Editor's note: Bryan Caplan is an economist at George Mason University and the author of an important new book - "The Myth of the Rational Voter: Why Democracies Choose Bad Policies." He argues that ordinary voters harbor irrational beliefs and personal biases that interfere with making sound economic policy choices. According to Caplan, the problems with democracy are, in a sense, due to too much democracy. It is a controversial thesis.
There are many books by economists being published these days. But no book by an economist in recent memory holds the potential to so thoroughly change how you view the world than The Myth of the Rational Voter. Caplan took some time to sit for an interview with TCS editor Nick Schulz.
SCHULZ: The title of your book is "The Myth of the Rational Voter." Are people not rational when it comes to activities other than voting, too?
CAPLAN: People do a good job of managing their own lives in a complex, modern society. When they think about subjects like politics and economics, on the other hard, people tend take off their thinking caps and embrace pleasant absurdities.
SCHULZ: You say that typical voters are ignorant of economics and exhibit systematic biases: they underestimate the power of markets; they underestimate the benefits of interacting with foreigners; they underestimate the benefits of labor-saving technologies; and they underestimate how much better economic conditions have become over time. Give us some of the most striking concrete examples to illustrate.
CAPLAN: It people were merely ignorant about economics, I wouldn't be worried. After all, if you never studied a subject, we'd expect you just to be agnostic about it. The real problem is that people have strong opinions about economics even though they've never studied it - and their strong opinions tend to be the opposite of what you'd learn in an economics class.
As you indicate, I identify four main ways that people's beliefs about economics tend to go wrong. I call them anti-market bias, anti-foreign bias, make-work bias, and pessimistic bias. But you want "striking concrete examples," not exposition, so here goes:
Example of anti-market bias: The way people react to higher gas prices in the face of natural disasters. When supply goes down in a competitive market, you should expect the price to go up. It's hardly a sign of "conspiracy" or "gouging," contrary to much of the public. More importantly, this price rise has large socially beneficial effects: In the short run, it encourages people to cut back on low-value uses of fuel; in the slightly longer-run, it encourages sellers to direct their inventories to the hardest-hit areas; and given a little more time, the price rise encourages additional production until the crisis abates.
Example of anti-foreign bias: These days, the best example has to be hysteria about immigration. In essence, trading labor is like trading anything - it's mutually beneficial for buyer and seller. But public opinion has made immigrants a scapegoat for a long - and often contradictory - list of social ills. We hear simultaneous complaints that immigrants are "taking all our jobs" and "all going on welfare" - well, which is it? Their underlying theory is that economic interaction with foreigners has to have bad consequences, so people eagerly blame foreigners for anything that comes to mind.
Furthermore, even if you take some of the complaints about immigration seriously, the subjective reaction is out of proportion to the objective magnitude. George Borjas, an economist famous for emphasizing the costs of immigration, estimates that immigrants have reduced low-skilled Americans' wages by only 8%. And if that were one's real complaint, why would you want to deport millions of immigrants, instead of e.g. proposing extra taxes on immigrants to compensate low-skilled Americans?
Example of make-work bias: Make-work bias is probably one of the main rationales behind European labor market regulation. Among other things, you have a lot of laws that make it difficult to fire workers, seemingly forgetting that the key to social prosperity is not employment, but production. These laws backfire in other ways - making it hard for employers to fire workers also makes employers reluctant to hire in the first place. But the key point is that labor is a valuable resource - and passing laws that require employers to waste valuable resources makes little sense.
Example of pessimistic bias: The example that strikes me more and more as I grow older is the refusal to recognize how much life has improved over the past twenty years. I remember life in the '80's - the Internet alone has raised my standard of living in ways I could barely have imagined. But many remain convinced that life is getting worse - and want to "do something" about it.
SCHULZ: What accounts for these persistent biases? Genetics? Evolutionary psychology? Why would so many people have these biases?
CAPLAN: Good question. The straightforward answer is that biases persist because of conformity - people want to believe what other people believe. But this just pushes the question back a step - how did these views become popular in the first place? For anti-foreign bias, there is a plausible evolutionary story - namely, during most of human evolution, foreigners were dangerous. Today, they come to trade; but in the past, they often came to poach your hunting grounds, or kill you in your sleep.
I'm less sure about the origins of the other biases. My best guess is that a lot of anti-market bias arises out of envy, which is a good way for primitive tribesmen to pressure their more successful neighbors into sharing. If your readers have better stories, I'm interested.
SCHULZ: William Buckley once said "I would rather be governed by the first 2000 names in the Boston phone book than by the Harvard faculty." Do you disagree? Why?
CAPLAN: I'd definitely rather be governed by the members of the American Economic Association - or even a random sample of college graduates - than by the first 2000 names in the Boston phone book. The problem with the faculty of Harvard is that it's highly educated (a predictor of more reasonable views in general), but also highly self-selected for leftist ideology (a predictor of very unreasonable views about markets). So would the Harvard faculty be better or worse than what we've got? It could go either way.
SCHULZ: You say that even economists underestimate the virtues of markets. But why would those who understand them best underestimate the benefits?
CAPLAN: Actually, I say that economists underestimate the virtues of markets relative to the democratic alternative. Rational voter models have made economists too optimistic about democracy. If you think that democracy works well, then every market failure you find makes you say "Let's turn to the democratic process to fix it." If and when economists give up on rational voter models, they will be a lot more likely to say "The market's not perfect, but I'm worried that the democratic process will just make the problem worse."
SCHULZ: Given these systematic biases, how is it that economies like those in the US were able to emerge that are more dominated by market processes? How is policy progress even possible?
CAPLAN: Compared to most of the world, anti-market bias is relatively mild in the U.S. As a result, more pro-market policies have been able to survive here. But still, it's surprising that markets have as much scope as they do, that tariffs are as low as they are, and so on. What's going on?
I discuss a couple possibilities in my book. One observation: Educated people have more sensible policy views, and are unusually likely to vote. So in part, policy is better than you'd expect because the average voter knows more than the average citizen.
Another observation: If politicians did exactly what voters want, it would be a disaster. Since politicians expect that voters would blame them for a disaster, it is not in their interest to give the voters exactly what they want. So politicians have to strike a balance between adopting popular policies, and getting tolerable results. Maybe this is why almost everyone distrusts politicians - as I say in my book, "The public calls them venal for failing to deliver the impossible."
How is policy progress possible? Again, if politicians get good results, voters sometimes forgive them for getting those results "in the wrong way." Clinton's support of NAFTA was unpopular, but people were happy about the country's economic performance. When the net political benefit of ignoring public opinion is positive, policy progress is possible - and even likely.
SCHULZ: Why are economists and others so resistant to the notion that the masses have systematic biases?
CAPLAN: For economists, it is almost entirely methodological. Since the 1970's, virtually every "serious model" relies on something called the "rational expectations assumption." Relaxing that assumption freaks economists out - and raises the suspicion that you are too stupid or innumerate to understand the assumption.
For non-economists, the story is different. For starters, precisely because the biases are popular, most people do not see them as convincing evidence of error! If you try to explain what's wrong with these popular views, emotions get in the way. Try having a dispassionate discussion about immigration; it's almost impossible.
A deeper reason for resistance to my thesis is egalitarianism - the idea that everyone's views are equally likely to be valid. For many people, just saying "Your view is elitist" somehow disproves it. My response is simply that the "elitist" view is more consistent with the facts.
SCHULZ: You say that people "have preferences over beliefs." That's awkward jargon. What does it mean and why is it important?
CAPLAN: It means that people care about their beliefs. Think about religion- how many church-goers consider their faith to simply be "The hypothesis that best fits the available facts"? Very few - most believers will cling to their religious beliefs in the face of counter-evidence because admitting error hurts.
You could say, "That's just religion," but there are many non-religious subjects where people have a religious attitude. Subjects like... politics and economics.
Why are preferences over beliefs important? For one thing, this concept helps us understand why facts and logic so often fail to prevail. You could have airtight evidence that free trade is economically beneficial, but a lot of people will ignore you - or lash out at you - because you are trampling over their worldview.
SCHULZ: Why do voters cherish their irrational beliefs so much? It's so... so... so... irrational!!
CAPLAN: Actually, one of my main arguments is that holding rationally indefensible views is often, from the point of view of the individual, a good deal. What happens if a person starts to question popular fallacies? First, he endures the psychological trauma of apostasy; second; he loses friends and makes enemies. And what does the rational person get in return for changing his mind? Public policy becomes ever-so-slightly better. This is why I describe irrationality as "political pollution" - the individual gets the psychological and social benefits of his own irrationality, but we all bear the cost.
SCHULZ: Is it fair to say that one reason "Democracies Choose Bad Policies" is that politicians are TOO responsive to voter wishes?
CAPLAN: Yes, but keep in mind: If an individual politician became less responsive, he probably wouldn't remain a politician for long. And of course, there are many ways to be unresponsive. A politician could unresponsively give the people worse policies than they want.
SCHULZ: You ask and answer an interesting question. "Should my book push you toward democratic pessimism?" Yes? Explain.
CAPLAN: This is actually one of the most complicated parts of the book, but I'll try to boil it down.
Economists usually believe that voters are selfish, but rational. Scholars from other disciplines - like political science - have extensively, and largely correctly, criticized the assumption of selfish voting.
But does this really make democracy look better?
With rational voters, it certainly does; rational voters who want to maximize social welfare give you better overall results than rational voters who only care about themselves.
With irrational voters, however, I argue that unselfishness actually tends to make social outcomes worse. Think about it this way: With selfish but irrational voters, you might be saved by the gridlock. Even if everyone admits that price controls are good for society, people who own stock in oil companies will fight for the "freedom to gouge." With unselfish, irrational voters, in contrast, it is easy to get a friendly consensus behind misguided policies.
As I explained once on my blog, suppose a mad scientist wants to give you an unnatural operation. Which would you prefer? A selfish mad scientist who refuses to operate unless you pay him - or an unselfish mad scientist who ties you down on the operating table and says "You'll thank me later - and your gratitude will be payment enough"?
SCHULZ: Given your thesis, has a form of government existed in history that is superior to that of the United States? If so, what is/was it?
CAPLAN: For one thing, the U.S. used to be better in some important ways. The pre-New Deal Supreme Court overturned a lot of misguided regulation. The greater degree of federalism that used to exist in the U.S. put pressure on state governments to avoid bad economic policies. I am also sympathetic to voting systems that put more control in the hands of the well-educated - the United Kingdom, for example, effectively gave college graduates two votes until 1949.
In general, though, I think it's better to focus on improving the quality of public opinion than changing the form of government. After all, if you can convince the majority to change the form of government, why not cut to the chase and just convince them to support better policies?
SCHULZ: What will be the most difficult claim in your book for fair-minded readers to accept?
CAPLAN: I've gotten a much more sympathetic reading than I expected from other scholars. But the conclusion least likely to sink in with this audience, I think, is that free-market policies are a lot more attractive than they seem on the surface. Economists can often figure out ways to make markets work better, but the democratic process tends to adopt policies that makes markets work worse.
For a broader audience, I suspect the most difficult claim (or perhaps it's more of a tacit assumption) is that democracy is not sacred. In our society, we are used to the idea that we should do whatever the majority wants. In fact, people often treat the majority opinion as the standard of both truth and value - how often have you heard a pundit say, "The American people want X" as if that were a sufficient reason to do it? I emphasize that popular policies can be very bad - and when they are, I don't see why we should give the American people what it wants.
Is this paternalism? Not exactly - after all, people who support bad policies are not just hurting themselves. When my colleague Pete Boettke tells me "According to you, we get the policies we deserve," I always answer, "Actually, we get the policies they deserve - hardly the same thing."