Monday, August 27, 2007

Economic Facts I Don’t Like to Know

I’ve just finished reading an unpleasant book, The Myth of the Rational Voter, by (see photo), whom I don’t want to know. A more cantankerous author I’ve not encountered in decades – especially among academic writers. He’s an and on every page he vents his antagonism toward his opponents, who apparently include almost everyone alive, apart from most other economists.

Yet I kept reading, intrigued even while I was offended. He adduced good evidence for his obnoxious views, so I couldn’t dismiss his empirical findings, though it was easy to dismiss his snide passing remarks on many other subjects. I hoped he’d find a silver lining in all these gloomy studies, but in the end his proposed solutions fall far short of the mark. Nevertheless, he made me want some good answers, and I’m thinking hard now about how to solve the predicament that he has persuaded me to recognize.

The book’s subtitle gives away the plot: “Why Democracies Choose Bad Policies.” It lambastes democracy and claims that most voters are irrational in their choice of political and economic policies – even those voters who are canny and shrewd when handling their own financial interests.

I don’t automatically agree that democracies choose bad policies. It seems that one or two autocracies in history have made bad decisions too. I am almost what Caplan calls a “democratic fundamentalist” — a term that he coins as a counterpart to “,” i.e. those who strongly favor unregulated markets. My preference for democracy is not based on economics but the preference for . Democratic countries virtually never go to war against other well-established democratic countries. Democratic regimes also perpetrate very little against their own people, as compared to . That’s a sufficient basis for lauding democracy, and I do. Nevertheless, I’m appalled by some of the horrible decisions that are made by voters in democratic countries, notably one whose name I shall not type here, with the initials U and S. The whole world is in big trouble now, largely because of the foolish policies of that country’s elected government. Why are voters so ?

Caplan’s main opponent is the commonplace opinion that people vote in ways that rationally favor their own self-interests. He claims that you will get in trouble if you contradict this orthodox assumption. Yet, using a whole whack of evidence, he shows that, however axiomatic, it is untrue. People vote instead for what they think will be good for society. The trouble is, most of them are ignorant or worse than ignorant; they have mistaken beliefs that they will not surrender even when disproved. Caplan sounds like a weary economics professor at the end of term, having repeatedly failed to pierce the pre-determined convictions of his students. Yet I am encouraged by his finding that people are not typically selfish in their voting. In fact, he claims that it is the educated voters and professional economists who especially protect the interests of the poor, for they don’t protect their own interests.

(There is one exception to the rule that voters don’t protect their self-interests, and that involves the issue of smoking. and non-smokers differ drastically in their policies, with smokers defending their rights vigorously against regulations that non-smokers endorse.)

If people don’t usually vote for their self-interest, they do have strong cognitive preferences that distort their opinions in regrettable ways. They cling to certain beliefs for dear life, though economists have produced consistent evidence that these are wrong. But Caplan acknowledges that not everyone is economically illiterate, since educated people tend to agree with Ph.D. economists.

And it’s a mistake to assume that economists are conservative. They tend to be liberal. But they are like-minded on a few issues that set them apart from the “economically illiterate.” Caplan identifies four “families of beliefs” that these ignorant people tend to share: an anti-market bias, an anti-foreign bias, a make-work bias, and a pessimistic bias.

The bias he defines as a “tendency to underestimate the economic benefits of the market mechanism.” I certainly do see this bias among my friends, almost all of whom are exceedingly suspicious about commerce — though not for the reasons that Caplan assumes. I think most of them acknowledge (if pressed) that has raised the living standards and life expectancy of the human population beyond anything imaginable even one generation ago. Even so, they don’t like its psychological, and cultural, and environmental side effects. In fact, they dislike materialism so much that they would gladly do away with markets. I suspect that within a year, they’d want them back, but they can’t see the benefits at the moment.

I do. I would not want to give up the conveniences and comforts of my affluent lifestyle, which depends so heavily on the market system. And I’d certainly not want to condemn the less-developed countries to perpetual poverty by the impetuous, self-righteous politics of hating commerce.

The other so-called biases are also familiar to me, though the anti-foreign one is less so. The whole constellation of biases leads to a support for and opposition to free trade, especially international trade. Certainly the bias is familiar: a business deal is considered good if it creates jobs, whereas any move that improves productivity by eliminating work is considered bad for the economy. Definitely these views are forms of “economic illiteracy” that have often hampered economic development.

I could add one to his list: the idea indeed that is bad because it involves growth. I suppose he hasn’t even come across that one, but I see it a lot these days, especially because people are more aware of and , which they regard as the inevitable consequence of economic growth. That issue is a particularly serious obstacle that impedes the development of policies that are necessary to solve our current crisis.

Caplan doesn’t have any promising solutions to the bleakness he described. He knows it isn't acceptable (thank God!) to make pass tests in economics before they are allowed into a polling booth. Knowing that it’s an undemocratic idea, he proposes a variation— that educated individuals be given extra votes somehow. But, knowing this will be seen as unfair, he doesn’t press it.

He does want to introduce curriculum changes, so that people should be encouraged to take economics instead of reading the classics. I don’t think that will fly either, but it’s getting closer to acceptability. He recommends against get-out-the-vote campaigns during elections, since those who don’t vote are usually the most economically illiterate, so probably they are doing us a favor by not turning out.

The one explanation that intrigued me was only a sentence that he wrote in passing. He had shown that people are more irrational about voting than about making their own individual economic transactions. Then he says: “Democracy is a commons, not a market. Individual voters do not ‘buy’ policies with votes. Rather they toss their vote into a big . The social outcome depends on the pool’s average content. In common-pool situations, economists usually fear the worst.”

Now this is persuasive. I was writing a few weeks ago about the problem of depleting resources, generally caused by the “mining” of a common pool of resources. Deforestation, the depletion of fisheries, and so on. If the common could be broken into discrete units that can be bought and sold, the individual owners would benefit personally from their conservation efforts.

This reminded me of an old idea of mine: . Suppose voters could “spend” their votes on items that they cared about, at the price of not voting on other issues that are not important to them. This would give each person a greater chance of making a difference on salient issues. It ought to motivate voters more, since their votes would not always be aggregated in common pools with the whole electorate.

On the other hand, I’m not sure it would bring out the educated, well-informed voters more than any others. And I’m not sure it would provide any new instructional opportunities to overcome the biases that make democracies reach bad policies. Probably American voters would still have supported the war in .

So what’s the solution to that? Caplan doesn’t have one, nor do I.



Blogger Martin said...

Sorry to say. Caplan’s book is full of illogical and contradictory arguments, mangled terms, cultural prejudice, and a whole lot of other weaknesses. It’s also pretty scary when you really think about what he is arguing for. Like a lot of cloistered academics, he’s hermetically sealed inside his own thinking and theories, and totally unhinged from the real world... past and present. I won’t recap the whole list of objections here... but it’s on my site. (

10:24 PM  
Blogger Metta Spencer said...

Thanks. I did read your blog and I cannot disagree with it much. I don't know that he is ILLOGICAL, but the logic that he puts forward is generally so hard-nosed that I would not want to claim it as my own.

3:05 PM  

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