Yet while crowds may be good at making predictions, they’re often lousy at recognizing their own self-interest. That problem is explored in the best political book this year: “The Myth of the Rational Voter: Why Democracies Choose Bad Policies.”
Here is the gated NYT link.
Why is it that articles in praise of something (a book, a record, a movie) are invariably more bland than those critizicing them?
Caplan needs to explain how the dumb, easily led voters are able to make intelligent choices when it comes to the marketplace.
Isn’t the basic axiom of the free market that all parties will act to maximize their benefit?
If this isn’t true then it implies that markets need controls so that the sheep can be protected from doing harm to themselves. Logic says that this can’t be one of the parties to the transaction. So letting the market sort things out is logically inconsistent.
Maybe some of the posters/bloggers who have read this book can help me out. I have read reviews/summaries of this book, I’ve heard Caplan talk on Econtalk about the book as well. I found most of interesting and I found his argument quite persuasive. I “buy” it.
Yet (or perhaps, therefore…) I don’t feel compelled to purchase the book. … Unlike Bottom Billion by Collier, I am not as intrigued by the details and nuances of Caplan’s arguments.
Is it worth it? Is the irrational voter argument worth a book or a newspaper article?
Caplan restates the Platonic position on social structure. Every age brings back the same arguments dressed in the latest fashion.
The fundamental philosophical division is between those who are elitist (and authoritarian) and believe in the benevolent king model and those who think that the people should guide the own destiny (the democratic model).
Historically there have been very few examples of a successful benevolent ruler. Even if one exists for awhile there is no mechanism in place to ensure that his successor will be another one. The transition from one ruler to another is an arbitrary process which depends upon external factors like a suitable heir or a stable powerful faction. Since there is no rule of law (law being the arbitrary dictates of the ruler) there is no standard succession.
Democracy suffers from a deficiency, but it’s not the one that Caplan thinks. The population may be ignorant or easily led, but the interests of the majority have a better chance of leading in the right direction (eventually) than the arbitrary decisions of a ruler. The deficiency is that there is no way to prevent the dictatorship of the majority. The US has been better than many other societies in that its divided, indirect government makes it harder for excess to happen on the spur of the moment.
Even so the record has not been good. The existence of slavery, the near elimination of the Indian population, and the internment of the Japanese-Americans are all examples where the rights of minorities were trampled on. Can a mob be stopped by legal restrictions when it insists on running off a cliff? Ask those in Iraq.
As I said I have never seen a mechanism proposed that will absolutely guard against this overreach. That democracy is imperfect does not mean we should support authoritarianism instead.
Caplan needs to explain how the dumb, easily led voters are able to make intelligent choices when it comes to the marketplace.
Ever heard of the tragedy of the commons? Or seen the data showing ~50% differences in water consumption rates between appartments that are individually vs. proportionally metered? There are myriad examples, both theoretically well-understood and emperically verified, of non-market decision-making leading to Pareto-inefficient outcomes. Voting is simply a poor framework for making decisions that involve trade-offs.
You write a nice homage to Democracy, robertdfeinman, but surely you don’t advoate voting as the appropriate framework for deciding, for example, how much steel the U.S. should produce? Assuming you aren’t an unrepentent central planner, you must believe there are some decisions that are better-made by the market. How do you decide which decisions should be made by which framework?
If the public are considered to be sheep than who is the shepherd?
Sorry, you either trust/accept/yield to the wisdom of the public, imperfect as it may be, or you favor the wise ruler model.
I’ll refrain from a discussion of how markets can be all wise when the actors are sheep. Free markets are an ideological dream, in the real world those with the most power/knowledge/wealth have an advantage. You can acknowledge this and then try to come up with mechanisms to ameliorate distortions or you can believe in the tooth fairy, your choice.
“You write a nice homage to Democracy, robertdfeinman, but surely you don’t advoate voting as the appropriate framework for deciding, for example, how much steel the U.S. should produce? Assuming you aren’t an unrepentent central planner, you must believe there are some decisions that are better-made by the market. How do you decide which decisions should be made by which framework?”
That’s a bit of a straw-man argument, I’m sure Robert as well is aware of the textbook advantages of the free market. But, those textbooks also mention a myriad of cases in which the market doesn’t not efficiently produce goods. No one is suggesting government planned production of goods like shoes or steel. But ‘goods’ like rule of law, basic health care, etc have to been produced as well. I think the question is not so much whether government failure exists, but for what goods gov’t failure is large or small relative to market failure.
Yes, this is textbook stuff as well. But if Caplan lashes out at the irrational voter and there is a consensus among economists that the market can’t produce everything (I think there is), then the natural conclusion of his book is the philosopher-king model (for producing public goods) Robert is talking about. Or does Caplan actually suggest a anarcho-capitalist society?
Markets, even with power asymmetries such as when some have more “power/knowledge/wealth” may still outperform democratic decisions making processes in some instances.
Caplan talks about how we should trust economists more than the public when considering economic questions, but he does not endorse the benevolent king solution (in my recollection). Instead he stresses that we should decide where the market shows relatively better performance, and where democracy has comparative advantage in deciding policy, instead of blankly assuming democracies are always superior.
Robertfeinman, you write like you are some sort of democratic centrist and Caplan is some sort of radical ararcho-capitalist. But in fact you are proposing the radical solution, a democracy stripped of all extra-democratic constitutional constraints. And Caplan is merely proposing a marginal expansion of the large sphere in which we already let markets, rather than voting, make decisions.
One of the problems in deferring to “experts” is that in many cases there is no consensus as to what to do.
Let’s take a non-economic example – treatment of illness. There would be no need for second or third opinions if diagnosis and treatment were clear cut, but they’re not. In many cases the information needed to make the best decision is unknowable. This leads the common “I trust my doctor”. What happens when the doctor says “we could try A or B, you decide”? We are not experts so on what basis do we make a choice?
In the case of public policy choices there is even less agreement. Not only do people not agree about what course of action to take in the future they can’t even agree on which actions in the past were responsible for the subsequent events. Did the change in tax rates produce a rise or fall in economic activity, or was some other factor responsible? Did our siding with foreign leader X cause the subsequent problems/solutions or were their other factors that were more important?
So what is to be done? Once again I point to imperfect democratic structures. We delegate the setting of policy to elected officials. They, in turn, delegate the enforcement of these policies to (usually) appointed officials. All of these people can make mistakes, be corrupt, or be politically motivated. People are like that.
The issue is how to remedy things when they get off the rails. The best way is to allow the people to replace those who no longer best serve the public’s interests. Lately we have see this become increasingly more difficult.
The cost of running for office has gotten so high that normal folks can’t afford it. Those who can are either independently wealthy or plugged into the corporate sector. The consolidation of the media means that the number of places that a candidate’s voice can be heard has declined. To reach voters now means TV. This is very expensive.
We have moved from one person one vote to one dollar one vote. This doesn’t bode well for the future of real democracy.
Ah, after some googling I found some of Caplan’s proposals…
[quote]Another way to deal with voter irrationality is institutional reform. Imagine, for example, if the Council of Economic Advisers, in the spirit of the Supreme Court, had the power to invalidate legislation as “uneconomical.” Similarly, since the data show that well-educated voters hold more sensible policy views[13], we could emulate pre-1949 Great Britain by giving college graduates an extra vote.[14][/quote]
Yes, giving ‘smarter’ people more (political) power than average folk. That sounds pretty philosopher-kingish to me. Guess you were right, Robert Feinman.
There are times when I wish I had the knack, or perhaps the chutzpah, to comment knowledgeably about books I haven’t read. It must be nice to know, a priori, that the criticisms I have of the brief synopses of the author’s arguments I read about on a blog are necessarily unanswered in the book itself. Indeed, they must be, since I can’t think of anything the author possibly could have written to answer them!
Well its clear, the gulf between blogger and posters is getting larger every day. Now people are having discussions on a book that they make no bones about not having read! Wow! Some googling here, reading an exerpt here and viola–brazenly discussing a book that has not been read. This perhaps goes to the heart of Kaplans arguments. People vote for candidates
and policies of whom they know little about (o.k. maybe the read a snippet on google or a soundbite by the candidate). Based on some of these posters–kaplan is right. Me and TC will take 30 votes each and JSK gets minus-2. Feinman gets minus-5 for not reading the book and obfuscating.
This book has been discussed here before, and fairly recently. The quote about the Council of Economic Advisors being, if I recall correctly, the impetus for most of the posts in that long thread.
Anyway, I have one thing to say: I’d rather have the option to cast a vote (rational or not) in favor of my own interests than hand over that power to someone else who, chances are greater, will pursue an agenda that is not.
Especially if some/most of the kinds of people deciding policy are to be found on message boards of this ilk.
Anyway, I have one thing to say: I’d rather have the option to cast a vote (rational or not) in favor of my own interests than hand over that power to someone else who, chances are greater, will pursue an agenda that is not.
Imagine that the electoral process was corrupted and that your ballot was thrown in a fire by a voting official. Would you still feel the same way?
Now imagine that your vote is not thrown out, but that because one candidate has so many more votes than the other that your vote does not have any effect. How do you feel now and how is this situation different the other?
Now let’s think about how elections are today. Your vote is less likely to matter than you are to win the lottery. If you are like the rest of the general public you don’t know jack about what any candidate stands for or how effective any policy is, so you cannot be any more confident that your vote would improve outcomes than that it would harm them. What is so great about your vote?
Well I am getting kind of intrigued. It sounds too cute, a few good insights but not a revolution in thinking, but I should give it a chance.
However I can’t imagine reading a whole book anymore — most are a good essays puffed-up into a marketable object due to the current structure of the publishing industry and academia — so is there any place I can find on-line (of course) Caplan’s own ten page recitation of his argument? (If he can’t give us the bones in ten pages then I am doubly dubious.)
Do you favor the abolition of the Supreme Court? If not, why not?
Well, not being an American I have to admit I’m not fully informed about the tasks and compentencies of the Supreme Court. I take it is far from the ‘council of wise men’ Caplan is proposing? I mean doesn’t the Supreme Court follow the American Constitution (which is open to interpretation and can be changed democratically), while Caplan’s Council of Economic Advisors will solely use their own judgement?
Or am I missing your point?
What’s the requirement to stick to the book? I haven’t read it but am happy to respond to an interesting debate about capitalism and democracy.
The posts above are about comparing capitalism and democracy as mechanisms for turning preferences into outcomes. But I would question the underlying assumption that the 21st Century US versions of capitalism and democracy are the only kinds you can have.
In particular, virually all current “democracies” are of a very specific kind, namely party dominated representative democracies, a system that grew up in the 19th Century as an adaption to a very different social and economic situation. I would share the view that current democracies produce bad outcomes but very different, and more efficient versions of democracy are conceivable.
Like others I don’t see why people should be smart in the economic domain but dumb in the political domain. Maybe the issue is that people in current US live in a relatively smart economy but are stuck with a dumb system of government. Put another way, were individuals in communist economies dumber about what they wanted or was it just that they did not have a good mechanism for getting what they wanted?
I simply wish to echo previous comments highlighting the arrogance and intellectual laziness of openly criticizing a book one has not read.
Robert D. Feinman:
Really, it’s not that hard. Non-market institutions (majority take-all voting, focus groups, bureaucracy) suffer a massive public good problem, in that there is little incentive for individuals to become informed and to transmit that information. Market institutions solve that public good problem, giving people an incentive to be informed and transmit that information through their behavior.
Incorporating market institutions into governance is the next step towards making governance actually work.
“Sorry, you either trust/accept/yield to the wisdom of the public, imperfect as it may be, or you favor the wise ruler model.”
I trust the public, when the public acts through institutions that leads the greatest number of agents to gather information and truthfully transmit that information. Markets are such institutions.
Keith:
What do you do when markets are imperfect? Even a strong believer must acknowledge that there are cases where there are distortions which have nothing to do with government policy (at least explicitly).
I’ll give some examples: monopoly or oligopoly control of a sector. Let’s take the cell phone industry (or the music business, if you prefer). Government basically has kept its hands off since Reagan stopped enforcing the anti-trust laws.The strongest players took over the weaker ones. The market in operation. The result has been that each area has five players. They don’t compete. They all charge basically the same rate for the same basic services. The cost of entry is too high for a new firm to enter the market. Even if it could afford it the best it could hope for was to get 15-20% of the current revenue by stealing customers away.
We pay higher rates than elsewhere and also get fewer services. Phones are deliberately crippled so that they can’t do some things that they are capable of elsewhere.
The market is operating “freely” in that the companies are not hampered in anything that they do except by the competition. The public and government don’t influence their decisions. They have basically decided that accepting a fixed amount of an existing market is more profitable than spending money expanding services. After all the same logic applies to them as to new entrants. The best they can hope for is to steal some customers away from the others. Why bother?
Even Adam Smith acknowledged that the general tendency in a capitalist society was for the formation of shared monopolies.
A true libertarian could argue that the high cost of new drugs is caused by government intervention in the markets by providing patent protection. Yet these same companies are willing to sell their products elsewhere even when governments place restrictions on their pricing. If we accept the argument that these firms need the high profits to pay for R&D (leaving aside whether this is true or not) then what do you propose as an alternative to patent protection?
Basically what I’m asking is how does society deal with imperfect markets? If people don’t like government intervention, then what? I won’t accept some utopian answer which can never happen in the real world. We need solutions to existing issues not textbook answers.
@Robert:
But as an economist and a professor (yep read a lot of books and even written a couple)
Wow. I mean, that’s just amazing. Reading and writing all those books and still finding the time to brag about it online.
@asp: On the other hand, exclusively making one-sentence snide comments isn’t intellectually lazy (not to mention arrogant) at all. Please.
@Keith:
Incorporating market institutions into governance is the next step towards making governance actually work.
It seems your missing Robert Feinmans point completely. Yes, as I’ve said before, everyone in this tread is familiar with simplistic textbook economics: we found our way to marginalrevolution.com so I’m sure that we are all aware of the efficiency of markets (in theory). Of what i’ve read of Caplan, he does not so much suggest ‘outsourcing’ public policy to the private sector. Quite on the contrary, he suggests giving ‘the experts’ (read: the economists) a monopoly on deciding which policies should and which should not be implemented.
How is giving a select group of ‘wise elders’ unchecked power over us all(Caplans Council of Economic Advisers who stop the parliament from acting ‘uneconomically’, whatever that might mean) ‘incorporating market institutions* into governance’?
*side note: the market isn’t a ‘institution’ in econspeak, is it?
It it tough to figure out whether corruption or irrationality ought to be a bigger concern of ours. Although by nature I am cynical about politicians, browsing through Freedomnomics the section on elected officials amassed some pretty good evidence that despite all the money and lobbying, politicians appear to vote for policies they believe in. I don’t know how things are for the Supreme Court though. I suspect my reaction to the possibility of corruption is much different from yours: it makes me more distrustful of government, since it is government officials that are imbued with trust and responsibility without an easy ability of citizens to “exit”.
I’m not entirely trusting of governments either. Or any -ism or groupthink for that matter. Which is why I accept the flaws with the system we currently have as “certainly able to be improved upon, nonetheless probably the best option we have”…similar to how I view “the market.”
Any market system in which, for example, a typical (not even an overperforming relative to his peers) CEO is paid many orders of magnitude above all others in the company – not to mention golden parachutes et al – simply does not jell with me as “efficient,” “fair,” or “incorruptible.”
Any market system in which unsafe pharmaceutical products are knowingly sold to consumers because analysis shows that profits will far exceed paid damages is imperfect.
I realize the pitfalls of imposing some kind of arbitrary earnings ceiling or in overly constraining the time-to-market of new drugs, but anyone capable of 10 seconds of objective thought would admit that something is amiss in a system where these sorts of imbalances or these kinds of incentives are prevalent.
And yet while these issues bother me, I accept them as a byproduct of a system that, while imperfect, may be the best thing going.
I wouldn’t want to live in free market system in which there were no consumer rights or protections. I also wouldn’t want to live in system that stifled innovation with too many government restrictions. I believe that the best answer is a system of checks and balances – much like our government has internally (or is supposed to have) – wherein corporations have the the resources and freedom to thrive but don’t have complete free reign.
A completely free market system, while an interesting Darwinian experiment, has some cruelties built in that to me are inescapable and that haven’t been addressed in the dialogue except by those opposed to such a system. A little more self-reflection and contemplation by the zealots might go a long way in winning over converts. Almost everything I read with a libertarian slant comes off as extremely rigid with an occasional exception like Tyler (which is why I read this blog).
He might not be the prototypical libertarian (is he?), but I appreciate the human element of his opinions.
@Keith: I thought we where discussing the merits of Caplan’s ideas, not so much ‘prediction markets’. Oh well, trying to stay on topic is just one of the many ways I embarass myself is it not. Good luck with your ‘insights’ concerning something completely else.
People of the same trade seldom meet together, even for merriment and diversion, but the conversation ends in a conspiracy against the public
Most economists acknowledge that businesses want to fix prices, but simple game theory shows that each individual firm will have the incentive to defect. Cooperation is a “public good” for the firms, and hence there will be a “market failure” to them and they will not succeed in cooperating! Smith’s statement that they WISH to enact a conspiracy does not show that IN FACT such conspiracies are successfully enacted, and what he immediately gets to next is to advise the legislature against undertaking plans (such as protectionism/licensing I am guessing) that businesses present as being for the “common good”, indicating that the force of the state is necessary for their conspiracy.
PRE-POST EDIT
Here is the quotation:
“It is impossible indeed to prevent such meetings, by any law which either could be executed, or would be consistent with liberty and justice. But though the law cannot hinder people of the same trade from sometimes assembling together, it ought to do nothing to facilitate such assemblies; much less to render them necessary.
A regulation which obliges all those of the same trade in a particular town to enter their names and places of abode in a public register, facilitates such assemblies. It connects individuals who might never otherwise be known to one another, and gives every man of the trade a direction where to find every other man of it.
A regulation which enables those of the same trade to tax themselves in order to provide for their poor, their sick, their widows and orphans, by giving them a common interest to manage, renders such assemblies necessary.
An incorporation not only renders them necessary, but makes the act of the majority binding upon the whole. In a free trade an effectual combination cannot be established but by the unanimous consent of every single trader, and it cannot last longer than every single trader continues of the same mind. The majority of a corporation can enact a bye-law with proper penalties, which will limit the competition more effectually and more durably than any voluntary combination whatever.”
http://www.econlib.org/library/Smith/smWN4.html
Altemeyer has conceded that his use of the term “right wing authoritarian” was not a good one. He has defended himself by saying he couldn’t find any left wing authoritarians to study.
Since his book has come out several people have pointed him at (historical) examples of left wing authoritarians. The old leftists who supported the USSR (blindly) were one such group. There seem to be no major political faction which would be considered leftists these days that tries to enforce the same sort of discipline as the right wing groups are now doing.
I don’t know where libertarians fit into all of this. I consider many of them elitist (as the discussion about Caplan has shown) and this is one of the characteristics that Altemeyer has noticed.
As for quoting people like Rothbard and similar social philosophers this adds no weight to the discussion. Nobody takes the libertarian school seriously. That it has fervent supporters does not contradict this. The Amish are very fervent in their beliefs, but nobody thinks they set the overall direction of social policy in the US.
One of Altemeyer’s key findings is that those with the “RWA” personality are unwilling to consider alternative views and he strongly doubts that any of them will read his book.
Is he wrong? Did you read it?
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