Winston Churchill once said that the best advert against democracy was a brief chat with a voter. Brian Caplan, economics professor at George Mason University, has produced evidence in his new book 'The Myth of the Rational Voter', showing the great man was right all along.
Unlike audiences in 'Who Wants To Be A Millionaire' (who are right 91% of the time) and financial markets (where the 'wisdom of crowds' does seem to often work), Caplan argues that ignorant voters do not vote randomly and have four inherent and ill-informed biases, He accuses populist politicians of preying on these biases to the detriment of the economy.
1. Voters exhibit a strong anti-market bias.
For example when asked why petrol prices have gone up, most voters blamed greedy oil bosses. Most economists pointed to supply and demand. Voters are clearly wrong because how do they explain falling prices?
2. Voters have a strong anti-foreigner bias
Most Americans think the economy is harmed by jobs being sourced from abroad and from immigrants taking 'local' jobs. Both the Democrats (via protectionist policies) and the Republicans (via anti-immigration policies) feed off these misinformed views. Most economists, on the other hand, take the view that a company's ability to source its labour from overseas or utilise cheaper labour from home increases its productivity, raising living standards for all.
3. Voters have a 'make-work' bias
i.e they equate prosperity with employment rather than productivity.
This is best illustrated by an apocryphal story of an economist who visits China under Mao Zedong. He sees hundreds of workers building a dam with shovels. He asks: “Why don't they use a mechanical digger?” “That would put people out of work,” replies the foreman. “Oh,” says the economist, “I thought you were making a dam. If it's jobs you want, take away their shovels and give them spoons.”
For an individual, the make-work bias makes some sense. He prospers if he has a job, and may lose his health insurance if he is laid off. For the nation as a whole, however, what matters is not whether people have jobs, but how they do them. The more people produce, the greater the general prosperity. It helps, therefore, if people shift from less productive occupations to more productive ones.
4. Voters have a bias toward pessimism
Most voters believe their children will be worse off than them, new jobs will be low-paying and that society in general is going to hell in a handbasket. Surprisingly, despite their reputation, economists tend to be more upbeat.
Caplan's solutions are that we rely less on government and more on private choice. He points out that just as industries tend to do better when deregulated or privatised, so religions thrive when disestablished.
Churchill may not have liked democracy but he did add that 'it may be the worst form of government but it's better than all others that have been tried'
Further Reading; Caplan at the Cato Institute
Podcast with Caplan at the Cafe Hayek
Tim Worstall writing at the Adam Smith Institute
source; The Economist
Wednesday, July 04, 2007
Posted by pommygranate at 8:39 PM