Bryan Caplan  

Chuck's Great Question

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Here's a great question from Chuck in the comments:

Do you have a reply to those who might say that the rationality of voters is largely irrelevant since election outcomes can be predicted by macro factors like income and GDP growth?
Yes, I've got a bunch.

1. If democratic competition leads politicians to adopt a highly similar list of demagogic policies, variation in demagoguery won't explain much about electoral outcomes.  But candidates will still need to demagogue to win.  If policy positions didn't matter, why would politicians spend so much time trying to figure out what the public wants - and wants to hear?

Think about it this way: Even if unilateral free trade would be great for growth, no serious politician would propose it.   The popular backlash would be massive.  Since no one tries it, it doesn't explain variation in vote share.

2. If short-run macro fluctuations are pretty random and largely beyond the control of political leaders, rational voters wouldn't vote on the basis of them.  This is, of course, exactly how most economists see things - short-run growth is noisy, and if anyone can influence it, it's the Fed, not the president.

3. The standard result in the literature Chuck references is that voters put massive weight on the last quarters of the election.  Even if politicians did have a lot of influence over short-run macro performance, rational voters would reward politicians for their overall performance, not just what happens right before the election.  The upshot: Politicians have little incentive to advance policies that promote long-run growth, and lots of great ideas sit on the shelves gathering dust.

Anyone else want to chime in?


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COMMENTS (13 to date)
El Presidente writes:

Voters have been known to cast their votes for reasons other than their own economic wellbeing. Even if they voted strictly for their economic wellbeing, voters would have different periods for evaluating the performance of policies and politicians. The generational divide in polling on confidence in Social Security is a good example of that concept in action. To say that election outcomes can be predicted by macro conditions is not the same as to say that outcomes are caused by macro conditions. If they were, where is Al Gore's reward for balanced budgets via pay-go and growth in real wages? Are we to assume that voters punished Gore for the economic prosperity under Clinton's administration? Either they were sophisticated enough in this one instance to know that Clinton was not singlehandedly responsible for these outcomes, they were being irrational, or enough of them weighted other factors more heavily in estimating future performance.

Then, of course, one has to contend with Arrow's Impossibility Theorem which demonstrates that while individuals may vote rationally in isolated instances, the outcome of a vote, or especially a series of votes like a primary preceding a general election, cannot necessarily be said to be rational in the aggregate. So, to assess the rationality of the electorate as a whole with respect to any particular policy platform or lack thereof stretches credulity and risks badly misinterpreting the election outcome and the nature of rationality expressed by individuals participating in the process.

TC writes:

One area where American voters are, if not irrational, at least less than completely rations is congressional elections.

The American swing voter seems to believe that Congress has no power over the economy and the President has total power over the economy. The reality is that Congress, with its ability to change the tax code, spend money, raise the minimum wage, make forced unionization easier and enact trade restrictions, probably has more influence over the economy than the President does.

Is it just a coincidence that the stock market boomed when the Republicans controlled by the US House and US Senate from 2003-2006 but the stock market crashed when the Democrats controlled the US House and US Senate from 2007-2008?

Sure, maybe the difference between a 70 percent increase in the stock market under the GOP 2003-2006 and the 20 percent plus decline in the stock market under the Democrats 2007-2008 is partially just a case of being in the wrong place at the wrong time.

But the President doesn't get that kind of kid gloves treatment from the electorate. People demand that the President "fix" the economy the way a mechanic would be asked to fix your car. But Congress is the branch of government that has the right to check under the hood.

Jose writes:

Your prognostications are a complete waste of time. Computerized voting systems are easily hacked and manipulated. Governments go out of their way NOT to fix the problem. So long as voting takes place on these machines you can have no confidence that the winner actually won. This is the fundamental political problem of our time.

Jeff writes:

As long as you're answering questions in the comments, here's another. Do you think there's a risk that the government might have to default on its debt obligations? I ask because I just read a Bloomberg story (see below) that gives some numbers on how the recent crisis spending has affected the debt/deficit, and they're truly mind-boggling. Apparently the deficit will reach $2 trillion this year. Are there any ways to prepare for such a contingency? Buy gold? (If you think the prospect is too remote to discuss, you could talk about the crowding out effect instead, I suppose.)

http://www.bloomberg.com/apps/news?pid=20601109&sid=anUDEEEP1_M0&refer=home

El Presidente writes:

TC,

Is it just a coincidence that the stock market boomed when the Republicans controlled by the US House and US Senate from 2003-2006 but the stock market crashed when the Democrats controlled the US House and US Senate from 2007-2008?

Good question. Is it just a coincidence, or did the policies enacted under those Republicans, which Democrats did not have sufficient votes to overturn, breed the crisis we see now? It is very simplistic to say that the party in the majority bears responsibility for economic fluctuations; only slightly less simplistic than laying them at the feet of the president. It's important to identify the policies that bring about the effect, not merely the party in the majority when the event occurs.

People demand that the President "fix" the economy the way a mechanic would be asked to fix your car. But Congress is the branch of government that has the right to check under the hood.

Since Congress allowed their budgetary authority to be co-opted by the OMB under Nixon, the President now does hold considerable sway over economic matters, if you believe that fiscal policies have any effect on them whatsoever.

Notable Opponent: Dick "Deficits Don't Matter" Cheney.

The President having designed the budget in the first place, has set the table for Congress. If that's the way it is going to be, then they ought to at least be required to use zero-base budgeting, which we haven't seen since Carter. Lacking the resources and the time to repeat the process (completely their fault by the way), Congress cannot easily or readily undertake massive revisions and rewrites. They become the race-day mechanic as opposed to the automotive engineer. In that respect, I believe the roles of the Congress and the President have been reversed, and not for the better. It concerns me that Congress doesn't jealously guard its Constitutional authority in this case. I would much prefer that the President sent his staff to confer with Congress rather than sending his budget to be considered by Congress.

Jay in FL writes:

Good discussion on this post & thread all around. I'm pretty new to the forum here so I have two questions on the issues at bar that some of you who've looked at this stuff closer than I have may have insight on.

First, in regards to the exchange between TC and El Presidente, while Congress has ceded a lot of initiative to the executive branch (a move which maybe gives them more to run against during elections) isn't what the OMB sends congress every year a largely political product anyway, and one that is tuned to the geography of practical power in the House and Senate?

Second, and relatedly: if the Fed is the institution with the most short-term influence in the macro-economy then how vulnerable is the Fed to political pressures despite its officially non-partisan status?

El Presidente writes:

"[I]sn't what the OMB sends congress every year a largely political product anyway, and one that is tuned to the geography of practical power in the House and Senate?"

Yes and no, and shades of grey. The President, as the executive, forecasts what expenditures are necessary and desired in order to fulfill his obligations under existing and proposed laws. So, part of the budget is like a manager submitting expense requests and revenue forecasts. The other part of the budget is where the same manager proposes changes to programs and financing. That's the "political" part in that it generally is more contentious and sometimes requires greater deliberation before Congress will approve it. Congress picks and chooses what is worth fighting about. These are fictitious or theoretical distinctions in the sense that both parts are rolled up into one document that is generally approved as a whole: the budget. The issue for me is more one of who has the initiative in the budget process, and what resources are utilized to meaningfully check that initiative. It will always be political, and I think rightly so. But, the product that comes from extensive deliberation is different than the product that comes from executive pronouncement.

El Presidente writes:

TC,

Is it just a coincidence that the stock market boomed when the Republicans controlled by the US House and US Senate from 2003-2006 but the stock market crashed when the Democrats controlled the US House and US Senate from 2007-2008?

Good question. Is it just a coincidence, or did the policies enacted under those Republicans, which Democrats did not have sufficient votes to overturn, breed the crisis we see now? It is very simplistic to say that the party in the majority bears responsibility for economic fluctuations; only slightly less simplistic than laying them at the feet of the president. It's important to identify the policies that bring about the effect, not merely the party in the majority when the event occurs.

People demand that the President "fix" the economy the way a mechanic would be asked to fix your car. But Congress is the branch of government that has the right to check under the hood.

Since Congress allowed their budgetary authority to be co-opted by the OMB under Nixon, the President now does hold considerable sway over economic matters, if you believe that fiscal policies have any effect on them whatsoever.

Notable Opponent: Dick "Deficits Don't Matter" Cheney.

The President having designed the budget in the first place, has set the table for Congress. If that's the way it is going to be, then they ought to at least be required to use zero-base budgeting, which we haven't seen since Carter. Lacking the resources and the time to repeat the process (completely their fault by the way), Congress cannot easily or readily undertake massive revisions and rewrites. They become the race-day mechanic as opposed to the automotive engineer. In that respect, I believe the roles of the Congress and the President have been reversed, and not for the better. It concerns me that Congress doesn't jealously guard its Constitutional authority in this case. I would much prefer that the President sent his staff to confer with Congress rather than sending his budget to be considered by Congress.

RubberCity Rabble writes:

Another response to TC's question:

"Is it just a coincidence that the stock market boomed when the Republicans controlled by the US House and US Senate from 2003-2006..."

Perhaps as much a coincidence as the Dow's dive from 11,500 to 8,000 between Jan. 2000 and Feb 2003? Yet Republicans controlled congress in both of these 3-year periods.

During the 2003-2006 period you call a boom, a graph of the Dow shows a couple of trends: from Jan '03 to Feb '04 it rose from 8,600 to 10,500 (albeit with a 1000-point dive from mid-Jan thru mid-March, 2003). Next, for the 2-year period March '04 thru Feb '06, the Dow grew less than 4% - hardly a boom.

One can pick a time period and get a particular result - e.g., one could say that the 6+ year period from the then-all-time high of 11,700 (1/14/2000) thru early Oct. '06 (when the Dow eventually reached that high again) was overall a wash. So do we conclude 6 years of a Republican congress equals no real growth in the stock market?

Looking at stocks for the entire recent Republican congressional era (104th thru 109th
congresses) the Dow tripled but comprises periods of boom, bust, and flatness. Over the previous Democratic congressional era (100th thru 103rd congresses) the Dow doubled, but included the 1987 crash.

As a voter attempting to be rational, is there really any clear conclusion one can draw about whether the party running congress affects the Dow? I don't think it's as clear-cut as
congressional make-up controlling the stock market, nor just "being in the wrong place at the wrong time." Senators and representatives of both parties have proven themselves eminently capable/culpable for decisions detrimental to our economic well-being. Please also consider that the full effects of some congressional actions don't really come home to roost until after control of congress may have changed hands. E.g., the Medicare Part D drug benefit and at least the first 300 billion of Iraq war deficits were passed under Republican congressional control. Those decisions will have greater future impact on our economy, including the stock market, as compared to the effect in the year they were approved.

Lord writes:

It is a matter of what have you done for me lately (and will do in the future). This is not necessarily irrational if doing what you have always done is not necessarily what should be done in the future. This undermines the value of past performance. If circumstances change, why should government remain the same? What may have been beneficial in the past may be deleterious in future as it is taken to extremes.

There may be unpredictable short term fluctuations, but it seems just as likely these are in fact the result of long term policies and behaviors that have resulted in these problems. When the problem occurred may be random, but it may have been sitting there unaddressed for a long time.

TC writes:

Rubber City Rabble,

Perhaps as much a coincidence as the Dow's dive from 11,500 to 8,000 between Jan. 2000 and Feb 2003? Yet Republicans controlled congress in both of these 3-year periods.

This is partially incorrect.

The US Senate of January 2001 through May 2001 contained 50 Republicans and 50 Democrats. Neither party held a majority of the Seats in the Senate.

Then Jim Jeffords, the then Republican Senator from Vermont, became an independent but allied himself with the Democrats to give the Democrats a 51 to 49 seat majority. This arrangement held until January 2003 when, based on the November 2002 elections, the Republicans gained a net of 2 Senate seats for a 51 to 49 seat majority.

So, I disagree with the assertion that the GOP controlled (in the majority sense) the US Senate from January 2000 to February 2003. Perhaps the GOP had control from January 2000 to May 2001, when Jeffords switched his support from GOP to Democrat. But 50-50 control isn't really control, is it?

Also, many Democrats point out, correctly, that the stock market performed well under President Clinton, a Democrat. But during the last 6 years of Clinton's presidency Congress was majority Republican. And the best 5 years for the stock market under Clinton were of the 6 years that the GOP controlled both the US Senate and the US House.

Coincidence? Maybe. Maybe not.

another bob writes:

Dr. Caplan

You say, voters are economically illiterate in a systematic way. Politicians are elected by voters so economic policy is systematically wrong-heaed. I understand and agree.

The same could be said for law...voters are juridically illiterate therefore politicians and their policies are wrong-headed. (eventhough many of them are trained lawyers.) BUT, we have the Supreme Court which has a veto on laws, so, at least we don't make the same mistake twice, or at least not three times...or four times.

Wasn't it you who proposed a Supreme Court of Economics or some such thing? How about an economics constitution. What a much better punchline for op-ed pieces - "We need an economics constitution and a Supreme Court of Economics to prevent these same wrong-headed policies from showing up over and over again in different skirts". Its a better punchline than 'everyone is stupid'.

We know we're stupid. We're also stupid about foreign policy and immigration policy and nuclear physics and medicine. Each of us is only smart about one thing (if that many).

Please, get out there and propose your Supreme Court for Economics idea. Now is the time. I'd do it but I'm only smart at one thing and it isn't economics.


Troy Camplin writes:

I suggested a while back on my blog that we should all have to take the citizenship test to be able to be considered a citizen and vote. However, I would settle for potential politicians to be required to take the citizenship test and a basic economics test and pass them both with a 95 before they are allowed to run.

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