Arnold Kling  

Behavioral Politics

The Economics of the Olympics... Religion and Consumer Protecti...

NPR lists policies that economists agree are good ideas but which are political non-starters. Basically, they want to replace the corporate income tax and the payroll tax with a consumption tax and a carbon tax. Let's stipulate that they are correct and not quibble.

Jeff Frankel writes,

Pro-cyclical fiscal policy worsens the dangers of overheating, inflation, and asset bubbles during booms, and exacerbates output and employment losses during recessions, thereby magnifying the swings of the business cycle. Yet many politicians in the United States, the United Kingdom, and the eurozone seem to live by it. They argue against fiscal discipline when the economy is strong, only to become deficit hawks when the economy is weak.

Pointers from Mark Thoma.

Economists are forever chastised for assuming that ordinary people behave rationally. We are told that instead we should appreciate the insights of behavioral economics.

But the same people who love behavioral economics are shocked, shocked to discover that politicians are not perfectly wise, benevolent servants of the public interest. When they observe what might be called "behavioral politics" (i.e., politics as it is actually practiced, not as assumed in the model of wise, benevolent public service), they see it not as a reality to be dealt with but as something that can be overcome...

with sufficient moral authority...

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COMMENTS (14 to date)
R Richard Schweitzer writes:

With all due deference to tthe memory of Irving Kristol, there is no Public Interest.

There are only Particular Interests.

The scholarship of Douglas North, et al. is replete with this fact of human experience in the development of societies.

Politics is one label affixed to the necessary reconciliations of those particular interests for the optimum satisfactions of objectives of those separate interests through minimal violence.

Politicians are those who, for their own objectives and satisfactions, engage in establishing (or attempting to establish) and conducting procedures and functions for those reconciliations.

Mm writes:

IIRC this is the exact argument Reagan used against counter cyclical gov't actions- and it was based on a study done by a congressional committe headed by Lloyd Bentson. The finding was d/t delays in recognizing the start of recessions & structural delays in implementing gov't policies counter cyclical programs only exacerbated business cycles.

KevinH writes:

I'd put myself in the category of those who appreciates the insights of behavioral economics, is saddened by politicians susceptibility to bias and poor reasoning, and believes that these biases can be overcome. In short, I'm the 'other' your post depicts.

My response to this piece is to say that if the study of economics cannot find a way to overcome those natural human biases which lead to bad choices then A) it is the only science I can think of where understanding and prediction does not lead to the availability of positive interventions and B) it is of shockingly little use or importance. However, I doubt A or B are true, and that smart economists are currently building the knowledge we need to create systems/interventions which can lead to rational public choices.

Dan Carroll writes:

I am agreement with Mr. Schweitzer, if I understand him correctly. Politics is simply a space for interests to compete for privelige, power, and money. Sometimes the advantage sought is economic advantage, sometimes ideological and/or religious, sometimes status and prestige. Government is efficient in rewarding elites inside the circle, extremely inefficient in rewarding people outside the circle. The brilliance of democracy is not that we get to vote, but that power is diffused and fragmented, expanding the circle and rendering it ambiguous. The downside of which is a lot of wasteful and ultimately meaningless bones thrown to the masses. Unfortunately, for liberatarians, if we got rid of government, private interests would reinvent it in a quest to acquire special priveliges or to limit the power of others. However, we should not give up the fight.

Dan writes:

Reply to Kevin:
" the only science I can think of...where observation and prediction...does not lead to positive intervention."
So I take it that in your neck of the woods, the meteorologists have arranged for rain to softly fall only in the wee small hours while we sleep, followed by sunny skies and gentle breezes every day?

Paul Johnson writes:

Tradable fishing quotas, tradable pollution permits, water markets, online auctions of many types... Microeconomics has generated plenty of positive interventions. These days economics seems to have become synonymous with macroeconomics and that's unfortunate.

Ray Lopez writes:

@Dan: "Economists set themselves too easy, too useless a task if in tempestuous seasons they can only tell us that when the storm is long past the ocean is flat again." -- John Maynard Keynes, A Tract on Monetary Reform, 1924

Christian Bjørnskov writes:

I couldn't agree more. Note that this is not merely an ideological claim from Kling, but actually a well-documented fact that behavioural economists tend to apply different models of behaviour to 'ordinary' people and politicians. Niclas Berggren documents the overwhelming bias in the literature in the most recent issue of the Review of Austrain Economics:

Lio writes:

Behavioral economics is overestimated. Most of the time, Behavioral economics states the obvious. It's blah blah without any practical significance. How can I take advantage of what they say when I'm already aware of what they say?

Mike Kayser writes:

Interesting post, Arnold. I would like to better understand your underlying point, however, by translating it into an equivalent concrete claim.

Here are 3 possible "translations." Is any of these correct?

1a) "If you were to make a comprehensive historical survey of economic policy, you would find that there is no correlation between the predictive accuracy of economic models and the economic growth (or contraction) of the corresponding societies."

1b) "There is such a correlation, but it is not a causal relationship."

2) "There is a causal relationship between economic predictive accuracy and positive economic outcomes, but many people are too optimistic about the strength and nature of the correlation. In particular, people misdirect their energies toward proposals that do not respect the weakness of institutions. Many good interventions tend to get overlooked, despite having a higher expected benefit. These are a better use of people's energies because they are both institutionally feasible and welfare-improving."

In other words, what you are critiquing is a specific form of utopianism?

KevinH writes:

@Dan Last I checked, meteorologists weren't too good at prediction.

However, I guess in general, one should never say never. I'd say the bulk of the point still stands. Science has routinely followed the progression from observation to understanding and prediction to intervention. There is no reason to expect anything less from economics.

ohwilleke writes:
Statisticians are special because, deep in our bones, we know about uncertainty. Economists know about incentives, physicists know about reality, movers can fit big things in the elevator on the first try, evolutionary psychologists know how to get their names in the newspaper, lawyers know you should never never never talk to the cops, and statisticians know about uncertainty. Of that, I’m sure.

From here.

John Fast writes:

I'm a hard-core behavioral economist and I'm also a hard-core public choice economist. I don't see any contradiction between the two.

I'm a hard-core behavioral economist and I'm still a hard-core supporter of markets *because* of public choice theory. I believe politicians and government employees are just as irrational as private citizens -- and probably more so, because the former have no incentive to make correct decisions.

Curtis writes:

This is I can agree with. The truth is that politicians are really just like people who are in things for personal gain. They care less about consumption when things are good but worry so much when the economy is weak. But government spending or their pay is the last thing that will be cut. Until you get good, honest, sensible people in there it will likely always be that way too.

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