Arnold Kling  

Behavioral Politics

Ken Rogoff Calls for a Slow-Do... Challenging My Most Absurd Bel...

Mike Munger and Russ Roberts deliver one of the best podcasts ever. Munger describes the way in which moving from a private bus system to a public system in Santiago Chile made essentially everyone in the city worse off. The puzzle that Roberts keeps pushing Munger to resolve is why the political incentives do not work to abolish the public system and revert to a private system.

My sense (you should listen to the podcast yourself) is that Munger thinks that the popular revulsion toward profit is the key factor. Near the end, he draws the analogy with public revulsion toward creating a market in organs. He says that a reasonable instinct of "no one should be forced to sell their organs" gets translated into "no one should be allowed to sell their organs."

Economists are familiar with the example of sweatshops. We don't think anyone should be forced to work in a sweatshop. But we have a hard time understanding why prohibiting sweatshop labor is such a good idea, considering that the alternative for the workers is often worse--equally undignified labor on farms, earning even less money. Still, for many people, "no one should be forced to work in sweatshops" becomes "no one should be allowed to work in sweatshops."

In a sense, Munger's explanation for persistent government failure is moral disgust over profits. I think that what we might call Anti-profitism is at work. For example, in Canada, the people love their health care system, even though it costs more than that in other countries (except the U.S.) and has some pretty inhumane consequences. (In most other countries, even though government pays most of the bills, health care provision is still a private function.) In the U.S., people love public education, even though it seems to fail miserably. In both cases, supporters can at least point to the fact that there are no profits in the system.

I have three daughters. They know my views. Yet none of them would feel comfortable working for a business that makes a profit. All of the messages they are getting from elsewhere in society tell them that profits are bad.

If people make a conscious choice to have a lousy education system, a lousy transportation system, or a lousy health care system because they hate the idea of profits, I suppose that's fine. However, what I think happens instead is that in the public sector our choices are made on the basis of crude anti-profitism, demagoguery, and careless reasoning.

My guess is that the irrationalities found in the field of behavioral economics are trivial compared to those that could be found by studying behavioral politics.

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CATEGORIES: Political Economy

COMMENTS (16 to date)
John Alcorn writes:

Why does the revulsion against profits tend to focus on a particular subset of services (education, health care, metropolitan group transportation)? Russ Roberts briefly asks this sort of question, but doesn't stick with it. BTW, the case of organs for transplantation seems to be an instance of blocked exchange rather than revulsion against profits - the person who sells a kidney (or a posthumous organ) is not making a profit in the sense that the bus companies in Santiago did in the old system; and a market for organs need not include for-profit firms.

j writes:

More than moral disgust of profits, it is the rejection of unequality. If there is a market for organs, the poor will be discriminated against and that is unacceptable. The poor will be always with us and they will be always the majority. Why should they favour a system that does not promise them an organ in case of need?

Regarding sweatshops and bordelloes and child labor, I can see here a moral disgust of exploitation. Which is indefensible in public discourse. I am not sure that abolishing these practices did not help the subjects involved, for example, child labor laws seem to have improved the fate of children in 19th Century England.

Brad Hutchings writes:

"The poor will be always with us and they will be always the majority."

Unreal. You really believe that?

Arnold, I wonder if there is a gender component to the non-profit thing among young people. In my 20s, I saw some of my high achieving male friends marry women who were not inclined to compete with them economically. So perhaps going into the non-profit sector is a way of signaling for young women in a world where feminism made "traditional" female jobs politically incorrect. As for young men going that route for its own non-profit sake, all I can say is "good luck with that".

Arnold Kling writes:

I have read of an experiment in which people are shown pictures of "hot" people of the opposite sex and then the experimenter sees how the respondents would allocate time subsequently. My recollections is that men increase their allocation to competitive activities, and women increase their allocation to social volunteering.

liberty writes:

Brilliant insight in this post.

To give the public or the left some credit, I think that the idea that "no one should be forced to work in sweatshops" is based in part at least on an idea that (a) the sweatshop owners "could" pay the workers more, and (b) that the fact that they don't is what allows them to expand in that area, leading to the assumption (c) that they must out-compete other producers in that area, reducing other options for those workers (crowding out the good jobs).

Hence, a natural tendency for the "no one should be forced to work in sweatshops" to be essentially the same as the "no one should be allowed to work in sweatshops" because if people are "allowed" to work in these places then these places are allowed to keep costs low through "exploitation" and they will become the only option. Perhaps as soon as they charge in to the area they are already the only option - so the fact that people voluntarily work there doesn't tell us anything about whether the sweatshop has made the people better off.

The counter arguments to this POV are many: how well off were the people a few years before the entry of the sweatshop? If the sweatshop raised the pay, would it still be able to make as many people better off, or would it have to hire fewer people? Do regulations by government tend to raise or lower the median income of the town (not just of the workers at the sweatshop)?

Still, its good to look at the full argument of the anti-sweatshop (or anti-WalMart) folk.

Brandon Berg writes:

I think that what we might call Anti-profitism is at work.

Isn't this just a subset of what Bryan calls anti-market bias?

I have three daughters. They know my views. Yet none of them would feel comfortable working for a business that makes a profit.

That's a shame. You think you're doing your best to raise your children right, and then they go and turn out like this. You never should have let them volunteer in high school--they end up running with the wrong crowd.

Why should they favour a system that does not promise them an organ in case of need?

That would be the current system. There aren't enough organs to go around, so no one is guaranteed one, except for people rich enough to travel to a country that allows organ sales. A system which allowed people to sell their organs, on the other hand, would eliminate about 90% of the shortfall (about 10% are waiting for organs which can't be taken from a living donor), guaranteeing enough kidneys, lungs, and liver for anyone who needed it.

R. Pointer writes:

I spent a whole year volunteering in a foreign country teaching English. I found it to be a complete waste of time in terms of actually benefiting the students. I had no way of measuring the value I had provided them because they weren't the ones actually benefiting. Instead I was a replacement teacher who allowed actual teachers to use the class period to work on grading.

The trip was good for 2 reasons. I lived in a foreign country for almost nothing, and some students actually approached me for tutoring services.

Non-profits are basically unaccountable in terms of results, unless they have a sole benefactor who tightens the screws when his or her will is not being done. But that brings up the point that non-profits are the antithesis of socially responsive institutions; there is no incentive to respond to the wishes of clientele but only the one footing the bill. At least corporations go out of business if they don't successfully respond to market demands.

liberty writes:

The other thing to point out is why its supposed to be bad that there are profits in the system. There is a "moral" reason and an "economic" reason.

The moral one is just that profits make people greedy, and its difficult to argue about (although an upcoming paper from Heritage will show that entrepreneurs give more to charity than the population as whole, indicating that they aren't all greedy bloodsuckers).

The economic reason is that profits take away from the worker. The "surplus value" that capitalists steal from the works, otherwise known as "unearned income" - you know that wasteful leak of money out of the economy... this is a basic misunderstanding of the allocative role of profit seeking. Or perhaps, even when the function of profit is known, people see a fractured picture with "profit motive which drives the economy" disjointed from "profits at this company".

In this way, even if the moral concern is overcome, at least in part, by the recognition that profits are necessary for an economy to move forward; still the profits earned by a given company are seen as stolen from the workers, as a waste, and even as immoral in the given circumstance. The individual firm is not the same as the economy overall.

I am not sure how to solve these misunderstandings, except to keep hammering the points home whenever the airwaves can be hijacked for the purpose.

Dan Klein's notion of The People's Romance (TPR) can (in part) explain people's affection for government-controlled health care, education, and bus systems. Russ Roberts mentioned this in his podcast with Klein earlier this year.

Pushing single-payer politically-controlled health care, Princeton health care economist Uwe Reinhardt says:

[Americans] act more and more like a people sharing a geography. You don’t have the ethos that goes with being a nation. In Canada, in Taiwan, they view health care as the cement that makes a nation out of a group of people, rich or poor, when they are sick.

If this is not TPR, I don't know what is.

My blog post about TPR and health care is here. In the post I also mention my experience of personally feeling (or experiencing) The People's Romance when I was on a bus!

Les writes:


Please avoid statements like "government pays most of the bills" because government pays nothing and taxpayers pay for all expenditures by government.

Profits have a bad name with those who do not know better because:

a) Profit is bad-mouthed by Christian and Islamic scriptures;

b) Profit is bad-mouthed by politicians who want to expand government and shrink private enterprise;

c) People with low earnings often envy and resent people with higher earnings.

John Alcorn writes:

Brian: I read your comment and also your interesting blogpost at the link. I understand the nature of the people's romance with government, but not what determines the specific scope of the revulsion against profits. Why is there a revulsion against for-profit firms in education, health care, and metropolitan group transportation - but not (as Russ Roberts asks) a revulsion against for-profit firms in, say, food; or, I might add, air transportation, pro sports (you mention the Rockies, the game), or housing? Robin Hanson has a specific evolutionary-biology explanation of the communal provision of health care - but that theory does not seem cogent for urban buses. Can there be a general explanation of the scope of the revulsion against profits? Or do we need a separate explanation for each good or service that falls within the scope of the revulsion against profits? Perhaps Dan Klein, Russ Roberts, Arnold Kling, or other social scientists have already addressed this issue - If so, someone please point me to the answers. Thank you for reading.

This moral disgust at profits just shows that free market economists haven't done their job in demonstrating 1) that free market economies are natural, and developed through natural means, and 2) that market interactions, including profit, are moral. We are letting those against markets to set the rules of judgment, and this is where it has gotten us.

Dr. T writes:
My guess is that the irrationalities found in the field of behavioral economics are trivial compared to those that could be found by studying behavioral politics.
I agree about the irrationalities. I also see no need to study either field. The irrational behavior boils down to: At least a third of all people are just too unintelligent to reason well. Of those who are intelligent enough, the vast majority are just too lazy to do so except when something motivates them strongly. Economics and politics are rarely strong motivators.

Zero-sum games:

In response to John Alcorn's comment: I'm glad you liked The People's Romance post. Another possible explanation for people's animosity toward profits is that they assume (knowingly or not) economic transactions are a zero-sum game. (I did a text search for this in the comments, and was surprised it has not been mentioned.)

John Stossel as mentioned this, and I'm sure he's not the first. (David Kelley in Stossel's 1998 "Greed" (YouTube Link) special mentioned it.)

Maybe people evolved in an environment where most wealth was gained by plunder and caste rather than free voluntary exchange, i.e., a zero-sum (or negative sum, arguably?) game.

I'm just conjecturing, and have probably read something along these lines way back. So excuse me if I'm not citing someone's ideas.

Brad Hutchings writes:

Arnold, The result doesn't surprise me in the least. I'm sure you've found a few examples of for-profit companies that are making a bigger difference on some particular feel good issue than non-profits trying to do the same thing. Or for-profit companies that are making non-profit ventures possible. They exist. I work with one.

It's entirely consistent to have a laudable cause and a profit in your mission. To use another word popular with the young adults these days, it makes things more "sustainable" when everyone takes home a nice paycheck.

Kurbla writes:

Socialist dreams beat capitalist dreams hands down. The best you can do is to show that capitalist reality beats socialist reality hands down.

But it is not enough.

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