The scale of shadow money is startling to ordinary people. Each shadow-money company contains more money than the average person will see in a lifetime — yet it seems there are more than a million of these shell companies, and they have a cumulative financial value greater than all the money in the world. What happens to this missing money? An alarming (if small) fraction of it goes into politics in the form of bribes and contributions. Members of the Federal Election Commission are concerned about an abrupt increase in political contributions from shell companies in the current election cycle. More than half of the money in political contributions reported in the first quarter came from shell companies and is effectively anonymous. Anonymous political contributions are technically illegal, so something has gone very wrong if the majority of contributions are anonymous. A shell company may exist just for a matter of a few days, not conducting any business, but existing just for the purpose of laundering $10 to $100 million in political spending. One of the more serious problems with this arrangement is that no one can tell what country the political money came from. To a significant extent, international interests may be financing and controlling the U.S. election. Expect the FEC to adopt new rules about anonymous corporations and shadow money, but probably not soon enough to stop of flow of anonymous money into the current election. In the meantime, the flood of political shadow money mainly benefits broadcasters. You may have noticed that the election year has interrupted the wave of broadcasting failures and bankruptcies. It will resume after the election is over.
Another effect of the focus on offshore money has to do with the credibility of austerity budgets and the accompanying trickle-down theories of economic stimulus. Voters are starting to get the impression that austerity budgets are mainly a way to steer money to the wealthy investor class, who in turn will redirect most of that money out of the country, resulting in no discernible stimulus effect. As one pundit put it today, “The money trickled offshore.” As suggested a century ago by Keynes, only fiscal stimulus is able to ensure that money is spent in an economically meaningful way, such that the national economy is actually helped.
