myth_of_the_rational_voter_caplan_e

The Myth of the Rational Voter Why Democracies Choose Bad Policies by Bryan Caplan Princeton University Press © 2007 280 pages Focus Leadership & Mgt. Strategy Sales & Marketing Finance Human Resources IT, Production & Logistics Career Development Small Business Economics & Politics Industries Intercultural Mgt. Concepts & Trends Take-Aways • Voters often know little about what they vote for, but they vote anyway. • Voter ignorance of basic economics is surprisingly widespread. • This ignorance leads to a number of pervasive biases. • Voters underestimate the benefits of markets. • Voters mistrust foreigners. • Voters support make-work over efficiency. • Voters are irrationally pessimistic about the economy. • Voters choose ideology over fact. • Educated voters are less susceptible to these biases. • Economic education may lead to more enlightened economic policies. Rating Overall (10 is best) Importance Innovation Style 9 7 9 9 To purchase abstracts, personal subscriptions or corporate solutions, visit our Web site at www.getAbstract.com or call us at our U.S. office (954-359-4070) or Switzerland office (+41-41-367-5151). getAbstract is an Internet-based knowledge rating service and publisher of book abstracts. getAbstract maintains complete editorial responsibility for all parts of this abstract. The respective copyrights of authors and publishers are acknowledged. All rights reserved. No part of this abstract may be reproduced or transmitted in any form or by any means, electronic, photocopying, or otherwise, without prior written permission of getAbstract Ltd (Switzerland). Relevance What You Will Learn In this Abstract, you will learn: 1) How little the voting public knows about basic economics; 2) Why this is a problem for democracy; and 3) What to do about it. Recommendation Economists on the right and the left agree on a surprisingly large number of policy issues. They believe free trade is good, the U.S. budget deficit is not a problem and most human beings are better off now than in the past. Yet the democratic public doesn’t agree. It fears trade and foreigners, thinks the budget deficit is a big problem and is pessimistic about the economy even during periods of record economic growth. But the worst part, says economics professor Bryan Caplan, is that the public votes. Drawing on empirical research about voter attitudes, Caplan describes how voters are mistaken about many policy issues and – more importantly – why they are wrong. His account is frighteningly plausible, but so is his solution: more economic education. getAbstract recommends this pithy volume to anyone concerned about voters’ ostensibly self-defeating behavior. Democracy may be better than the alternatives, but no one said it was easy. Abstract The Enlightened Public If the average American is any indication, voters are shockingly ignorant. For instance, each state in the United States has two senators. Europeans can be forgiven for not knowing this elementary fact about U.S. politics, but you would think most Americans would know it. Nope. Small wonder, then, that fewer than 40% of U.S. voters can name both their senators. Fewer still know their senators’ party affiliations, even though a random guess gives them a 50% chance of being correct. And only about a quarter of voters know how long senators serve (six years). Perhaps worse, voters seem to be shockingly knowledgeable about political trivia. Take the 1992 campaign for the U.S. presidency. Fewer than 20% of voters knew Bill Clinton’s environmental record. But almost 90% knew that vice presidential candidate Dan Quayle picked a fight by criticizing a television character. Quayle, the candidate who couldn’t spell “potato” and stressed the importance of “bondage between mother and child,” lit into Candice Bergen’s character, Murphy Brown, over the “immorality” of being a single mother. Only 15% of voters knew the candidates’ positions on the death penalty. Thankfully for the health of the American republic, though, 86% of voters could name the incumbent president’s dog. “In theory, democracy is a bulwark against socially harmful policies, but in practice it gives them a safe harbor.” “The reason why I emphasize economics is that it is at the heart of most modern policy disputes.” It’s the Economy, Stupid Voters consider the economy the “most important problem” in almost every election. (Recall Bill Clinton’s 1992 campaign mantra: “It’s the economy, stupid.”) But do voters understand the economy? In 1996, the Harvard University Survey Project, the Washington Post newspaper and the Kaiser Family Foundation decided to find out. Their “Survey of Americans and Economists on the Economy” asked 1,510 randomly chosen Americans and 250 people who held doctorates in economics a list of 37 questions about the economy, and then compared the results. They found that voters’ grasp of The Myth of the Rational Voter © Copyright 2007 getAbstract 2 of 5 basic economics – supply and demand, gains from trade, the benefits of increased labor productivity – was, at best, impressionistic. At worst, it was frightening. “Economic policy is the primary activity of the modern state, making voter beliefs about economics among the most – if not the most – politically relevant beliefs.” The survey asked respondents for likely reasons why the American economy was not doing better. Respondents were given a number of possible explanations and asked whether each was “a major reason,” “a minor reason” or “no reason at all” for weak economic performance. For instance, foreign aid: Is it a brake on the U.S. economy? The public overwhelmingly said yes. Is it? No. Foreign aid is a tiny percentage of the U.S. economy – less than 1% of GDP. Accordingly, economists almost unanimously considered it “no reason at all” for poor economic performance. What about people on welfare? Are those “welfare queens” hurting economic performance? The public thinks so. In fact, the public is even more worried about people on welfare than about foreign aid. Economists, in contrast, don‘t worry about welfare, which is a small bit of the U.S. budget. Who else does the public blame for a misfiring economy? It blames those nefarious immigrants, of course. But economists have a different answer: The putative “surplus” of immigrants has almost no effect on the economy. What about taxes? The public thinks high taxes in the U.S. are hurting the economy. Economists say, generally, no, although they do have some effect. In fact, though they are seen as “conservative,” economists generally don’t share the public’s support for tax cuts. The public also blames “women and minorities” who “get too many advantages under affirmative action.” What say the economists? Affirmative action has essentially no deleterious effect on economic health. Are these Ph.D.’s really apostles of what Carlyle called the “dismal science”? Their outlook hardly seems grim. The survey also asked about specific issues, such as gas prices. Is gas too expensive in the U.S.? Most economists think it’s not expensive enough. The public feels differently. When it comes to the explanation behind these “too high” prices, economists cite normal supply and demand. The public prefers to blame oil companies for “gouging” the customer. When asked about unemployment, the public blames technology, downsizing and “sending jobs overseas.” Economists do not oppose downsizing that keeps a firm alive and saves other jobs, though “everyone reviles a profitable firm that downsizes…to be more profitable.” Economists don’t necessarily oppose off-shoring, because “there are more remunerative ways to use domestic labor.” And they don’t think technology is destroying good jobs. They thank technology not just for iPods, HDTVs and new medicines, but also for increasing workplace efficiency – and thus improving human welfare. “Voters are worse than ignorant; they are, in a word, irrational – and vote accordingly.” “An irrational voter does not only hurt himself. He also hurts everyone who is, as a result of his irrationality, more likely to live under misguided policies.” Who Are You Calling Biased? Survey respondents who are not economists demonstrate four well-entrenched, systematic biases that cloud their thinking on economic (and most likely other) policy issues: an “antimarket bias,” an “antiforeign bias,” a “make-work bias” and a “pessimistic bias.” • Greed is bad – Most voters don’t consciously appreciate the benefits of markets. They voice many variations on this antimarket theme. Some people focus on the “base” motives of business people. Others think that if a business has high profits, it must be “gouging” customers or it must have a monopoly – another popular idea of why markets must be evil. But, at least since Adam Smith, and probably before, writers on economics have described, in detail, how irrelevant motives are in a market. They also have described again and again how the corporate desire for profit benefits consumers. Yes, monopolies sometimes arise, but they are far less common than supposed and collusion to keep prices high is much more difficult (and rare) than it seems. The Myth of the Rational Voter © Copyright 2007 getAbstract 3 of 5 “The people ultimately in charge – the voters – are doing brain surgery while unable to pass basic anatomy.” “Most voters never take a single course in economics... No wonder protectionism, price controls and other foolish policies so often prevail.” “Political/economic ideology is the religion of modernity. Like the adherents of traditional religion, many people find comfort in their political worldview, and greet critical questions with pious hostility.” “In real-world political settings, the price of ideological loyalty is close to zero. So we should expect people to ‘satiate’ their demand for political delusion, to believe whatever makes them feel best.” • Foreign devils – Around the world, people blame foreigners for all sorts of ills. This is unfortunate, because interactions with foreigners can deliver huge benefits to all sides. Trade is not warfare, though many enjoy conceiving of it as a battle. Even if one country (say, Germany) can make every product more efficiently than another (say, Greece), trading is still in both countries’ interests. Nor is immigration so bad. Economists often argue over trade and immigration policies, but few in the very wide mainstream of economics, right or left, deny that foreign interactions are, on balance, good for everyone. • Creating things vs. adding value – In the view of most voters, Sisyphus was lucky. Sure, his task of pushing a boulder up a hill every day wasn’t particularly productive, and it must have been frustrating to watch it roll down again after manhandling it to the summit. But at least he had work. This is the make-work bias – the idea that having a job is more important than creating value efficiently. When asked about higher productivity in the abstract, voters are generally supportive. When asked about policies that “create jobs,” however, voter concerns about productivity go out the window. Economists, on the other hand, have known for a long time that productivity is good, even if it leads to (temporary) unemployment. Technology, which is the main engine of productivity, also creates jobs – different ones. In 1800, nearly 95 of every 100 Americans worked to provide food for the country. Today, only three out of every 100 labor to produce food. What are those other 97 Americans doing? Other jobs. • The glass is half-empty – When it comes to economic problems and overall economic performance, voters are pessimists. They look back – far back – with nostalgia. They see symptoms of “decline” everywhere and fear the future. By any measure, most human beings today are better off than people have ever been. Yet, the pessimistic bias remains. Could things be better? Absolutely. But the gap between perceptions of well-being and actual well-being seems to be increasing. Even when economists get “pessimistic” about, say, GDP growth, such pessimism is usually about relative growth rates – say, from 3% growth to 2% growth. This hardly means the end is nigh. Tu Quoque? (You, too?) Maybe it’s not the public who is biased. To borrow a phrase from Ludwig von Mises, maybe economists are, “Sycophantic apologists of the unfair class interests of the bourgeois exploiters.” The tendency of economists to extol the virtues of markets, trade and efficiency, and to see a rosy economic future may be the result of at least two biases: an “ideological bias” and a “self-serving bias.” After all, most Ph.D. economists have cushy tenured jobs that protect them from the market forces they laud in journals and on the editorial pages of The Wall Street Journal. And, economists can hardly be expected to renounce the conclusions of their own profession. Neither of these objections hits the mark for a couple of reasons. First, the data from the “Survey of Americans and Economists on the Economy” allows analysis of a subset of the public: Educated people. When attributes like gender, income and age are controlled, education narrows the gap between the public and the trained economists. The so-called “enlightened public” generally agrees with the economists. Easy to explain, you say: “Educated” people have been indoctrinated at the university. Perhaps, but consider the second response: Could a whole field be so wrong about the very subject it exists to study? Certainly experts can be mistaken. But is an entire field more likely to be wrong than nonexperts? Compare: Who is more likely to be right about plate tectonics – geologists or the layman? The economists’ consensus, then, seems more likely to be correct than not. And remember, economists across the political spectrum generally agree with each other. The Myth of the Rational Voter © Copyright 2007 getAbstract 4 of 5 “Economists have created and popularized many of the most socially beneficial ideas in human history, and combated many of the most virulent.” “I see neither well-functioning democracies nor democracies hijacked by special interests. Instead, I see democracies that fall short because voters get what they want.” Supply and Demand Even if economists can be trusted to know about their field of study, the fact that the public gets things so wrong is certainly strange. What could explain it? Supply and demand, believe it or not. People have preferences about their preferences. They want to believe some things and disbelieve others for a number of reasons: to preserve their self-images, to go along with the crowd and to remain consistent, to mention three. These are the benefits of ignoring evidence. What about the cost? If you move into a new neighborhood where you are the only liberal (or conservative or moderate), you may be less likely to maintain your beliefs. You may be hectored or ostracized for going against the grain. Now suppose that the people in your new neighborhood don’t care about your political beliefs. You have opposing values, but they don’t think that is a big deal. This brings the cost of your “strange” beliefs down toward zero, while maintaining the benefit to you (consistency). Now you have little reason to change. It’s a little like pollution. If you produce toxic waste and can dump it in a nearby river without cost, you might do so. Economists call this an “externality”: a cost that is not born by the person who benefits. Political beliefs are, likewise, a kind of externality because – in a democracy – people can indulge in them without much, if any, cost. Why? Because in a democracy, one vote is unlikely to decide an election. As the size of the electorate increases, the effect of your individual vote decreases almost to zero. So you have little reason not to “vote your conscience” or to go along with your friends. Consider rich movie stars who consistently vote for candidates who promote higher income taxes. Sure, if their candidate wins, they’ll pay more – probably a lot more. But their vote most likely makes little difference in the election, so why not vote based on ideology? That way, these stars can flaunt their ideological credentials without limit. They get the benefits without the costs. “Democracy lets the individual enjoy the psychological benefits of irrational beliefs at no cost to himself.” The Miracle of Aggregation Is the democratic ship of state, then, being piloted by a drunk? Traditionally, political scientists and theorists of “public choice” say no. The “miracle of aggregation” saves ignorant voters from themselves. This is the “wisdom of crowds” applied to democracy rather than being used, say, to guess how many jelly beans are in a jar. Given enough voters, the “errors” cancel each other. If a whole segment of the electorate randomly votes “yeah” or “nay,” the miracle of aggregation holds that all the ignorant voters offset each other, leaving the enlightened few in command. One problem, though: systematic bias undermines the “wisdom of crowds.” Independence is a condition for wise crowds. If the crowd is systematically biased (and crowds generally are), then the “wisdom of crowds” becomes “the folly of herds.” What can be done about that? The solution is hidden in the data from the survey: Education. The more educated the democratic electorate is, the less biased it will be. A long tradition of economic thinkers, from Adam Smith to New York Times columnist Paul Krugman, have tirelessly tried to communicate the basic facts of economics to the public. Like Sisyphus, these economic educators need not worry about running out of work. About The Author Bryan Caplan is Associate Professor of Economics at George Mason University and coeditor of EconLog, an economics blog. The Myth of the Rational Voter © Copyright 2007 getAbstract 5 of 5