Wednesday, December 31, 2008

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.”

Tuesday, December 30, 2008

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?”

Sunday, December 14, 2008

Does voter rationality have to be a myth?

I think it was probably the sheep on the cover of the book that caught Jim’s eye. When he saw my copy of Bryan Caplan’s book, “The Myth of the Rational Voter”, Jim picked it up and asked me what it was about.

I explained that Bryan Caplan considers that voters tend to have irrational views when it comes to issues like free trade. He argues that this irrationality is a predictable response to the incentives associated with voting. Since there is a miniscule probability that the vote of any individual will be decisive in changing the result of an election, people can vote according to their feelings about how the world works – however wrong those feelings might be – safe in the knowledge that their individual vote is not likely to determine the outcome. Caplan reckons that when people vote they don’t weigh up the options the way they do when they make decisions that they expect to affect outcomes. They talk about their voting options as if they were ordering dinner from a menu, but their actions suggest that they expect to be served the same meal no matter what they “order”.

Jim did not seem overly impressed with Caplan’s views. He said: “That is what I would expect from a typical economist. You blame voters for being irrational about issues like trade protectionism, but most of you do a lousy job of explaining the benefits of trade.'

So I asked Jim how he would explain the benefits of trade. Without even pausing to think, he said: “Well, I would tell them what my father told me. Dad was a successful wheat-sheep farmer, but he was also a really good mechanic and a great gardener as well. One day, when I was still a kid, I asked him why he paid the local garage to service the family car when he could do it himself and why he didn’t grow all the vegetables we needed at home. I mentioned that Jack Smith up the road serviced his car, grew his own vegetables, milked a cow and kept chooks. Dad asked me whether I thought the Smiths were prosperous and successful farmers. I had to admit that I thought they always seemed to be struggling to get by. Dad explained that when you try to be self-sufficient and spend a lot of your time doing things like servicing your car, gardening, milking cows and feeding chooks instead of focusing on your strengths, you inevitably end up just eking out a subsistence living.
The same is true for the whole country. We are better off if we specialize in producing the things we can produce at relatively low cost and trading with the rest of the world to get the things that are costly to produce domestically.”

I was quite impressed by Jim’s explanation. I suppose that is why I forgot that he wasn’t an economist. I said: “A lot of people seem to have a good intuitive grasp of opportunity cost and the benefits of specialization from their own personal experience. It shouldn’t be too hard to get them to understand the benefits of free trade.”

“What is opportunity cost?” Jim asked. But before I could explain, he said: “Don’t bother trying to explain. I’ve got better things to do with my time that to listen to you trying to explain esoteric economic concepts. You economists should learn to talk the same language as the rest of us.”

After I had written this I was wondering where Jim had picked up his views about the benefits of international trade. It is easy enough to grasp of the advantages of specialization in running a business, but it is not intuitively obvious that this reasoning is relevant at an economy-wide level. When I rang him to inquire, Jim told me that he had learnt all he knew about economics from Bert Kelly. He said: “Bert Kelly was a great economist because he knew how to explain things so that they made sense.”
I didn’t bother telling Jim that C. R. (Bert) Kelly did not have any formal economics training. Bert was a politician and newspaper columnist who made a huge contribution to economic reform in Australia by explaining economic issues in a way that could readily be understood by people without formal training in economics. Bert died in 1997 and is still sadly missed.

Sunday, December 7, 2008

Is religion opposed to liberty?

I cannot remember exactly how Jim and I came to be talking about this question. I started to take notice when Jim said: “I’m just about fed up with religious leaders appealing for greater religious freedom. They argue that people should be allowed to follow their consciences when governments are impinging on the rights of their members to practice their religion, but they don’t really believe in allowing people to follow their consciences. When they get the opportunity to exert some political influence themselves, they use it to impose their moral views so that people are deprived of the option of acting in accordance with their consciences.”

My response was that some religious leaders who appeal for greater religious freedom do seem to have a consistent view about the importance of individual conscience. Jim looked interested, so I told him that I had recently read a book on ethics by the Dalai Lama. I was pleasantly surprised that the Dalai Lama seemed to be espousing the primacy of conscience, despite coming from a tradition in which there has been a very close relationship between church and state. He argues that ethical discipline is something that we adopt voluntarily on the basis of full recognition of its benefits, rather than something that can be imposed upon us. He says that the most important factor in determining the ethical character of our acts is our mental and emotional state at the moment of action. (The book’s title is “Ancient Wisdom, Modern World”, published in 1999. The relevant discussion is on pages 153 – 157.)

Jim said: “That’s all very well, but the leaders of major religions in this country don’t yet seem to have learned how to distinguish between personal morality and public policy. They seem to think that religious freedom entitles them to get governments to force people to comply with their religion’s view of what is good.”

I replied that it did not worry me too much these days what religious leaders might try to do in Australia because they have lost much of their moral authority, even with regard to members of their own religions. In any case, voters seem to have become wary of giving much power to politicians who are known to have close links with prominent religious leaders.

Jim responded: “Yeah, but don’t you think it is about time these religious leaders learned to ‘Render unto Caesar what is Caesar’s, and unto God what is God’s’?”

I said that I thought that Christian religious leaders knew a lot more about this than we did - and they would probably be aware that these ideas had been influential in leading to the separation of church and state and the evolution of religious freedom. I said that it might be nice to think that we could persuade religious leaders that they should refrain from creating dissention by trying to get governments to impose their moral views on others and that they should focus their political efforts on encouraging people with different beliefs to live in peace with each other. I suggested, however, that we just have to accept that these people have found some way that they think is respectable to defend religious freedom without acknowledging the inviolability of conscience.

“Bulls**t!”, Jim said. “The inviolability of the human conscience is at the heart of Christianity. Those who would never accept that the state has a right to over-ride their own consciences are acting contrary to the golden rule when they attempt to use the powers of the state to over-ride the consciences of others. Religious leaders should recognize the inviolability of conscience and help protect liberty rather than threaten it.”

When I asked Jim where these ideas came from he said that he had thought this way since childhood. He did suggest, however, that it probably wouldn’t do me any harm to read the views of Fr. Robert Sirico on the question of whether religion has to be a threat to liberty (here).