters have no clear preference for which of the other candidates (B, C, … N) is the best option in place of A.

Here’s an example of ten voters and four candidates (A, B, C, & D). The example follows the rules of the method that many U.S. states use to choose governors. That method is the “general election, runoff election.” The rules are simple. If a candidate wins a majority of votes in the general election, that candidate wins the election. But if no candidate wins a majority of the votes, the plurality winner is pitted in a runoff election against the candidate who got the second-highest percentage of the votes in the general election.

Each voter’s preference is shown below in descending order. For example, voter 1 prefers candidate A above all, and she prefers D to C and C to B.

In the general election, candidate A will win 40 percent of the votes; candidate B will win 30 percent; candidate C will win 20 percent; and candidate D – seemingly a fringe candidate – will win only 10 percent.

So in the runoff election candidate A is pitted against candidate B. (Candidates C and D are ousted from the race.) Below is the very same preference ordering, but with candidates C and D excluded.

B wins the runoff with 60 percent of the votes.

But, just for kicks, let’s see what happens if that fringe candidate D were to be pitted in a runoff election against B. Surely D would get trounced, right? Wrong. If you look at the first preference table above (the one with all the candidates included), you’ll find that 60 percent of the voters prefer candidate D over candidate B! You’ll find also that 60 percent of the voters prefer candidate D over candidate A. (And, to continue a bit further with the exercise: 70 percent of the voters prefer candidate D over candidate C; 60 percent of the voters prefer candidate C over candidate B – the ultimate winner of the election; and 60 percent of the voters prefer candidate C over candidate A – the plurality winner in the general election.)

The main point of the above exercise – which involves a perfectly reasonable representative example of reality – is to reveal that a candidate who wins a plurality of the votes but who does not win a majority of the votes in fact is not at all clearly the most preferred candidate of all the voters. Trump very well might be the real-world equivalent of candidate A in this example.

What more if the number of NON-voters have even been LARGER than the winning vote, like in the Philippines elections of 2010,  and most likely will be the same scenario for the 2016 national elections? 

And the supposed 'angry votes' have been reinforcement signs that the popular sentiment have been more about the 'opposition to candidate B' (for Philippines, the incumbent) than about motivation by enthusiasm for candidate A!

Philippine Politics: "Con Ass" Much Ado About Nothing?

I have not been following the controversy over the so called Constitutional Assembly (Con-Ass) or an attempt by adherents of the present administration to railroad a modification on the Philippine constitution purportedly for extending the tenure of incumbent officials.

It's because my interpretation of the furor has been more of a "noise" than of a genuine concern.

From an intuitive layman's point of view I would require answers to these questions:

1. Is there a legal basis to amend the Philippine constitution with only one house of the bicameral legislative branch in support of such action?

2. Assuming there is, since any amendment would require a people's referendum or plebiscite, would there be a legal framework for a CON ASS referendum to supersede next year's scheduled national elections?

3. And would there be enough resources and time earmarked to do so?

In my view, a NO answer to any of these 3 questions would likely torpedo these efforts to advance the CON ASS agenda.

Notwithstanding, considering the unpopularity of the present administration, legal hurdles can be utilized by the political opposition to derail such agenda. This would essentially constrict the window for a referendum, in lieu of or prior to next year's national elections.

In short, such actions doesn't look feasible even from the start.

Then why does it seem that the administration has been adamant to play this card?

We offer two guesses here:

One, it could be a diversionary tactic to lure the political opposition into concentrating their efforts over such useless issue while the administration, behind their backs, works to strengthen its logistics and networks in preparation for the upcoming national election.

Two, it could also be a trial balloon to gauge on the "winnability" of PGMA's "anointed" bets via her popularity going into next year's election.

It is political season in the Philippines hence most sensationalist events disseminated by media, including the Halili Kho scandal, are likely to be instruments for political agenda.

As I responded to a colleague at a recent social function:

We must remember, in politics, those in power will always work or attempt to preserve their political privileges, while those in the periphery will always work or attempt to usurp such privileges. Such is the vicious cycle of politics.

Why? Because political privileges are usually products of an interventionist welfare state. Where, to quote Richard Eberling, ``The political process is the mechanism that these individuals and groups use to get that money via regulation, protections, and redistribution."

Politics is hardly about social "weal" or the "people" as much as it has been bruited about, it's mostly about privileges.