Public Choice: rational ignorance, pork and rent-seeking

[The] Idea that when people go to the polls they are knowledgeable is ludicrous.

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That is just one of the illuminations from Don Boudreaux, chair of the department of economics at George Mason, in the recent Econtalk discussion  “Don Boudreaux on Public Choice”. One of the firm results of Public Choice Theory is often expressed in the shorthand “rational ignorance”. This result is a consequence of two facts — that information is not free, while the deciding impact of an individual’s vote is nearly zero. So the payoff from investing in the study and critical thinking required to place an informed vote is effectively zero, while the cost is relatively high. I.e., just to study a single issue (say energy policy) requires many hours of time that alternatively could have been invested in family time, or in better job qualifications, or …

What’s the point? The problem is concentrated benefits, diffuse costs. A smaller government is less likely to do harm than a bigger government. It is impossible for voters to know what the federal government is up to. In practice they do not know the impact nor effectiveness of what competing politicians are proposing. A smaller government presents less opportunity for politicians to divert taxpayer’s earnings to pay off supporters (pork). A smaller government presents less opportunity for rent-seeking by interests that influence government to provide them special benefits.

For background I recommend the short summary of Public Choice at the Concise Encyclopedia of Economics. Here is a descriptive excerpt:

(…) In modeling the behavior of individuals as driven by the goal of utility maximization—economics jargon for a personal sense of well-being—economists do not deny that people care about their families, friends, and community. But public choice, like the economic model of rational behavior on which it rests, assumes that people are guided chiefly by their own self-interests and, more important, that the motivations of people in the political process are no different from those of people in the steak, housing, or car market. They are the same human beings, after all. As such, voters “vote their pocketbooks,” supporting candidates and ballot propositions they think will make them personally better off; bureaucrats strive to advance their own careers; and politicians seek election or reelection to office. Public choice, in other words, simply transfers the rational actor model of economic theory to the realm of politics.

Don’t forget that the primary motivation of politicians is to stay in office, to get re-elected. Forget “public good”, that is just romance. Public Choice is “politics without the romance” (James Buchanan).

The Lessons of Public Choice

One key conclusion of public choice is that changing the identities of the people who hold public office will not produce major changes in policy outcomes. Electing better people will not, by itself, lead to much better government. Adopting the assumption that all individuals, be they voters, politicians, or bureaucrats, are motivated more by self-interest than by public interest evokes a Madisonian perspective on the problems of democratic governance. Like that founding father of the American constitutional republic, public choice recognizes that men are not angels and focuses on the importance of the institutional rules under which people pursue their own objectives. “In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself” (Federalist, no. 51).

Institutional problems demand institutional solutions. If, for example, democratic governments institutionally are incapable of balancing the public budget, a constitutional rule that limits increases in spending and taxes to no more than the private sector’s rate of growth will be more effective in curbing profligacy than “throwing the rascals out.” Given the problems endemic to majority-rule voting, public choice also suggests that care must be exercised in establishing the domains of private and collective choice; that it is not necessarily desirable to use the same voting rule for all collective decisions; and that the public’s interest can be best protected if exit options are preserved by making collective choices at the lowest feasible level of political authority.

For more resources on informed voting, I highly recommend Bryan Caplan’s 2007 book Myth of the Rational Voter.

Should we force drunks to drive? Compulsory Voting: For and Against

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I’ve not yet read the June-release of Compulsory Voting: For and Against, but it comes well-recommended. Here are two blurbs by George Mason colleagues of the authors:

“The frustrating thing about arguments over citizenship in democracies is that everyone is right, meaning that everyone is also wrong. There are powerful arguments in favor of asking citizens to act on a moral obligation to become informed, so as to move toward an ideal world. In that view, argued ably here by Jason Brennan, anyone who fails to become informed should voluntarily abstain. Lisa Hill argues that Brennan has it backwards: ‘good’ elections are not the result of an informed citizenry. Rather, a broadly accepted electoral process, legitimated by universal participation, is what creates an informed citizenry. Who is right? An extraordinary and very fair-minded treatment of significant issues in democracy around the world.”
Michael Munger, Duke University

“Should the government force citizens to vote? Brennan and Hill’s Compulsory Voting crisply presents the strongest case in favor as well as the strongest case against mandatory participation in the electoral process. Although the two authors defend opposite conclusions, both show that philosophy is better with careful social science – and that social science is better with careful philosophy. A book full of ideas, clarity, and candor.”
Bryan D. Caplan, George Mason University

Incidentally, prof. Bryan Caplan is the author of one of our favorite Public Choice books The Myth of the Rational Voter.

For more background try my post Public Choice: rational ignorance, pork and rent-seeking.

Myth of the Rational Voter

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.