Democracy and Other Failures (From Region Focus

Gravina Island, population 50, sits near the southeast corner of Alaska, just about 45 miles from the Canadian border. It has about 1,800 acres of timber and is accessible to the mainland via a seven-minute ferry ride. There wouldn’t be much more to say about Gravina Island, except that in 2005 it was on the receiving end of one of the most notorious cases of pork-barrel politics in U.S. history — a $223 million federal earmark for the so-called “bridge to nowhere.”

The Ketchikan Gravina Island Access Project, as it is officially known, became the poster child for seeming government waste. The planned span would be as long as the Golden Gate Bridge and high enough for cruise ships to pass underneath. How on earth, watchdog groups wondered, could legislators back something that would cost so much and benefit so few? It was, as one critic put it, “an abomination.”

The bridge’s defenders make some reasonable points about its actual merits. But putting aside that debate, there exists a theory which perfectly explains any such apparent legislative breakdown. It is called public choice, and it has quietly become the default lens through which many social scientists view democracy.

Public choice uses economic principles to analyze political activity. It assumes that people are primarily self-interested, be they businessmen or politicians. That’s in contrast to traditional political theory, which holds that government agents put aside their private interests when working for the public.

What’s also different about public choice theory is that it assumes that most voters don’t pay attention to the details of the legislative process, simply because their ballots are, on an individual basis, highly unlikely to decide an election. In other words, their votes don’t really matter. As a result, politicians cater to the small groups of voters who are paying attention — special interests — thus maximizing their chances of re-election. In some cases, special interests can be lobbies representing large groups of workers, like those in the steel industry; in other cases, they may be small groups in specific congressional districts that benefit from certain projects — like tourism workers gaining from the proposed Gravina bridge. Public choicers call this an example of “diffused costs, concentrated benefits.”

The logic is persuasive, especially when applied to other examples of uneconomic policies on trade and certain subsidies. Though public choice theory faces legitimate objections, in general it has held up well since its introduction 50 years ago. It is at base a critique of democracy, pointing out the difficulty in obtaining socially efficient outcomes under majority rule.

But now comes perhaps public choice’s most significant challenge yet, and it comes from an economist at the very university where the nation’s preeminent public choice center is housed. In his new book, Bryan Caplan turns public choice theory on its head: It’s not that voters end up with (admittedly bad) policies that they don’t want, Caplan argues. Rather, the public is getting precisely what it demands — policies that make voters feel good but don’t make any economic sense. Blaming special interests misses the point. Voters actually like protectionism and bridges to nowhere. As Caplan puts it in The Myth of the Rational Voter: Why Democracies Choose Bad Policies, “If I am right, then a great deal of published research is wrong.” Equally, if he is right, then the entire social science profession might have to rethink its approach to reforming the democratic process.

Public Choice

James Buchanan, teaching at the University of Virginia, formalized the public choice concept with colleague Gordon Tullock. The duo’s Calculus of Consent, published in 1962, is considered public choice’s seminal text. The premise was straightforward: “Our approach is based on the idea that, insofar as this pursuit of selfinterest does take place, it should be taken into account in the organization of the political constitution,” the authors wrote.

After a stop at Virginia Tech, both Buchanan and Tullock eventually settled at George Mason University, where the Center for Study of Public Choice is now housed. In 1986, Buchanan won the Nobel Prize in economics for his work on public choice theory. What was once a revolutionary approach to examining political behavior had become the norm.

Maybe the approach doesn’t sound so radical today, nor all that consequential. After all, if politicians are mostly interested in getting reelected, they ought to be simply implementing the will of the people, right?

The problem with that story is that voters are also self-interested. And that doesn’t necessarily mean they support policies which will make them better off. Instead, it means they are unlikely to spend much time figuring out what will make them better off in the first place. According to rational choice theory, they are likely to make a calculation about the benefits they would receive from their vote versus the costs of becoming informed and then casting a ballot. More often than not, because of the large pool of votes cast, an individual vote doesn’t count (much), so the rational choice is not to spend time becoming informed about broad issues (At the same time, voters still tend to care about narrow issues of local concern.) This contrasts people’s behavior in the regular market. When buying a car, a consumer is likely to research the options before making a selection; when in the voting booth, such research may seem pointless.

With most voters uninformed, special-interest groups hold great sway. Tullock put it this way: “Members of Congress wishing to be reelected will take careful account of issues and bills that strongly affect small minorities, whether it is a reduction of transfers to them, an increase in the taxes specific to them (like road taxes for freight carriers), or a special tax exemption. Considerably less attention is given to the issues affecting the general population because the voters are unlikely to be strongly motivated to express their support or favor at the ballot box.”

Here is an example of how it works in practice: Most economists agree that free trade makes countries better off. But protectionist policies that make little economic sense abound. This is because the pain of losing steel jobs is both obvious and concentrated, while the pain of paying, say, $200 more per car because steel is more expensive is ambiguous and widely dispersed. So politicians tend to respond to those most acutely affected by trade — the steelworkers and their representatives who complain rather than the average consumer.

According to public choice, specialinterest groups seek “rents,” or public privileges transferred for private use. Some people would call the Gravina Island bridge project an example of a rent. Through the phenomenon called “logrolling,” politicians agree to back each others’ pet projects, rolling up all these earmarks into big spending bills that sail through to law.

There are a couple of problems with this process. For one, having an entire industry of people devoted to seeking political favors is wasteful, because many of these lobbying efforts fail. And many of those that don’t are inefficient. A direct transfer to struggling steelmakers might be more efficient. But since such transfers are typically hard to accomplish in the public realm, they turn into indirect subsidies, ultimately hurting consumers and reducing incentives for steel companies to innovate and invest in their futures.

But return to public choice’s central premise — that voters are rationally ignorant. The implicit idea here is that voters are getting policies that they don’t want. Now there is a young economist who questions this premise. Voters are not ignorant, says Bryan Caplan. They are irrational, and their views are reflected in the irrational policies they get.

Rational Irrationality?

This is true, thought Caplan, so long as those biases are in fact random and not systematic. But what if voters are systematically stupid? Or, put another way, irrational? That is, what if voters in large, consistent numbers hold beliefs that are out of touch with expert economic thought? That would be a completely different problem than the one public choice economists had identified. In many cases, it would mean that irrational voter beliefs and irrational economic policy were identical. Perhaps special-interest- bound politicians weren’t shoving bad policy down the voters’ throats at all. Perhaps voters were swallowing precisely what they had already decided tasted good.

To figure this out, Caplan got his hands on a relatively fresh data set. It came from a 1996 survey commissioned by the Washington Post, Kaiser Family Foundation, and Harvard University Survey Project. Called the Survey of Americans and Economists on the Economy, it was based on interviews with 1,510 members of the general public and 250 Ph.D. economists.

One of Caplan’s goals was to overcome the standard criticism about studies like his: So what if economists and the public think different things? What if economists are wrong?

Economists get a lot less respect than other experts. Few people question the advice of medical doctors like they question the counsel of economists. Eat less fat? OK. Knock down trade barriers? Not so fast.

Reorienting Public Choice

The distinction between “ignorance” and “irrationality” is important. Being ignorant, as standard economic theory sees it, means that a person may not have seen the value of becoming informed, but if he had, then his viewpoint could have been changed to reach the proper conclusion. Like, if people were presented with the facts about the benefits of trade, then they would favor it over protectionism. Irrational people, on the other hand, still refuse to rethink their position even when presented with contradictory evidence.

The reason irrationality can exist on a systematic basis, so far as economic beliefs go, is because of the small cost of holding those beliefs. “One hundred and fifty million Americans can be wrong, and in fact easily,” Caplan says in an interview. “You could think the craziest thing in the world about politics, but if you have one vote, it won’t come back to hurt you. People can have comfortable beliefs rather than true beliefs.” In this way, Caplan seeks to reconsider public choice theory. Why spend so much time building models with rational actors if, in fact, voters are irrational? In his book, Caplan uses the example of economists trying to explain why economic reform is so unpopular in developing countries. How come so few people support changes that would make them better off? To Caplan, the answer is obvious: People are irrational.

“When you put that together you get a very simple picture of how the world works,” Caplan says. “Voters vote on the basis of what is best for society, but their beliefs are so misguided that you have people unselfishly voting for policies that are bad for people.”

Where Caplan agrees with standard public choice followers is that democracy doesn’t deserve its hallowed status. But where public choice sees democracy as flawed because of its tendency to be controlled by special interests, Caplan sees it as flawed because it allows people to believe things that can hurt their standard of living. The electoral process effectively allows people to behave irresponsibly, in ways that are ultimately irrational.

AFresh Look At Reform

Caplan agrees with this assessment. But where public choice views the voting public as somewhat hopelessly ignorant, Caplan believes that an “irrational” public may actually be receptive to education, and possibly be improved by it. He bases this approach on his own study — the more educated people are, the more likely they are to think like economists. (Also in this category of people who think more like economists are men and those whose incomes have grown a lot over their careers.) Perhaps with earlier intervention, economics could make their principles more comforting to the general public.

To make economic education more palatable, Caplan says, economists need to change the way they sell their ideas. Instead of perpetually hedging their statements, economists could be bolder, if not blunter: Price controls cause shortages and surpluses, economists should say. End of statement, with no need for footnotes or disclaimers of why this statement is not absolutely and always correct. And then, make this sort of material standard in primary and secondary education. Instead of teaching state capitals, teach supply and demand. “We have something useful to say here. It’s hard to swallow, so we’ve got to be persistent,” Caplan says...

. But what if voters are systematically stupid? Or, put another way, irrational? That is, what if voters in large, consistent numbers hold beliefs that are out of touch with expert economic thought?

The above statement describes the entire Democrat voter base, and likely half the Republican.

Interesting, and perhaps mostly correct. I know a number of people who I consider to be irrational.

4 posted on 10/30/2007 1:30:52 PM PDT by NonLinear ("They never open their mouths without subtracting from the sum of human knowledge." -Thomas B Reed)

To check this theory out, I'd like to see how the "250 economists" agree with Dr. Thomas Sowell. If they disagree with him, I conclude that the whole idea of educating the people to agree with the economists is an exercise in deliberate failure.

It is interesting, however, that the theory of political science is moving closer and closer to what Madison, Hamilton and Jay wrote in the Federalist two centuries ago. Who'd a thunk it?

Congressman Billybob