Caplan on the Myth of the Rational Voter, EconTalk Permanent Podcast Link: Library of Economics and Liberty - Sent Using Google Toolbar

Caplan on the Myth of the Rational Voter, EconTalk Permanent Podcast Link: Library of Economics and Liberty

Caplan on the Myth of the Rational Voter

June 25, 2007, Featuring Bryan Caplan

Bryan CaplanBryan Caplan, of George Mason University and blogger at EconLog, talks about his book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies. Caplan argues that democracies work well in giving voters what they want but unfortunately, what voters want isn't particularly wise, especially when it comes to economic policy. He outlines a series of systematic biases we often have on economic topics and explains why we have little or no incentive to improve our understanding of the world and vote wisely. So, it's not special interests that are messing things up but the very incentives that lie at the heart of a vote-based system. This is a disturbing and provocative lens for viewing political outcomes.

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Podcast Highlights
0:36Intro. When economists try to explain bad policies, they look at special interest groups. Caplan's view: public opinion data suggests policies like the seal tariff are extremely popular. Not just special interest group. Big press conferences held by special interest groups suggests that they want votes. Special interests are not so much sneaking things past the voters as saying out of all the things the voters are willing to support, what helps them [the special interest group] the most. Persuade along the margin. So, democracy works well, politicians give voters what they want; but what people want is not really good, not even for themselves. Farm subsidies example: equally popular in farm and non-farm states. Pew poll suggested that people agree with statement that farm subsidies are necessary to guarantee the food supply. Economists, on the other hand, see farm subsidies as wasteful and unnecessary to guarantee food supply. Puzzle is: Why are economists not listened to? One hypothesis: people just haven't thought about it. But even when well-explained, economists' analyses are not persuasive or interesting to many people.
6:12Alternative hypothesis: People generally get some psychological benefits out of believing the world is the way they like to see it, they feel comfortable with that view, fit in with society; and to challenge that view would be painful for them. Minimum wage example: Economist at picnic explained why minimum wage might harm the very people it's trying to help by discouraging hiring, only to have fellow picnickers edge away from him. Why do bad ideas persist? Cover of book is bunch of sheep; Robin Hanson said that was too optimistic! Sheep could converge on good idea; but around the world and over time, there is a persistent tendency to select economically bad policies. Over time and across countries, stories seem very similar. Bastiat in France, Adam Smith in England, Böhm-Bawerk talking about interest during the ancient Israelites. Biological, evolutionary stories. Paul Rubin, Southern Economic Journal, "Folk Economics." Persistent anti-foreign bias. Not a large percent of U.S. budget, but evolutionary story may explain some of it. On the savannah, the appearance of another tribe--you'd have to be pretty naive to see that as an opportunity for advantages of more trading opportunities. What it realistically meant was competition over a fixed pool of animals in the short term; and the possibility of inter-group violence. Those concerns might evolutionarily overpower the gains from trade. But we've transferred that fear of foreigners in primitive conditions to the Toyota dealership, even though we don't think the Toyota dealership will put a spear through our windows. But the economic metaphor of stealing our jobs, stealing our wealth is used.
11:50Anti-market bias: General public tends to underestimate the social benefits of relying on the market. People look at the intentions and see that they are out to make money, they are greedy. This is true: waitress, business; but it's not what we want our mothers to act on. But what economists have been saying since Adam Smith is that we should think twice, just because someone's intentions are self-interested does not mean that the consequences for society will be bad. Competition forces the seller to become empathetic (while not necessarily sympathetic). Put yourself in the shoes of the person running a business. All the same, economists have a radically different view from the public at large. Make-work bias. Bastiat called it Sisyphism, after Sisyphus, Greek mythological figure, who was doomed in Hades to push a boulder up a hill, only to have it roll back on reaching the top. Sisyphus was fully employed. But it's not productive economically to see employment as better than production. In 19th century there was plenty of employment, long hours; but living standard was miserable. Even if we had redistributed the production of the 19th century economy equally with no loss on incentives or production, we'd still be tremendously poorer in the 19th century than today. Growth of the economy has much greater benefits than forced redistribution. If you go to a poor country in Africa, some people are much wealthier than others, but if you equally divided the produce, the people would still be extremely poor. Anything that lowers employment, though, is looked on by the public as bad, specifically trade and technology--which have widespread economic benefits.
20:29Pessimistic bias. Less evidence that it is cross-cultural, but in U.S. people tend to think the economy is in decline and will get worse, relative to what economists think. Russ: Asking people what is the change in our standard of living since 1900 typically gets median answer is 50% increase, with 10-20% of the audience thinking our standard of living is actually lower today. While this is actually a hard question to answer accurately, it is easily at least 5 times higher, probably 10 times higher, could even argue 30 times higher; but only 50% higher is a very downwardly-biased answer. Unreasonably pessimistic answer is reported by general public. But when the crowd is misinformed, aggregation methods of gathering information are biased. Betting markets—prediction markets—would give better answer because uninformed people would stay out of the market.
24:57Maybe economists are wrong. Maybe foreigners are dangerous, trade hurts our economy, employment is crucial, trade is a 0-sum game, etc. How do we know economists are right and the public is wrong? If that's what you think, go read an Econ 101 textbook. Anyone who, with a calm spirit, gives a basic economic textbook a fair reading would come away, would come away thinking otherwise. People don't even know what economists think. Why don't they know? So hyper, so upset that they are unable to sit and listen to someone else. Caplan exam question: Find one thing Caplan said that is least defensible and tell me why I'm wrong. When experts and laymen disagree, the expert is usually right is the presumption--auto mechanics. Not always true--astrologists. In the case of economics experts, there are two common theories about why economists should not be trusted: 1. They are rich, they are white, they are male, they have job security--self-serving bias; and 2. They are a bunch of ultra-conservative Republicans and therefore they think all these crazy things--ideological bias. Problem with these two stories: they are testable. Kaiser Family Foundation data set addresses self-serving bias: When you control for all these variables that you think will sway a person's beliefs (income, gender, race, income growth, etc.), belief gap between economists and the public is reduced by at most 18%. Ideological bias cannot possibly work because the typical economist is moderate Democrats. (George Mason U. is unusual.) The typical economist is in fact a moderate Democrat who thinks that downsizing is good for the economy, also that supply and demand determines the price of gas. Controlling for ideology slightly increases the gap between the economist and public because political views suggest economist should be anti-market, but he is not.
31:50Claim is that the study of economics and the identification of oneself as an economist creates a result that economists have very different views than the average person. Economists are much more likely to see the benefits of trade, immigration, markets, wealth creation and exchange are positive sum rather than 0-sum game. Question is: If voters have this world view that is very different from economists, biased, what does that imply for what politicians will support and put in place? Price controls after hurricane example. Public thinks we should impose price controls. You could give a lecture, showing supply and demand and how price controls create shortages and free market brings in needed goods. Politicians are more likely to look into the camera and say, "We must do something to keep speculators to keep from exploiting human suffering." When trying to win support, winning strategy is to say you favor what is desired by public and be very passionate about it rather than explain the economics. In private markets, say, market for cars, if I have four kids and I decide to buy a Cooper MINI I'd soon find that that was not so good for my situation, so I'd probably trade it in for a mini van. I'd learn from my mistakes. Isn't it the same in politics--politicians who pursue bad policies can be thrown out, election works as a form of competition so really stupid policies should be rooted out. Why doesn't that happen? Have to understand what politicians are competing about. Have first to understand who is responsible: Can scapegoat a politician who has very little to do about a particular policy. Politicians spend a lot of time talking about policies per se: legalizing drugs vs. crime rate example. If voters evaluate politicians based on policies they like or don't like as opposed to results, politicians will persistently deliver bad policies. Pharmaceutical industry example. Most Americans like pharmaceutical innovation for their health and the future health of their children and grandchildren; but they also like the government to regulate the safety of drugs. Claim is that most people prefer to give up the benefits because they just like the policy--the FDA. Gun control. "To the public, it appears that merely getting legislation passed equals a result." Politician who says he cares about results may only care about policy.
41:31Is it hard to get evidence on the efficacy of particular policies? Is real world just too complex? Not so. If world was so complex, rational strategy is not to be so dogmatically support a particular policy, but to be agnostic, to simply say you don't know the answer, not to scoot away on the picnic blanket in the face of discussion. History of ancient Assyria--if someone told me Babylon was the capital, I wouldn't say "You don't know what you're talking about." Even if it seemed that someone had an agenda, I wouldn't insist on believing the opposite; I'd just say that I'd have to think about it. In that kind of world, most voters--the unknowledgeable--would split 50-50, and policy would be determined by those who had read the economics textbook. But that's not what happens. People think they know the answer, vehemently, and generally they seem to gravitate toward the views that economists know are wrong. When debating with someone who disagrees with you, economists have to work hard to be civil and not offend the person. But why? Why isn't everyone just fascinated or interested in the discussion? Analogy between religion and politics: politics is the religion of modernity. Dogmatism. People get agitated if you try to find out beliefs. But this is not a good way to find out truth. The God That Failed, book of autobiographies of ex-communists. Koestler, Crossman. Everyone reports that it was painful to change their minds. Have to admit you were wrong. Psychological pain, psychological switching cost.
47:48Once you realize there is this psychological pain. Suppose a person could change policy. Trade-off could be weighed: higher standard of living vs. painfulness of change. Aside: people vote not just in their own self-interest, which would seem to be a good thing. Suppose surgeon believes he can operate well on people even when drunk. Gratifying belief but very high cost, so he'd probably ruin his career or revise his belief quickly. But voter--what are odds he will change the policy by changing his vote? Zero. In most elections, your vote doesn't matter much. Most elections are usually not a tie, so your vote is not decisive. Not like three people over lunch. Suppose there is a small chance you could improve your situation by being more rational about economics, but suppose it's psychologically painful, you could become a pariah--not a good deal, in terms of your self-interest. If you are completely rational about a subject, you are exposing it to reputation, taking risks. If you are unreasonable, your beliefs are safe. You don't have to worry about new facts coming along and proving you wrong. People are more open-minded, more reasonable about questions with high cost of being wrong. You have to keep an open mind on whether a block of stone will fall on you but immigration and open borders less critical. Pat Buchanan, blockading China. Not just complexity: you can't directly see it with your eyes, truth at conceptual level vs. perceptual level, Ayn Rand.
54:05Free-riding problem. I don't have the incentive to vote wisely, so I'm not going to vote wisely. Air-quality, masks, Cairo, Mexico City example. Suppose you see someone getting into a car and polluting. Does it make sense to say "You fool, look how much you are hurting yourself!" No. Quality of air depends on average, one person doesn't make much of a difference, tragedy of the commons, externality. "Irrationality is political pollution." One person doesn't tilt the scales, but if millions and millions of people do it, it affects policy. Losses are spread out over many people. If you had two countries, one with free trade mandated in the Constitution, the other puts it up for a vote, you could easily have people voting for protectionism, being unhappy with the results, and then fleeing for the country that has free trade. Mexico: Politician coming along proposing reforms to make it more like the United States is unlikely, but people would prefer to live in the U.S. Person is willing to vote for a society he wouldn't want to live in, and then physically turn his back on the society he voted for in exchange for a few thousand dollars. Psychological cost to bucking national traditions, turning one's back on what makes his country distinct, but is willing to move to make himself better off. I'm willing to move to the United States if it makes me rich, but to vote for a good policy that would only make me rich if everyone else voted for it is not worth it to me. Quite possible for a person to be quite rational in some areas of life--when there is not cost--but irrational in other areas of life. In those areas where putting on their thinking cap would not change the outcome very much, they indulge in irrationality.
1:00:22People are irrational about their economic world view, political system indulges it, and politicians cater to it because they want to stay in office. Why don't we have more protectionism? Why are we out of the stone age? Economy does grow every year despite lots of regulation and certainly by historical standards. Why are we over-achieving relative to what you'd expect a democracy to do? Voter turnout: those who vote are not representative of population. Age and education are good predictors of voting; but only education is a good predictor of thinking like an economist. (Note: Universities are not reliable samples for measuring education.) So people politicians have to appeal to are relatively reasonable. Second, there is something to view that if the economy tanks and there is a terrible war, it hurts politicians' popularity. Doesn't mean politician should adopt unpopular views. Have to strike a balance between doing what's popular and doing what works. Net effect of doing what voters ask for could be to hurt you. Nixon's wage and price controls hurt economic performance but the policy was extremely popular. Gray Davis, governor of California, gave people what they asked for but was thrown out. Side-agreements on laws may not be enforced.
1:07:30Market fundamentalism vs. democratic fundamentalism. Virtually every economist, no matter how free market, has lots of areas where ready to accept some form of government regulation. Democratic fundamentalists by contrast are eternally optimistic about virtues of government intervention and the opportunity to make things better. Market fundamentalism is a charge thrown at economists. Guilt by conceptual association, using the term "fundamentalism" suggests dogmatism similar to anti-evolutionists who are unwilling to look at scientific facts. Most market-failure arguments were created by economists. Relatively open-minded and self-questioning. Were an economist to say the solution to any problem is more markets, it would seem dogmatic. But democratic fundamentalism doesn't self-grade: when solution to any problem is claimed to be more democracy, the speaker gets a pass. Most egregious form is conceptual kind: by definition whatever democracies did is the best thing. What if two of the three people on an island vote to eat the third? burn all the food? Some democratic decisions are wrong. Must be some external standard. But democratic fundamentalists say: Democracy grades itself, whatever it did is the best thing by definition. William Grider
After 30 years of working as a reporter, I am steeped in disappointing facts about self-government. Having observed politics from the small-town courthouse to the loftiest reaches of the federal establishment, I know quite a lot about duplicitous politicians and feckless bureaucracies, about gullible voters and citizens who are mean-spirited cranks.
Up to this point we'd be with him. But he then concludes, paradoxically:
These experiences strangely enough have not undermined my childhood faith in democratic possibilities, but rather tended to confirm it.
How could that be? Strange but common view. Shouldn't your confidence in your views be undermined? Romance about democracy. We like the idea that it works well. That it works better than the alternative is not the point. What should be the scope of democracy? Which things should be decided democratically versus which left to individuals? The economist's alternative to democracy is limiting it, not diametric opposites of dictatorship or anarchy. Hayek, Walter Williams podcast: Every law Congress passes should apply equally to all members of society. What should we be doing differently as economists (or as everyday people)? We are not the best communicators. We may only have one or two minutes to speak, we are still not comfortable paring our arguments down. A lot of hemming and hawing about competition, but competition is ubiquitous and we should not be so hesitant. "On the other hand" is not the best way to communicate. "I think something that you probably don't" is possibly better phrase. Economics can be fun.
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Posted by Russ Roberts