ECON 369
Lecture Five - Public Choice Continued: Voting
From: “Individual Choice in Voting and the Market” by James Buchanan (in Heckelman), The Myth of the Rational Voter by Bryan Caplan, Review of Caplan's book by Gene Callahan in The Independent Review, "Critique of Caplan's The Myth of the Rational Voter" by Stuart Farrand in Libertarian Papers, The Myth of Democratic Failure by Donald Wittman, Government Failure by Gordon Tullock and other sources.
First - some definitions:
Direct voting – people vote on government decisions and outcomes directly rather than voting for decision-making representatives.
Representative voting – all national decisions are made by representatives.
Voting rule – the criterion, agreed on in advance, that determines the winner in an election.
Example: majority voting rule. Simple majority vote determines the winner.
Economists typically assume people vote with their “pocketbooks” – meaning they weigh the benefits they expect from the outcome with the costs. Sometimes monetary, but not always.
Voter vs. Buyer
Let’s start with comparing the individual consumer with the individual voter in more detail– when making choices. These are from Buchanan (see source above).
Differences:
1. 1. Uncertainty of outcomes: The consumer can predict with (almost) certainty the direct or immediate result of his action. On the other hand, the voter, even if he is fully omniscient in his foresight of the consequences of each possible collective decision, can never predict with certainty which of the alternatives will be chosen. Can’t predict the behavior of other voters.
This will influence the behavior of the individual as voter vs. consumer. In the market we will choose the option that we think is best for us (individually). As a voter – we might choose an option (not the one that benefits us most) based on what we think others will do.
For example:
2. 2. Degree of social participation: a consumer might not be aware of how his purchase or sale changes things socially (although it does – changes price, for example). Therefore, he doesn’t consider himself as acting “socially” when he is in the market. On the other hand, as a voter, we are aware of our social participation – thinking that our vote means something to society.
Again, this sense of participation in the social choice may exert important effects on the behavior of the individual. In voting, his “values” may influence his choice rather than simply his “taste.”
For example:
3. 3. Degree of responsibility: Since voting implies collective choice, the responsibility for making any particular social or collective decision is necessarily divided. Whereas the responsibility for market decisions is uniquely concentrated on the chooser.
Again, how does this change the behavior of the individual? Some people may not even participate in the voting process – whereas they will participate in the market process. And it also tends to guarantee that a more precise and objective consideration of alternative costs takes place in the minds of individuals choosing in the market vs. choosing in the political world.
For example:
4. 4. Nature of the alternatives presented is different (Buchanan sees this as probably the most important): In the market we choose among an almost infinite number of combinations of goods and services, in each of which some of almost every conceivable good and service will be included. Whereas in the voting booth, the choices are much more limited – and often bundled in certain ways that can’t be changed.
“As a result of this difference, individual choice in the market can be more articulate than in the voting booth.” In other words, we articulate our real tastes, preferences, values in the marketplace much better than we are able to articulate them in the political arena. So what the market produces is much more likely to actually satisfy people relative to what the political process produces.
For example:
5. 5. The degree of coercion: This follows from 4 above. In politics, we don’t choose among existing alternatives (as in the market) but among potential alternatives. The voter might be compelled to accept a result contrary to his expressed preference.
A similar sort of coercion is never present in market choice. Although, in the market, if there aren’t enough people who buy apples to make them profitable, the supplier will no longer supply them and the consumer who wants apples will no longer have that option.
However, he is not “forced” to eat oranges instead in the same way he is “forced” to abide by legislation he did not vote for.
For example:
Are Voters Apathetic, Ill-informed, or Rational?
Public choice economists are actually puzzled why voters are not more apathetic!
But could it be because (being neo-classical economists) many of them only think about monetary returns from voting?
It is true that it is more likely that a voter will be struck by lightening on the way to the polls than it is that his vote will decide who is elected mayor or county commissioner, to say nothing of senator or congressional representative. Since one vote is not going to decide who is elected, why should an individual study the issues and research the position of alternative candidates?
As we have talked about before, one important theory in the Public Choice literature is:
Rational ignorance (Anthony Downs, 1957). It is one explanation for apathy (or rational voter apathy):
Rational (standard mainstream definition): someone will do something if they believe the benefits outweigh the costs.
Graph: (MC, MB and Time Searching for Information)
People often vote out of “civic duty” or peer pressure or simply because of the utility they receive from voting.
This rational ignorance plays a part in much of public choice analysis.
So due to rational ignorance -- the outcomes of voting can be very detrimental to society (to the people who voted for them). If only that had more information - they would have voted differently and the world would be a better place. But it's not in their short term interest to get the information!
Political campaigns play off of the hope that voters are rationally ignorant. People will then vote on the basis of a good advertisement, slogan, etc. -- not on the basis of good information.
Therefore, campaigns spend a lot of resources on slogans ("Hope and Change" or "Make America Great Again") and the "image" of the candidates. Watch a Republican or Democratic national convention -- much of what is provided is information about the background (family, etc.) of the candidate -- not their platforms!! Why?
The Myth of the Rational Voter
Bryan Caplan offers a "new" explanation for the outcomes of democracy. He says people in democracies vote for a lot of apparently counterproductive policies. Why? There are three basic responses to this questions (according to Caplan):
1. Defend the accused policies on their merits.
2. Argue that politicians and special interests have subverted democracy (or that voters are "rationally ignorant").
3. Explain how policies can be both popular and counter-productive.
He says that there is a lot of merit to #3.
Many of the economist's models assume rationality among voters -- and that, generally speaking, voters are not "systematically fooled" -- on average, voters have a correct perception of the costs and benefits of different policies. That is it is assumed that, the "crowd" is systematically correct!
Caplan, on the other hand, says that there are myths that voters consistently hold on to - which makes them vote for inefficient policies. The policies come about simply because people vote for them! And they are systematically wrong! So the crowd is NOT always correct!
"Rational irrationality" - (psychological benefits matter):
Caplan: "I refer to this approach as rational irrationality to emphasize both its kinship with and divergence from, rational ignorance. Both treat cognitive inadequacy as a choice, responsive to incentives.
The difference is that rational ignorance assumes that people tire of the search for truth, while rational irrationality says that people actively avoid the truth." (p. 123).
So it's not that a person doesn't have the information -- it is that they ignore it. Although Caplan also talks about people just being wrong - even with the information. These seem very different to me. He seems to include both in his rational irrationality.
So Caplan acknowledges rational ignorance but argues that the situation in democracies is even worse: "not only are voters uninformed on policy matters, a condition that would imply that their votes would be cast randomly across the range of options they face, but they actually gain utility from warmly embracing economic policies that the vast majority of professional economists regards as demonstrably false." (Callahan)
So, according to Caplan, people have "demand for irrationality curves" -
Graph:
Example: A nationalist enjoys the belief that foreign-made products are overpriced junk; a surgeon takes pride in the belief that he operates well while drunk.
False beliefs range in material cost from free to enormous - acting on his beliefs would lead the nationalist to overpay for inferior domestic goods, and the surgeon to destroy his career!!
In other words, the idea of rational irrationality means "that it can sometimes be 'rational' to hold 'irrational' beliefs: if the practical consequences of holding the belief are minimal or nonexistent, then the psychic comfort the believer gets from the belief may outweigh the costs involved." (Callahan)
Caplan uses the 1996 Survey of Americans and Economists on the Economy to provide evidence of how economists and the voting public differ. This survey showed a large gap between professional economist's opinions and the general public's opinions on issues such as the benefits of free trade and business profits, etc.
The myths that persist (as per Caplan):
1. Anti-market bias: "a tendency to underestimate the economic benefits of the market mechanism."
Tend to focus on motives of business, rather than outcomes.
2. Anti-foreign bias: "a tendency to underestimate the economic benefits of interaction with foreigners."
3. Make-work bias: "a tendency to underestimate the economic benefits of conserving labor."
While non-economists see the destruction of jobs -- economists see the essence of economic growth - the production of more with less. Example today: the outsourcing controversy.
Really the broken window fallacy: Technology destroys jobs, etc.
4. Pessimistic bias: "a tendency to overestimate the severity of economic problems and underestimate the "recent" past, present, and future performance of the economy."
Example today: "Income inequality is creating economic problems." What would most economists say (with the exception of Paul Krugman and a few others)?
My take on this - and Caplan does mention this too, is that economists, generally, are doing a really bad job of dispelling these myths! Why?
Some of Deb's ideas:
Methodology (and public perception of what economics is):
Incentives of academic economists:
They care little about the history of thought (why would that matter?):
Your thoughts?
Criticisms/Discussion Points
1. The Meaning of the Term "Rational Irrationality"
Caplan seems to shift between two different meanings of the term "rational" in making his case:
a) the standard cost/benefit definition -- so irrational would mean doing something when the costs outweigh the benefits. Frankly - it doesn't make sense to me to say that voters are acting rationally because their benefits outweigh their costs but "irrational" because they know
they are "wrong" but vote anyway because it feels psychologically good?
As Farrand put it, "Caplan equates bias with irraitonaly, but are these concepts interchangeable?" Is this simply ignorance AND being stubborn, not irrationality?
b) a voter is irrational because holding unreasoned political views merely for the personal satisfaction they provide is essentially costless for most citizens. How is this irrational? (Callahan)
2. The Miracle of Aggregation Argument
Caplan discusses the "miracle of aggregation" model (democratic decisions are good even though there is widespread ignorance among voters -- the whole "wisdom of the crowd" idea).
So - even though 99% of an electorate is uninformed, democracy still can produce outcomes closer to those of a fully informed citizenry than those of a totally ignorant one.
The votes of the 99% will be randomly distributed among the electoral options, so the votes of the knowledgeable 1% will decide the matter -- the public interest will be met!
Caplan criticizes this model:
His idea is that only the existence of the systematic biases that he attributes to the electorate can provide an adequate reason for rejecting the rosy view of democratic politics presented by the "miracle of aggregation."
In other words, the biases will lead to systematic, not random, votes.
But another criticism would be: - if the well-informed 1% of voters casts their ballots on the basis of their private interests rather than the common good - the outcome will not exhibit the collective rationality that the miracle is supposed to produce. There are reasons to believe "the pessimistic scenario is more realistic than its optimistic mirror image." (Callahan)
So even if the model is "correct" -- the outcomes of democracy can be bad.
3. Political Market Complexities and Voter Time Preferences
"Caplan accepts political irrationality without fully taking into account both the complexities of political markets and the time preferences voters possess" (Farrand).
Voters respond to "political signals" -- platforms, media coverage, polling data, approval ratings, etc.
Therefore:
a) Skewed political knowledge
b) Scope of political knowledge is limited due to the complexities of the political process
c) Annual elections promote a sort of myopic approach to voting.
So maybe the problem is not "irrationality" but the lack of sufficient knowledge for voters to obtain?
4. Wittman's Arguments that Political Institutions Are Efficient
Caplan builds on the work of Donald Wittman (The Myth of Democratic Failure: Why Political Institutions Are Efficient, 1995).
Wittman challenges democratic failure arguments (such as those given in the public choice literature and elsewhere).
In particular - he argues against three popular explanations as to why democracies fail:
1) voter stupidity
2) serious lack of competition
3) excessively high negotiation/transaction costs
Caplan largely agrees with Wittman -- except with #1.
Wittman:
Voters aren't stupid - Voters are highly informed and politicians don't shirk.
There are "political entrepreneurs" who inform the public (campaigns, etc.). Party brand names tell voters a lot of information - don't have to know about the candidate, just the party. Voters receive a lot of "free" information -- news, mail, conversations with friends, etc. You can have "impressions" (accurate) of candidates without knowing specifics about how they voted, etc.
Democracy decreases transaction costs in collective decision-making. For example via Caplan - voting. (Much more efficient than reaching some sort of consensus, for example). Also, "Democratic political markets are structured to reduce transaction costs. The small number of members in the House and Senate reduces negotiation costs, thereby creating the conditions for efficient logrolling (exchange)." (Wittman)
There is competition - voters reward good politicians by re-electing them. So voting monitors the shirking of politicians. Competitive monitoring takes place not only within but also across political parties. Competitors can gain great advantage by providing evidence of the opposition's shirking.
However, Caplan does not think Wittman shows that voter stupidity is wrong. "To Caplan, democracies would largely work efficiently if citizens did not make the irrational demands of their elected officials" (Farrand).
But (to both Caplan and Wittman):
a) Do they neglect the extreme inefficiencies inherent in the American political system?
Transaction costs can be low to voters, but very high among bureaucratic agencies, regulatory agencies and legislatures. Getting things done via the government can be very costly.
b) Successes of incumbents are not always due to their political merits . . .
c) So there are many factors that contribute to democratic failure.
5. Politicians: The Undoing of Caplan's Argument
"To Caplan, politicians choose between economic "reality" and political expediency, a catch-22 in which they potentially risk losing face with the public." (Farrand)
Choosing economic reality - supporting free trade results in short-term loss of face with the public.
Choosing political expediency (opposing free trade) results in a loss of face at a future date.
Caplan - politicians are "rational" while citizens are "irrational" !!
Politicians aren't to blame -- they are simply acting in their self-interest to get votes. Is this true?
Would politicians promote good economic policies in the absence of the voter issue?
Could it be in their self-interest to do otherwise? Why wouldn't politicians fall into the same "myths" that voters fall into?
Maybe politicians should take more of the blame?
Your thoughts?