How can governments raise the quality of public debate in order to achieve worthwhile reforms?

Following from our recent discussions about Bryan Caplan’s book, “The Myth of the Rational Voter”, Jim said he wanted to ask me what I thought a reform-minded government could do to raise the quality of public debate in order to overcome problems posed by lack of public understanding of economic issues. I suggested that there were not many reform-minded governments around these days, but Jim made it obvious that he did not think that remark was worthy of a response. He said: “I have read a post on your blog about ‘institutionalised transparency’. After I managed to work out that the post had nothing to do with the number of windows in public institutions, I found it quite interesting. So I have got some questions I want to ask you.”

I thought that what Jim had in mind was a casual conversation, but he produced a piece of paper with three questions written on it. “I’m not interested in your top-of the-head comments”, he said, “I want you to give a thoughtful one-page response to these questions on your blog.” Anticipating that I might say that there are better things to do at the seaside on a summer’s day, he added: “Just remember that you used to tell people that you found your work so interesting that you would be willing to do it for nothing!”

Question 1: Why do you think a transparent public inquiry process would raise the quality of public debate, given that the vast amount of policy-related research that is already publicly available has not achieved this?

Answer: The public inquiry process ensures that the results of relevant research are brought to bear at the most appropriate time and in the most appropriate way. The advice resulting from the process is directly relevant to the government’s policy agenda because it is provided in response to questions posed by the government. It comes from an authoritative source - independent of government, political organisations, industry organisations and interest groups - that is required to consider the interests of the whole community, rather than the interests of particular industries or groups. It is produced by competent professionals who are capable of presenting their understanding of the issues involved in a way that can be readily understood by politicians, journalists and interested members of the general public.

Question 2: What are the critical requirements for such an organisation to be effective in raising the level of public debate?

The most critical requirement that has not already been mentioned is transparency. The whole advisory process is open to public scrutiny, not just the questions posed by government and the Commission’s final report. The Commission publishes its preliminary views on the scope of the inquiry, submissions by interested parties are made public, a draft of the Commission’s report is published and responses to the Commission’s report are also made public.

This transparency provides an incentive for all involved in the process to lift their game. When interest groups make submissions to politicians behind closed doors their most influential arguments often emphasise the likely effects of their policy proposals on gullible voters in marginal electorates. When policy issues are exposed to the transparent advisory process, however, interest groups have an incentive to consider whether the views they present are likely to be able to withstand public scrutiny by critical professionals who are interested in the economy-wide effects of policy proposals.

Question 3: Where is the evidence that Australia’s productivity commission has been effective in raising public understanding of economic issues?

The Commission answers this question in its annual reports ( see particularly, pages 43 – 48 of the 2007-08 annual report). The fact that media coverage of the Commission’s reports is fairly extensive (p 48) suggests that it capable of having a positive effect on public understanding of issues.

However, I must come back to the point I was alluding to when Jim raised this question. The Commission functions most effectively when we have a reform-minded government that is interested in raising the quality of public debate on complex issues.

What can be done to promote public understanding of complex issues?

Jim began our discussion by wishing me a happy new year and asking whether I had made any resolutions. I told him that I had not had much success in keeping new year’s resolutions, so there wasn’t much point in making them. Jim then offered to make some resolutions for me and to help me to keep them, but I declined. Undeterred, he said: “You should resolve to come to grips with some of the issues that you have been ducking in your blog, such as the question of whether you are in favour of free banking.” I replied that I knew very little about monetary policy and was quite content to leave that to the experts.

Jim replied: “So you think that the experts in control of monetary policy in the U.S. and other major economies have been doing a good job over the last few years do you? I suppose you think that the problems that voters have in coming to an understanding of complex issues can be resolved by just handing the problem over to the experts.” (Our previous discussions concerning the nature of this problem and Bryan Caplan book, “The Myth of the Rational Voter”, can be found here.)

I responded that I was certainly not in favour of leaving everything to experts, but I thought the world would be faced by even bigger financial problems if populist politicians were set loose to introduce ‘funny money’ policies. I put forward the view that as a general rule we get better outcomes when politicians focus on setting broad policy goals and put in place processes that ensure that expert opinion is brought to bear on how those goals should be achieved.

Jim was not as impressed as I thought he should have been. I suspect he might have been wondering how current monetary policies actually differ from the ‘funny money’ policies that might be introduced by populist politicians. He asked: “Doesn’t this Caplan fellow have any useful suggestions about how to improve public understanding of issues? What solutions does he offer?”

When I mentioned Caplan’s argument that more decisions should be left to the market rather than brought into the realm of political decision-making, Jim said: “That’s shutting the stable door after the horse has bolted”. I tried to explain that this comment was not entirely appropriate because there was an ongoing tendency for voters to say “the government should do something about it” every time a problem arose and for governments to respond by introducing more regulation.

Jim just asked what else Caplan had proposed. So, I mentioned that we had already discussed one of Caplan’s proposals, namely that economists should do more to combat economic sophistry espoused by politicians and voters.

“Is that all he suggests?”, Jim asked. Then, with some reluctance, I mentioned Caplan’s proposal to reduce efforts to increase voter turnout on the grounds that the additional people who are encouraged to vote are less likely to understand complex issues. Jim just said, “Harrumph!”.

One of the few things I have learned through life is that when someone makes unreasonable noises about another person’s ideas and you try to defend those ideas, you are likely to end up trying to defend the indefensible. So, I just remained silent.

Eventually, Jim said: “I have been reading some of the stuff on your blog about the role of transparency procedures in improving public understanding of issues. I would like to talk more about that later. Meanwhile, make sure you wish readers of your blog a happy new year”.

HAPPY NEW YEAR!

Are voters rationally irrational?

When we met next day, Jim wanted to talk more about Bryan Caplan’s book, “The Myth of the Rational Voter” (previous discussion here and here). He asked: “How original is Caplan’s stuff about voter irrationality?” I suggested that Caplan’s main contribution was in providing evidence that voters have systematically biased beliefs about economics. I mentioned that Caplan’s Cato paper provides a good summary of the U.S. evidence an anti-market bias; an anti-foreign bias; a make-work bias; and a pessimistic bias.

Jim seemed about to say something when I mentioned pessimistic bias, but he didn’t. So I continued by suggesting that Caplan also seemed to be highly original in suggesting voters were susceptible to “rational irrationality”- an almost religious attachment to false beliefs - rather than to “rational ignorance”, or lack of understanding. I mentioned that I didn’t think that “rational irrationality” would provide as good an explanation of voter behaviour as some less extreme concepts such as “bounded rationality”, used by Douglass North, and “DIY economics” – as suggested by David Henderson, former chief economist of the OECD.

Jim commented: “These biases in thinking that Caplan is talking about seem to be like flat earth theories. A few people might retain a kind of religious attachment to the idea that the earth is flat, but most people don’t have too much trouble accepting what they are taught in school about the shape of the earth and how it rotates and revolves. I don’t think voters are not as pig headed as Caplan seems to think they are. The “bounded rationality” idea sounds more interesting. Is this the same as the concept that Simon fellow used to talk about in organisational decision-making ?”

I wondered where Jim had come across Herbert Simon’s ideas as I also tried to remember what Douglass North had written about bounded rationality. I was able to remember that North had explained that ideologies present simplified models of how the world works and that he thought voters had a lot of problems in coming to terms with complex issues. When I refreshed my memory later, I found this:
"The atypical informed constituent may indeed know his or her own interest in making choices about familiar local repeated problems, but even the informed constituent is going to be at sea in making choices about the complex non-repetitive problems of an interdependent political and economic world" (“Institutions, Institutional Change and Economic Performance”, 1990, p51).

“So, what about DIY economics?”, Jim asked. “Is this Henderson character saying that we should just leave economic policy to the experts?” My response was to the effect that I thought Henderson would support efforts to help people who have no formal training in economics to understand economic policy issues. The DIY economics he talks about involves intuitive ideas that can be described as “pre-economic” in that they owe little or nothing to ideas that have ever had wide acceptance among economists. And they cannot be just viewed as fallacies that are popular among ordinary voters because they are held with equal conviction and expressed in much the same language by many political and business leaders. (David Henderson’s paper can be found here.)


Jim said: “That makes sense to me, but I’ve been thinking some more about Caplan’s concept of rational irrationality. It reminds me of the meeting I attended when I was a young man where I learned the meaning of “oxymoron”. The meeting was at a government department. Just as I was making a point that seemed important at the time, the old coot who was sitting next to the person chairing the meeting turned to him and said ‘That is an oxymoron’. I can’t remember what I had said to prompt that remark, but if he had not been so old I might have hit him. As it happened I responded by saying that he wasn’t so clever either. Some other people at the meeting thought the incident was funny, but the old coot didn’t seem particularly amused.”

How good is Bert Kelly's bull story?

When I next saw Jim I had to tell him that he should have been more kind to Bryan Caplan, the author of “The Myth of the Rational Voter”. You might recall that Jim implied that Caplan did not recognise that economists bear some responsibility for the failure of many voters to understand complex economic issues like the benefits of free trade.

When I read to Jim the passage in Bryan Caplan’s book which suggests that modern economists “should try to channel the spirit of the original one-handed economist, Frederic Bastiat” (p. 200), he looked at me as though I had just proposed that spiritualism might help promote public understanding of complex economic issues. I quickly explained that what Caplan had in mind was that modern economists should become more like Bastiat, a French economist who lived in the first half of the 19th century, who was famous for his witty exposure of the fallacies involved in the views of trade protectionists.

I mentioned that Frederic Bastiat had made the same point as Jim, in our last conversation, about the gains from specialisation and trade being the same at a national level as at an individual level. Bastiat suggested to trade protectionists, who claimed to be practical men, that they should set aside their theory that it is better to make things oneself and look around them and observe whether the farmer makes his own clothes, whether the tailor raises the wheat that he consumes, whether their housekeepers bake bread at home when they can buy it more cheaply at the bakery etc. He then made the point: “It is not you, therefore, who are the practical men, for you could not point to a single person on the face of the earth who acts according to your principle” (“Economic Sophisms”, 1996 edition, p 83).

“That isn’t bad”, Jim said. Then he smiled as he remembered something: “Is this Bastiat the bloke who told the story about the manufacturers of candles who petitioned the government to pass laws to prevent unfair competition from the sun?” I agreed that was one of his famous parables.

Jim said: “Look, that Bastiat fellow was probably a genius, but I bet he didn’t write anything about infant industry assistance that was as good as this piece by Bert Kelly”. Jim pulled a grubby piece of paper out of his pocket and handed it to me to read. It was a copy of page 102 from Bert’s book, “Economics Made Easy”. Jim had drawn a big circle around the following paragraphs:

“When city people go to the Show they may see the beef classes being judged, if they are lucky. They are rightly impressed by the sleek appearance of the young bulls and they may think what wonderful converters of grass to flesh they are.
It is only when they visit the studs and see the way that these bulls are foster-mothered that they realize they have been had. At ‘feeding’ time the young bull gets all excited as he sees his cow approaching. You think it is love calling. She is put in the bail, and what does the young bull do then? No, you are wrong, he doesn’t. Down on his knees he goes to get at the udder of the poor skinny cow that is half his size, and he sucks away greedily.”

Jim said: “Don’t you think that those bulls are a bit like Australia’s car industry. If it is internationally competitive, as the government keeps saying, then why don’t they wean it off assistance from taxpayers?”