Sunday, October 28, 2007

Caplan a Communist?

So I've been dipping into Bryan Caplan's Myth of the Rational Voter. It probably represents the state-of-the-art in marketeer thinking, and addresses voting which is an issue I've messed around with here before. It's a well reasoned and written book as far as it goes, but it's breathtakingly biased itself -- in favor of economists and against humans. Underlying it is an assumption that economics is an actual science, with objective results that have the same epistemological status as the findings of physics or biology. I've got news for Caplan -- the economics Noble is a fake Nobel, and economics, while certainly a valuable field of study, is not science, and people may disagree with its findings without being ignorant, stupid, or crazy.

Here's a synopsis of Caplan's argument:

- voters are astonishingly misinformed (this, unfortunately, is true)

- BUT, that might not be a problem if voters ignorance expresses itself randomly. In that case, aggregation will result in the ignorance averaging out and the small fraction of well-informed voters will end up determining the result (YAY).

- BUT, voters are not randomly ignorant, they are systematically ignorant or biased (BOO)

- the evidence for that bias is that they disagree in surveys with the views of Ph.D. economists (WHA?)

See what happened in that last point? Somehow, reality is what the academic field of economics says it is, and if you disagree with them, you are wrong.

The breathtaking smugness and arrogance of this position is really quite something, especially when it gets expressed about specific issues, such as protectionism and downsizing. Downsizing, to the marketeer, is an unalloyed good -- the corporation is performing its function while cutting costs, thus increasing profits and efficiency, la di da. "Every time we figure out how to accomplish a goal using fewer workers, it enriches society, because labor is a valuable resource". This is true from the bird's eye view of society, from the systems perspective, from a global perspective. Markets reward and encourage efficiency, downsizing is result of this process. OK. But nowhere does Caplan even deign to acknowledge the rather fundamental fact that individuals do not take the global view. Individuals are concerned with their own well-being, and so might not take as cheery a view of downsizing as a tenured economist or a Wall Street analyst. And this is perfectly rational. To the ordinary laboring shlub, someone Caplan has apparently never met and never thinks about, the gains in market efficiency are distant and theoretical while the loss from downsizing is immediate and devastating.

Here's what's weird -- I thought economics was all about individuals pursuing their own selfish ends, and through the magic of the market weaving those myriad local, selfish goal-seekers into collective wealth generation. So why is there an assumption that when someone goes into the voting booth, they should forget about their own interests and only be interested in some abstract, global concept of economic efficiency? I find this really weird. Caplan believes that when voters stroll into a voting booth, they should vote against protectionism because that is what's good for the abstract entity called "the economy", not because it's in their own particular self-interest. Somehow this quasi-libertarian marketeer has become almost communist in his assumption that people should be putting the good of society over their personal self-interest.

Maybe I'm missing something, since I haven't read the whole book in detail. But nowhere in the first few chapters do I see any acknowledgment that individuals might have a perfectly rational interest in policies that diverge from maximizing the global efficiency of the market.


Scott said...

I'm not sure about the book, since I haven't read it, but elsewhere on his blog Caplan quite explicitly argues that the data show people do not vote in their own self-interest.

Anonymous said...

Caplan also attacks the idea that economists disagree with the public because they have tenure; members of the general public with high job security do not think more than average like economists. Furthermore, improvements in the general economy mean more & better jobs. A few people in protected industries might lament the end of protectionism, but we should expect the majority of the population to cheer its demise. However, even outside of farm states people love farm subsidies. Voter's aren't just systematically biased against economists (who may themselves be biased, but that's a different topic), they give systematically wrong answers about how much of the budget is spent on foreign and much of what they say is just plain inconsistent (they want to cut taxes, increase spending on favored programs and balance the budget all at the same time). At Overcoming Bias they are discussing expertise and how Caplan dissents from it here.

Anonymous said...

"aggregation will result in the ignorance averaging out"

That seems so completely wrong to me.

I've seen more evidence that ignorance is cumulative. i.e. mob behavior, FOX "news" viewers, etc.

Kind of like Mean Time Between Failures (MTBF) figures in manufacturing. A common error is to believe that more parts made a product more reliable. Quite the opposite: the more parts a product has, the reliability goes down exponentially.

Or in sales, the common fallacy among new salespeople is that if you have 10 really shitty prospects (probability .1 of closing, let's say), that means you have a 100% percent chance of at least one of them closing. Quite the contrary, the probabilty goes down the more weak prospects you have in your territory... the guy with a lot of .1's is not going to make quota.

A critical mass of idiocy makes idiotic decisions, like, f'rinstance, electing and re-electing George W. Bush.

But I'm not surprised to see marketeers believe in such alchemic thinking. Most of their economics is based on similar kinds of faith in magic. Sometimes the whole global economy with its fiat currencies and derivatives and securitizing on top of derivatives and securitizing seems to me like a huge perpetual motion machine.

Anonymous said...

goatchowder, there is a difference between ignorance and irrationality. We have no reason to expect the ignorant to systematically deviate from the truth, there will just be a high variance (just as many should have views biased against Fox, but in fact anti-foreign bias is much more common than pro-foreign bias). Caplan claims that the re-election of Bush supports his theory of voter irrationality.

Eli said...

You have the argument right. Caplan rests his argument on the assumption that economists know more about the economy than non-economists. Doesn't seem very controversial. Maybe economists are wrong once in a while, but we expect the people who study something to know more about that something than the people who don't study it.

He deals with objections that economists are the ones who are biased. Two potential accusations are that economists are right wingers, or rich. But the data doesn't fit. Most economists are liberals, and most poor economists agree with other economists, not other poor. The same goes the other way around. Most rich non-economists, agree with other non-economists, not other rich.

Caplan believes that voters don't vote in their own personal self interest, and he backs it up. But even without that, voting for farm subsidies is very popular, while not helpful for either the voter or the society in general. Same goes for downsizing. Most people benefit from downsizing. It sucks when you're the one getting downsized, but it makes no sense to vote against it overall.

The costs of casting a rational vote are internalized in the voter, while the benefits are spread out to everyone. Caplan is a libertarian who believes that markets fail, it's just that government doesn't usually do much better.

mtraven said...

I thought the Hayekian argument was that experts, including economists, do not have any sort of privileged knowledge.

Since writing this I've exiled my own mocking of Caplan and the rest of the tedious schmucks who call themselves "libertarians" to a separate blog, so check it out.