Bryan Caplan  

The Myth of the Rational Voter, Sowell Edition

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After skewering Obama's views on economic policy, Thomas Sowell (like another guy who bolstered my love of econ when I was a discouraged undergrad) concludes with a ringing denial of voters' rational expectations:

But politics is not about facts. It is about what politicians can get people to believe.

Yep. This is the political economy that belongs in top econ journals, not silly models where the man in the street understands economics plus or minus random noise.

My only quibble with Sowell is that he's too hard on the politicians. If it were easy to "get people to believe" that free trade is a good idea, politicians would be happy to do so. The problem is that voters are a lot more willing to believe economic fallacies than grapple with economic realities, and politicians take the path of least resistance.


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The author at De Gustibus Non Est Disputandum in a related article titled Economia Política writes:
    Byran Caplan faz bela observação aqui. Pela importância, reproduzo, sem os links: After skewering Obama's views on economic policy, Thomas Sowell (like another guy who bolstered my love of econ when I was a discouraged undergrad) concludes with a ri... [Tracked on February 25, 2007 6:02 PM]
The author at amcgltd in a related article titled It's the Economy, Stupid writes:
    Every time I think the Dems have wised up and actually started thinking about new things, they go and prove me wrong again. I'm reasonably impressed with how Pelosi et. al. have managed to leash their baying loons so... [Tracked on February 26, 2007 2:51 PM]
COMMENTS (13 to date)
Boonton writes:

I would like to call your attention to Kling's post on Hayek and Fusionism where he quotes Ed Feser.


For tradition, in Hayek's view, plays a role similar to that of the price system, embodying the inchoate moral insights of millions of individuals scattered across countless generations, and sensitive to far more information than is available to any individual reformer or revolutionary. The radical moral innovator, who falsely assumes he can design from scratch new institutions superior to existing ones, suffers from a hubris analogous to that inherent in socialism.

http://econlog.econlib.org/archives/2007/02/hayek_and_fusio.html

I think there's a gold mine to the economist who can apply the old "physician heal thyself" phrase to this. Why are some economic fallacies so persistent? Are we sure they are fallacies?

If Hayek is correct then perhaps the public isn't being stupid but applying tradition. In other words, take something that seems brain dead obvious by simple economic theory like free trade or the minimum wage. Despite being a bad policy these things have remarkable staying power. Well perhaps economic theory is too simple in these areas. Perhaps there are complexities that are not incorporated by economic theory but are incorporated by tradition.

The model I'd like to see is seriously exploring why certain 'bad' economic policies are so persistent. "Everyone is just stupid except me the economist" needs some work as a starting assumption IMO. Even the more sophisticated model of special interest politics doesn't really explain it all IMO. Perhaps there is an optimal amount of economic conservativism. By that I mean the same thing a speed bump does in a parking lot. Slows things down a bit. Perhaps a society can asorb only so much economic change at once (even if it is in a positive direction) so it seeks out types of 'speed bumps' that keep things from changing too fast.

PJens writes:

If I interpet it correctly, Mr. Sowell's claim is that politicians are persuaders. The "people" they try and persuade may be fellow politicians, or constituants. Often what politicians try to convince is: "I believe what you do.", even if it is wrong. This is far easier than trying to educate on what is believed to be best. Examples; minium wage and free trade.

What bugs me most about politicians is that once elected, most of them automatically assume they have gained electorial magic powers that enable them to be experts in every field they are asked to vote upon. Course it is difficult to persuade others if you admit ignorance.

Bill writes:

This is far easier than trying to educate on what is believed to be best. Examples; minium wage and free trade.

Baloney! They never even try. Why? Probably because they have no understanding of econ.

The desire for power over others is evil. Pols are, by this definition, evil (with very few exceptions).

Boonton writes:
The desire for power over others is evil. Pols are, by this definition, evil (with very few exceptions).

Hmmm, then again so is every boss, every business owner, and so on. I think imagining human society where power does not come into play is as utopian as trying to imagine a society without money or work.

You're wrong that pols don't even try. There was a massive effort by the Clinton admin to sell NAFTA, for example. I even remember (was it Gore or Reich?) going on Larry King to argue with Ross Perot for it. At the end of the day few Americans were hurt by it, unfortunately the results in Mexico were not as good as they could have been (that's not saying they were bad).

I think there's a persistent belief that should be explained. I don't think it is because most people believe their jobs are threatened by overseas competition and certainly the supermajority of people have jobs far above min. wage. I think there is an underlying sense that the market needs to be slowed down. Not stopped but slowed. This can be done thru various methods...min. wages, regulation or trade restrictions etc.

Bill writes:

Hmmm, then again so is every boss, every business owner, and so on. I think imagining human society where power does not come into play is as utopian as trying to imagine a society without money or work.

You obviously do not know what power is.

You're wrong that pols don't even try. There was a massive effort by the Clinton admin to sell NAFTA, for example. I even remember (was it Gore or Reich?) going on Larry King to argue with Ross Perot for it. At the end of the day few Americans were hurt by it, unfortunately the results in Mexico were not as good as they could have been (that's not saying they were bad).

This is the exception that proves the rule, and it only happened because a billionaire spent millions trying to mis-educate the population.

TGGP writes:

Boonton, what would be an example of a society that had too few speed bumps and changed too fast?

Behavioral economics is often considered to be contrary to the standard assumptions of the neoclassical orthodoxy, but it would definitely appear to bolster the economist-elitist claim that "the people" are wrong about a lot, with their "common sense" heuristics badly applicable to the issues of a modern capitalistic economy.

RogerM writes:

Boonton: "Why are some economic fallacies so persistent? Are we sure they are fallacies?"

You misunderstand Hayek. Hayek referred to institutions, like marriage. Economic fallacies aren't institutions; they're part of culture.

Why are some fallacies so persistent? Look to research in public relations, not economics for the answer to that. It's because people think with their hearts, not their minds. They decide what they want to be true first, then look for the rationale. For example, many people want to believe that the answers to the world's problems are as simple as eliminating capitalism, so they follow Marx. Also, people believe that the one person (or nation) can increase his wealth only by taking wealth from others, so they appose free trade and most free market ideas.

Boonton writes:

You obviously do not know what power is.

The simplest definition I can think of would run like this..."the ability to get others to do what one wants". Politicians then often have very little power. Yes in theory they could, say, vote for a 70% tax bracket on everyone and give themselves all the money but they don't because quite often it is other groups in the economy that have power over politicians...not the other way around.

This is the exception that proves the rule, and it only happened because a billionaire spent millions trying to mis-educate the population.

On the contrary, why would the politicians have cared to fight Perot's miseducation efforts? Why not simply shrug and say "this bad treaty came from the previous administration who we defeated...we will save America by rejecting this!". Perot didn't spend millions to fight it. He spent a lot to run for office but his campaign against NAFTA was quite cheap. All he had to do was appear on talk shows and speak against it and people clapped. Pat Buchannan, likewise, got people to pay him to 'miseducate' them through his books.

Boonton, what would be an example of a society that had too few speed bumps and changed too fast?

No I can't but if a penchant for speed bumps is a part of human nature then you're never going to see such an example. I find it interesting, though, because perhaps the libertarian ideal society is as unrealistic as Marx's.

Let me remind you that socialists and communists had a long list of excuses for why they had no good examples of the 'perfect socialism' they advocated. They said that the revolution was betrayed by traitors to the cause. That stuff was done in the name of socialism that wasn't really socialism. That socialism was sabatoged by capitalist economies. What they would never admit as a cause...until maybe the end...was that the reason there were no successful examples of socialism was the same reason there are no examples of a human society run by a hive mind or a human society that uses asexual reproduction...because such is not compatitable with human nature.

Hayek recognized that the theorist might fancy himself very smart but it was more likely that human nature was more complicated than even the smartest theorist. Yet what's interesting to me is that many economists are equally arrogant in thinking their models must be perfect. If there is a persistent failure to adopt a libertarian style gov't/society despite theoretical results that indicate such would be better for everyone then perhaps the theory is missing something fundamental about human nature?

You misunderstand Hayek. Hayek referred to institutions, like marriage. Economic fallacies aren't institutions; they're part of culture.

I understand that Hayek would have never supported protectionism, that is not what I meant to imply. However apply his analysis to traditions in society. Basically he is saying we can never really understand fully why something has the price it does because a price is the sum of incountable bits of information scattered among the brains of millions of people. Likewise any society will have traditions that will never make sense to any individual that seeks to fully understand or explain them but they are nevertheless valid because they are the sum of the experiences of millions of people...both living and dead. In fact, traditions may be even more valid than prices because they represent the assimilation of more information AND being tradition...not law...have no way of surviving unless multiple generations of people find it worthwhile to adopt them.

So what I'm wondering is not that an economic fallacy like protectionism for sugar-based ethanol is an institution. What I'm wondering is does human culture seek a certain amount of stability over growth and will adopt a certain level of economic fallacies to maintain that? If this is true then possibly they are not really economic fallacies at all. If, say, the real motivation behind protectionism is to slow the rate of economic change in a geographic area then that's hardly a fallacy...that's what protectionism does! The fallacy is assuming the words on the surface "save jobs", "protect domestic manufacuring" etc. are the real motivation for the transaction. In job interviews people are often coached to say they are "seeking challenges" or "like hard work" but we all know a better economic analysis is the assumption of the 'economic man' seeking to work the least for the most and to pay the least but get the most.

Heather writes:

I think people are simpler than they are being made out to be. As a group, you will see time and again that people do not like change and want to assign blame for their problems. This manifests itself in many ways, including opposition to free trade because it will "take away jobs", which it might in the blue collar sector, but is likely to create jobs in other areas. From an economic standpoint, there is a gain, however on an individual scale, many people have to change their jobs, reeducate themselves, move to a new locations, etc. These changes are stressful to people and build opposition to new things.

As was noted in an earlier post, the job losses occur in large numbers, making them very visible, while the job creation is typically in small numbers in many places. This makes the "problem" of outsourcing an easy one to blame for peoples' discontent with the change they have been forced into making in their lives.

William Newman writes:

Boonton writes "Why are some economic fallacies so persistent? Are we sure they are fallacies?"

I know a thing or two about three largely independent fields (biology, physics, and software) in which we know various things very well, and our knowledge gets tested against reality constantly by its use in various technological tricks. In none of those fields have I found stubbornly inconsistent opinions of stubbornly ignorant people (people who choose to remain so nonexpert that not only can't they paraphrase the standard model, they can't even pick a paraphrase of the standard model out of a lineup) to be a useful warning of incorrectness. Why should economics be different?

Also, we can find economic questions where we know the answer with great confidence but the popular consensus has it quite wrong. One example, from memory: what is the proportion of the US federal government budget devoted to foreign aid?

Admittedly there's one reason economics should be different: it's more politicized. But the most effective response to politicized science that I know of is to find killer factoids and experiments (sometimes just thought experiments) and technological applications where the politicized version looks silly. (Or, fairly often, the political version avoids testable specifics as much as possible while jumping to its preferred politically charged generalities, in which case you are driven to some tradeoff between specific observations that kill it and mockery about how it generally doesn't actually disallow anything.) Did the alternative of appealing to the horse sense of the general population work against political obfuscation around creationism, or Lysenkoism, or Nazi non-Jewish physics, or any of the variants of 1900ish biology in which the political winners were determined to be overwhelmingly genetically superior, or Catholic anti-Galilean astronomy?

("Stubbornly ignorant" has broader negative judgmental connotations than I really want: there are too many things to know, so anyone necessarily chooses ignorance in many fields. But if we narrow things down a little to just those people who also choose to hold strong opinions in fields where they choose ignorance, I think a little judgmentalism is justified.)

David J. Balan writes:

I think Bryan is right that persuasion is key. But it's not just what politicians can get people to believe, it's what everyone who has an interest in influencing opinions can get people to believe. And there are a lot of people who fit that bill.

Christina writes:

As long as mainstream journalists continue to be completely clueless about economics, their readers/viewers/listeners will be too. Politicians don't persuade. They just go where the wind blows, and most of the wind is produced by MSM.

John Stossel can't counterbalance the entire country's cadre of journalists, no matter how many specials ABC gives him.

TGGP writes:

Boonton, there have been numerous examples of societies that did not permit their economies to be dynamic enough and changed too slow (both communist and North's "natural states" would qualify). If people do not have an irrational bias than we should expect a normal distribution of their demand for stability centered around the optimum. I just mentioned one of the tails of error, it would be very odd indeed if there were no opposite tail and people always had either exactly the optimum amount of dynamism or less. Libertarians who insist that policies based on economic fallacies should be abolished point to the dismal nature of states in the error-tail I mentioned vs the far more livable ones more in line with their preferred policies (often the same states that have undergone economic reform, like Franco's autarchy and the more free-trading "Spanish miracle"). Their opponents almost never have similar examples to emulate or avoid. If there is never a country with too few speed bumps, then as long as one does not live in the most libertarian country, things can always be improved by shifting policy toward that of the most libertarian. Classical economics shows that free trade works better than protectionism, but it doesn't say anything about whether it will be enacted because that is a part of human nature it does not deal with. Political economy or public choice economics deals with that issue, and Caplan has arrived at (in my view) a compelling explanation for the state of things. The evidence you offer to show that these are not actually fallacies is the mere fact that many people persist in believing them, which is not at all contradictory to Caplan's theory. So where does he go wrong?

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