CHAPTER 10: THE PROBLEM IS MORE THAN THE RATIONALITY OF VOTERS

 

 

                                                      CHAPTER 10

 

                                     THE PROBLEM IS MORE THAN THE

                                                RATIONALITY OF VOTERS

 

In 2007 when Bryan Caplan's book "The Myth of the Rational Voter: Why Democracies Choose Bad Policies" came out, the New York Times columnist Nicholas Krystof labeled it the political book of the year.

While I agree that it is an important book, I have two major reservations about it as outlined in the following unanswered e-mail to its author.

 

One reservation is his neglect of the impact of voting systems on political outcomes and policy issues.  The other is what I regard as an under appreciation of the role of government in our economic processes.  There is, I believe, an important distinction to be made between free market proponents and free market ideologues.  Like modern Republicans, the book seems to fall into the latter category.

As I have tried to suggest, this is one reason why I believe contemporary Republicans have little to offer the country and why we so desperately need to open up our political processes to third parties.

 

The following piece should give the reader a somewhat deeper understanding of my views on these matters.

 

 

                                               August 2, 2007

 

Professor Caplan,

 

In his book, "By Force of Thought", which I read just before reading your interesting and provocative book on The Myth of the Rational Voter, the Hungarian economist Janos Kornai commented that many initially new ideas in economics often appear in a rough form which requires additional refinements before leading to important breakthroughs in the field.  It is in this sense that I would like to relate my comments and reaction to your book.

 

In terms of my major criticism of your argument, I would argue that you fell into the trap of what my friend the late John Attarian labeled in another, also provocative but uneven, book as "economism"

which he felt infests our profession (See John Attarian, Economism and the National Prospect, American Immigration Control Foundation, Monterey, VA, 2001).  By economism, John had in mind the tendency for economists to look at policy issues in strictly economic terms while ignoring other factors such a cultural considerations and the like.  I would cite as an example of this your position on trade protectionism.

 

It seems to me not an unreasonable, or irrational, position to posit that protectionism could be good from a societal view but bad from an economical one.  We know from the insights of the Stolper-Samuelson Theorem that even though free trade increases the welfare of a country it can lead to an absolute decline in the real incomes of given groups like unskilled labor within that country.  Economists usually argue that given the impact of trade on a country's economic welfare one can always in principle compensate the losers.  But the truth is, this frequently does not occur and in fact is empirically a very difficult thing to do.  A society may value having well payed jobs for its unskilled and often less capable individuals and trade protection may well be a not unreasonable way of doing this.  Of course, the benefit that society sees of such a policy would have to at least be equal to the dead weight economic loss to the society as a whole for such a policy to be rational.  The position you take in your book does not seem to take such a possibility into account and as such I regard this as a major failing in the argument you try to make.

 

In a similar vane, you seem to dismiss out of hand any concern over increasing trade deficits as irrational.  In one sense, I would surely agree that something like the recent proposals put forward by Senators Obama and Clinton concerning our trade deficit with China represents astonishing ignorance of the issues here.  But if a country is, as we are, absorbing more than it is producing, it could be, as many serious observers fear, unwisely mortgaging its future.  On this score, concern about a rising trade deficit surely in an inter-temporal sense would not be irrational.

 

Given the point here that I understand you are trying to make in your book, I would argue that it would have been much better to stick to and emphasize the case of price controls where in my judgment economists have a lot of the right things to say.

 

One of the points in your argument which annoyed me a great deal was your misuse of the term greed for self-interest in describing the underlying motivation of private economic activity.  I would define greed as excessive self-interest to the clear detriment of others.

Surely the prevailing motivation of most butchers, bakers and candle stick makers of Adam Smith's time in terms of self-interest was not only to meet their own needs for food, shelter and clothing but that of their families in addition to perhaps having resources to give their children the education that otherwise would not be available.

To label such motivation which Smith pointed out in a market context could wind up serving the general good as greed with all of its negative connotations, is to do a great disservice to Smith and his perceptive and important insight.

 

On your political analysis.  While I found much of what you said of interest, I thought that there was a very serious lacuna in your argument and that concerns the impact of the voting system itself on the outcome of our political processes.  It has long been my contention that our system of pluralistic voting is a significant source of some of the dysfunctionality that infests our political system.  And it has been my contention that the introduction of approval voting and better ballot access could significantly improve our political processes on this score.  In your discourse about democracy and democratic institutions, this is the type of possibility which you seem to shy away from.

 

When you point to what you consider to be an overestimation of the virtues of democracy by academics and others, I believe you do have a valid point.  Some years ago the late Kennith Boulding had a delightful small piece on what he called "the linearists" in Challenge Magazine which makes the point that while it may be good to have certain policies, structures and the like, it does not follow that more of these is always good.  Having said this however, I do believe that you underestimate the role, for want of a better term, of government in economic processes.  You seem to have a great deal of admiration for Milton Friedman and his advocacy of unfettered markets on this score. 

 

I would submit that here Friedman participated in serious professional malpractice not unlike that of Joseph Stiglitz and some other Nobel laureates in economics in their recent discussion of post-Soviet Russian economic reforms.  One scene I recall from Friedman's PBS program Free to Choose, is one in which he is shown on a boat in the Hong Kong harbor extolling the benefits of unfettered markets in Hong Kong as the key to that colony's economic success.  There is one very big problem with this as a student from Hong Kong pointed out to me years ago when I was allowed to teach economics.  And that is that at the time; as the student, whose father was a partner then in an important Hong Kong law firm, pointed out; this was certainly not the reality.  At that time and I would submit today, economic operations in Hong Kong had a considerable dirigistic component.  One should not give too much credence to an argument based on a fantasy.

 

The major reservation that I have with the argument in your book is that I believe that it underestimates the importance of the role of government in economic processes.  When I taught courses on Comparative Economic System, I concluded when I looked at the information on postwar economic performance that those democratic countries did better economically in which economic policy was carried out by public officials who were more isolated from the political process.  Such examples, however, did not necessarily entail situations of more limited government.

 

I realize that the focus of your study is on the impact of voter irrationality upon the political process but there are things, as I believe postwar experience points out, that can be done to mitigate this.  To your credit, you clearly understand this when you deal with such things as delegation, agency and the like in the political process.  But I would maintain, as I have already alluded to in the voting example, that a number of changes can effect the effectiveness of a democratic system and that one needs to look at these in much more detail when discussing the impact of democratic processes on the outcome of political systems.

 

In the traditional approach to the area of industrial organization economists focused on the issues of structure, behavior and performance.  Surely the same can apply to political systems.  In the case of de Gaulle's 1958 constitution, it clearly had a profound impact on the effectiveness and behavior of the French political system even with the same, if you will, "irrational French voters."  There are other cases I would cite such as Taiwan for example.  The contrast with mainland China is an interesting one here.  In today's China you have a phobia towards more democratic institutions among its political elite which given the experience of the Soviet Union might turn out to be a fatal mistake.  There are clearly situations where more democracy in political structures can help.  And no one can deny that there have been in the postwar period cases where such movement did improve things, Spain being an example which comes to mind.

 

When I taught comparative, I made the point to my students that a country's economic system is a combination of a number of economic mechanisms which I identified as: 1) Traditional systems (custom, traditions, family and the like), 2) Administrative systems (e.g., corporate structures, bureaucratic structures and operations) 3) The political system (elections, legislatures, judicial processes) and 4) The exchange system in which markets are an important part in modern economies.

 

It is my contention, which differs from the spirit of your book, that the optimum mix of these varies in both an inter-spatial and an inter-temporal sense and that things like culture at a particular point plays an important role in this.

 

On this score, I would argue that you do under emphasize the importance of government in our economic processes.  Amongst other things, government is surely necessity to limit greed in the sense that I used it above.  The recent case of defective Chinese goods surely is a case in point.  And clearly global warming represents an example of a pressing externalities with which only government and its processes can effectively deal.  Nondemocratic structures, as you imply in your observations, are important ingredients of well functioning "democratic" systems.  These involve more than relying on unfettered markets as a means of achieving this.

 

On this score, I did think that you made some telling points about the deficiencies of social scientists and their scholarship in giving us useful insights into some of the issues here.  There are some serious problems of pedagogy, methodology and accountability in academia that need to be examined here.  It still astonished me how poorly these served us in understanding the former Soviet Union and in not foreseeing its impending collapse at least a decade before it occurred.

If you do more work along the lines of your book, I would hope that you might develop the themes here in more detail.  It would make for an even more provocative argument.

 

                                           John Howard Wilhelm, Ph.D.,

                                           Economics