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!
Thursday, January 1, 2009
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.”
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?”
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.”
Postscript:
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.
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.”
Postscript:
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.
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