Sunday, October 14, 2007

Are Voters Irrational: An Interview With Economist Bryan Caplan

People across the political spectrum routinely question the senses, intelligence and values of their fellow voters. A decade ago conservatives chafed, as President Bill Clinton remained popular in spite of the Monica Lewinsky scandal. In recent years liberals like myself seethed while Republicans maintained one-party dominance in spite of their incompetence and criminal policies. They’re also citizens who challenge the wisdom of any voter who supports the two-party duopoly.

Bryan Caplan, an economist at George Mason University and co-editor of EconLog challenges the rationality of voters with his book, The Myth of the Rational Voter: Why Democracies Choose Bad Policies (Princeton University Press). Caplan, a libertarian, contends that democracies fail because of voters themselves rather than favorite scapegoats such as special interests. He argues that voters are regulated by four irrational prejudices:

1. Too little faith in the free market;
2. A distrust of foreigners;
3. Undervaluing the conservation of labor;
4. Unjustified pessimism that the economy is going from bad to worse.

Referencing those four biases are a reoccurring theme of Caplan’s book that skillfully mixes economics, political science, and psychology to analyze how voters think and the public policies that result from what they want. Overall his book is compelling and provocative. On July 30th, Nicholas Kristof of the New York Times referred to Caplan’s book as “the best political book this year.”

I concur with Caplan that for too many voters ideology is analogous to religious faith and evidence doesn’t penetrate their entrenched worldviews. However, as a liberal I disagree with Caplan’s equating skepticism about the free market or free trade agreements with irrationality.

In my opinion the free market isn’t appropriate for all sectors of the economy such as healthcare or education and free trade has too many imbalances that require attention. Furthermore, I believe too many conservative/libertarian economists ignore the hidden economy that isn’t measured by the Gross Domestic Product or quarterly statements. Caplan of course disagrees and I suppose by his definition I’m one of those irrational voters.

Each of us can become imprisoned by our own belief systems and it’s healthy to challenge our perspectives. Caplan graciously agreed to a podcast interview with me over the telephone about his controversial book. Our conversation was approximately forty minutes. Please refer to the media player below. This interview can also be accessed via the Itunes store by searching for "Intrepid Liberal Journal."


Larry Gambone said...

What "free market" are voters skeptical of? There is no "free market" in an economy controlled by a handful of corporations, all of which one should add, are priviledged by government regulations and hand-outs. That voters are suspicious of the fraud that is called a free market is evidence that they have far more sense than a bunch of university ideologues...

Nelson said...

Nice job, Rob.

I know it's hard to get too aggressive, and I think you struck a fair balance. I though, will take some time to listen to the whole thing again when I have more time, and point to what I think are common flaws in orthodox, libertarian, economic thought (which I think Caplan represents well).

Nelson said...

As promised:

I haven’t read his book, so he may address the following issues further. Having given that disclaimer, let me proceed with my critique:

Caplna states that if everyone understood economics, most people would support it. I contend that if most people knew the amoral prism in which free traders think, they would choose their values over the bottom line. He states that some people may rationally disagree with and oppose free trade based on their values. Why only some? Again, I doubt most people will leave their values at the door to share the worldview of traditional libertarian economists.

On the imbalance with China, he states that it is like “borrowing from other people.” The banks and creditors I usually borrow from don’t have million man militaries. In other words, economists ignore the future implications for the short term gains. In terms of national security, what if China holds so much of our debt that they can twist our arms to achieve military objectives? In common international relations theory, a nation always challenges the hegemon militarily once it meets or surpasses the hegemon in terms of economic and military strength. (Think Germany in WWI) Does this guarantee that China will attack us? No, but it’s something to think about, which free market economists shrug their shoulders and say, well anything could happen.

Or, what if China’s economy becomes so important to the rest of the world, that they choose to cut off free trade at a later date in order to protect their industries which the rest of the world relies on? Why wouldn't they do this if the political conditions (for example, a world war) merit it?

On defective products, Caplan says Costco doesn’t want to sell poison food. Yes, there’s a disincentive. But if the choice is between Chinese company A and Chinese company B, and there aren’t satisfactory regulations in place, it’s not as if Costco will start selling American products. Rather they’ll choose the Chinese company which isn’t producing defective products *right now.*

Slave labor is “a very small part.” Maybe. Or maybe not. I wonder if he relies on Chinese statistics, which will certainly be biased towards painting their producers in a positive light.

At 12:00, Caplan brings in legalizing the sale of human kidneys. Now, I’m not pointing this out to be alarmist. Rather, this demonstrates the amoral thought process. Do we want to have kidneys which some poor person sold for $50, which might be equivalent to six months income where they’re from. Do we want a world where the poorest are selling their bodies for the richest? The market doesn’t look at these important values questions. In addition, free market theory assumes free and full information. Let's say the poor person receives a pamphlet detailing his lower life expectancy based on where he or she lives, etc., is this really enough to constitute a perfect market scenario where the seller fully understands the implications of such a drastic move? I don’t think so. I think it’s one of the many cases where economists get caught up in their amoral worldview littered with convenient assumptions.

Next he mentions how deregulation would alleviate European unemployment. While true, why does Caplan ignore the added benefits of access to healthcare, generous employment benefits, and an overall better standard of living?

Great question on pointing out how Americans would do immigrant’s jobs for higher wages. Caplan responds by saying that he supports full amnesty. This is another bedrock principle of market economics. In other words, there is only one market and nation-states should be invisible. However, given the choice, most Americans wouldn’t want to, say, merge with Mexico and Canada.

However, Caplan’s adherence to the market philosophy suggests this is irrational. In other words, if we knew the *economic* gains we would make by giving up our sovereignty. Again, this looks at economics as if it exists in a vacuum. The eventual conclusion of this line of thinking, leads to a global free trade regime where worker safety standards, environmental standards, wage standards are all governed by the lowest common denominator.

He says the impact of immigration is most pronounced on high school dropouts. And most Americans are not high school dropouts. Yes, but at least 30% are, according to recent DOE estimates. That’s a substantial “some.”

AT 22:02, he says that there are some people hurt by policies which are good for most people. This is critical. First because we are frequently told we all gain from trade. Second, is buying a product for $1 less for say 90% of people worth the 10% losing their jobs entirely? Those numbers aren’t meant to be accurate, but what I’m trying to illustrate is that the gains for most, as Caplan puts it, are not the equivalent of the losses for some. Of course, this requires the government to consider cost-benefit analyses which in Caplan’s *ideal* free market view shouldn’t even get involved.

Great question about people spending less time with their families, working harder. He answers this with his typical “most do better” answer and the wonder of the internet, which allows us to meet new people. But, the internet was originally a *government innovation.*

Everything else Mr. Caplan stated I was either supportive of or neutral on. But I feel it’s so important to point out what I would call a free market bias. This bias is based on convenient assumptions and explicitly refuses to take most moral and social and economic justice issues on. It assumes because the model works in perfect theoretical conditions, closer examination by government can only be a hindrance, and that the benefit of most in the short term automatically trumps the concerns of the “most” in the short term, and the “some” in the short and long term. It ignores issues of national security, national sovereignty, and assumes voters would follow in its virtues, of which there is none but the bottom line. This bias is prevalent in the media and in beltway circles.

Caplan may believe that becoming exposed to economics give people a more favorable view of free market theory. However, I think if they were subsequently exposed to a thorough criticism of it, they might revert right back.

SanderO said...

The free market can solve some problems, but when it is driven by wealth it tends to become monopolist and so it is no longer free.

Free carries with it the implication that those who, in this case, are in a market, have choices and can exercise their will and will inevitably make the choice of the best product or service. But clearly not everyone in the heath market can even exercise a choice. They are simply left out because to choose means to have the MEANS to choose.

Housing is a similar free market where markets don't meet the needs of all.

What you find is that the market will offer products where the entrepreneurs will get the biggest bank for their buck ROI and that means they serve the top end and ignore the bottom... so there is a boom in luxury homes, furnishings, yachts etc.

The market is creating a two tier society with a huge divide between them.

This markets "work" approach is so completely dishonest it's amazing that serious economists can actually advance this hooey.

slag said...

Thanks for doing this interview! I heard this dude on NPR and was just shocked that his talk about the "free" markets went completely unchallenged by the interviewer. I kept waiting for someone (either Caplan or the interviewer) to bring up some fact that would have either supported or moderated his argument. Nothing. I forget sometimes that people often get a pass on real issues just because they engage in "science-speak" and sound authoritative. Good for you for trying to bring it on!

Anonymous said...

Irony... the interview seemed to demonstrate quite clearly that Robert suffers from the very same biases that he purports to knowledgeably discuss with Caplan. If you accept the notion that the broad consensus amongst professional economists across the ideological spectrum (including Marxists, on the organ-trade issue) on matters of objective empirical fact is a good definition for the objective beliefs that voters "ought" to have, regardless of their values, then it seems clear that both he and they carry a lot of biases on economics.