In theory, democracy is a bulwark against socially harmful policies. In practice, however, democracies frequently adopt and maintain policies that are damaging. How can this paradox be explained?
The influence of special interests and voter ignorance are two leading explanations. I offer an alternative story of how and why democracy fails. The central idea is that voters are worse than ignorant; they are, in a word, irrational—and they vote accordingly. Despite their lack of knowledge, voters are not humble agnostics; instead, they confidently embrace a long list of misconceptions.
Economic policy is the primary activity of the modern state. And if there is one thing that the public deeply misunderstands, it is economics…
Aside from character, most of the critical choices voters make are economic. E.g., should health care be more centrally-planned and funded, or more driven by the incentives of free markets and choice? Unfortunately, there is solid evidence that voters are not only very poorly informed on the basic principles of economics, but instead have consistent biases — literally “stupid biases”. The result is that the populace frequently votes against policies that benefit the majority. Like misunderstandings of probability and statistics, evolution produced humans with some economic intuitions that are very harmful in the modern world.
The most accessible current treatment is Bryan Caplan’s new April, 2007 book. For podcast fans, a very informative discussion between Caplan and Russ Roberts can be found at EconTalk as a 1 hr 21 minute podcast. And today I found that Bryan has the cover story at Reason, where he offers an overview of four key biases:
• the anti-market bias,
• the anti-foreign bias,
• the make-work bias, and
• the pessimistic bias.
Bryan includes many good examples to illustrate the prevalence of these biases. And some good anecdotes:
…International trade is, as the economic writer Steven Landsburg explains in his 1993 book The Armchair Economist, a technology: “There are two technologies for producing automobiles in America. One is to manufacture them in Detroit, and the other is to grow them in Iowa. Everybody knows about the first technology; let me tell you about the second. First you plant seeds, which are the raw materials from which automobiles are constructed. You wait a few months until wheat appears. Then you harvest the wheat, load it onto ships, and sail the ships westward into the Pacific Ocean. After a few months, the ships reappear with Toyotas on them.”
…Anti-foreign bias is easier to spot nowadays. To take one prominent example, immigration is far more of an issue now than it was in Smith’s time. Economists are predictably quick to see the benefits of immigration. Trade in labor is roughly the same as trade in goods. Specialization and exchange raise output—for instance, by letting skilled American moms return to work by hiring Mexican nannies.
In terms of the balance of payments, immigration is a nonissue. If an immigrant moves from Mexico City to New York and spends all his earnings in his new homeland, the balance of trade does not change. Yet the public still looks on immigration as a bald misfortune: jobs lost, wages reduced, public services consumed. Many in the general public see immigration as a distinct danger, independent of, and more frightening than, an unfavorable balance of trade. People feel all the more vulnerable when they reflect that these foreigners are not just selling us their products. They live among us.
Lastly, I found an Executive Summary [PDF]. What can we do to improve voter rationality? Well, bloggers can offer regular examples of irrational voter choice — explaining of course the economics of the issue.
Seriously, universal economics education is the only answer. Beginning with a redesign of the “Civics” or “Social Studies” courses upon a firm foundation of economics — including lots of illustrations of the four biases. If the free market were unshackled in education, would the consumer of education demand such reforms? I’m confident that would happen over time — but I really don’t know what today’s consumers would choose.