The 4 Boneheaded Biases of Stupid Voters

(And we're all stupid voters.)

Bryan Caplan from the October 2007 issue

Almost all the “respectable” economic theories of politics begin by assuming that the typical citizen understands economics and votes accordingly—at least on average. By a “miracle of aggregation,” random errors are supposed to balance themselves out. But this works only if voters’ errors are random, not systematic.

The evidence—most notably, the results of the 1996 Survey of Americans and Economists on the Economy—shows that the general public’s views on economics not only are different from those of professional economists but are less accurate, and in predictable ways. The public really does generally hold, for starters, that prices are not governed by supply and demand, that protectionism helps the economy, that saving labor is a bad idea, and that living standards are falling. Economics journals regularly reject theoretical papers that explicitly recognize these biases. In a well-known piece in the Journal of Political Economy in 1995, the economists Stephen Coate and Stephen Morris worry that some of their colleagues are smuggling in the “unreasonable assumptions” that voters “have biased beliefs about the effects of policies” and “could be persistently fooled.” That’s the economist’s standard view of systematic voter bias: that it doesn’t exist.

Or at least, that’s what economists say as researchers. As teachers, curiously, most economists adopt a different approach. When the latest batch of freshmen shows up for Econ 1, textbook authors and instructors still try to separate students from their prejudices. In the words of the famed economist Paul Krugman, they try “to vaccinate the minds of our undergraduates against the misconceptions that are so predominant in educated discussion.”

Out of all the complaints that economists lodge against laymen, four families of beliefs stand out: the anti-market bias, the anti-foreign bias, the make-work bias, and the pessimistic bias.

Anti-Market Bias
I first learned about farm price supports in the produce section of the grocery store. I was in kindergarten. My mother explained that price supports seemed to make fruits and vegetables more expensive but assured me that this conclusion was simplistic. If the supports went away, so many farms would go out of business that prices would soon be higher than ever. I accepted what she told me and felt a lingering sense that price competition is bad for buyer and seller alike.

This was one of my first memorable encounters with anti-market bias, a tendency to underestimate the economic benefits of the market mechanism. The public has severe doubts about how much it can count on profit-seeking business to produce socially beneficial outcomes. People focus on the motives of business and neglect the discipline imposed by competition. While economists admit that profit maximization plus market imperfections can yield bad results, noneconomists tend to view successful greed as socially harmful per se.

Joseph Schumpeter, arguably the greatest historian of economic thought, matter-of-factly spoke of “the ineradicable prejudice that every action intended to serve the profit interest must be anti-social by this fact alone.” Anti-market bias, he implied, is not a temporary, culturally specific aberration. It is a deeply rooted pattern of human thinking that has frustrated economists for generations.

There are too many variations on anti-market bias to list them all. Probably the most common error of this sort is to equate market payments with transfers, ignoring their incentive properties. (A transfer, in economic jargon, is a no-strings-attached movement of wealth from one person to another.) All that matters, then, is how much you empathize with the transfer’s recipient compared to the transfer’s provider. People tend, for example, to see profits as a gift to the rich. So unless you perversely pity the rich more than the poor, limiting profits seems like common sense.

Yet profits are not a handout but a quid pro quo: If you want to get rich, you have to do something people will pay for. Profits give incentives to reduce production costs, move resources from less-valued to more-valued industries, and dream up new products. This is the central lesson of The Wealth of Nations: The “invisible hand” quietly persuades selfish businessmen to serve the public good. For modern economists, these are truisms, yet teachers of economics keep quoting and requoting this passage. Why? Because Adam Smith’s thesis was counterintuitive to his contemporaries, and it remains counterintuitive today.

A prejudice similar to the one against profit has dogged interest, from ancient Athens to modern Islamabad. Like profit, interest is not a gift but a quid pro quo: The lender earns interest in exchange for delaying his consumption. A government that successfully stamped out interest payments would be no friend to those in need of credit, since that policy would crush lending as well.

Anti-market biases lead people to misunderstand and reject even policies they should, given their preferences for end results, support. For example, the Princeton economist Alan Blinder blames opposition to tradable pollution permits on anti-market bias. Why let people “pay to pollute,” when we can force them to cease and desist?

The textbook answer is that tradable permits get you more pollution abatement for the same cost. The firms able to cut their emissions cheaply do so, selling their excess pollution quotas to less flexible polluters. End result: more abatement bang for your buck. But noneconomists, including relatively sophisticated policy insiders, disagree. In his 1987 book Hard Heads, Soft Hearts, Blinder discusses a fascinating survey of 63 environmentalists, congressional staffers, and industry lobbyists. Not one could explain economists’ standard rationale for tradable permits.

The second most prominent avatar of anti-market bias is monopoly theories of price. Economists acknowledge that monopolies exist. But the public habitually makes monopoly a scapegoat for scarcity. The idea that supply and demand usually control prices is hard to accept. Even in industries with many firms, noneconomists treat prices as a function of CEO intentions and conspiracies.

Historically, it has been especially common for the public to pick out middlemen as uniquely vicious “monopolists.” Look at these parasites: They buy products, “mark them up,” and then resell us the “exact same thing.” Economists have a standard response. Transportation, storage, and distribution are valuable services—a fact that becomes obvious whenever you need a cold drink in the middle of nowhere. Like most valuable services, they are not costless. The most that is reasonable to ask, then, is not that middlemen work for free, but that they face the daily test of competition.

One specific price, the price for labor, is often thought to be the result of conspiracy: capitalists joining forces to keep wages at the subsistence level. More literate defenders of this fallacy point out that Adam Smith himself worried about employer conspiracies, overlooking the fact that in Smith’s time high transportation and communication costs left workers with far fewer alternative employers.

Comments

|9.26.07 @ 4:56PM|#

Should be titled "The Four Ways Voters Sometimes Disagree With Bryan Caplan's Opinions Regarding Economics".

|9.26.07 @ 5:09PM|#

No Dan T
This article is right on the money. It also explains why most people feel so warm and fuzzy when contemplating socialistic ideas.

And so angry when actual facts are offered as to why free markets work and socialism kills.

|9.26.07 @ 5:11PM|#

I just scanned TFA. It is simply infuriating that people just can't understand things that, to me, are so obvious after explanation. This is no more complicated than high school physics or biology which, sadly enough, many (most?) people don't understand either. I'm no genius, so what the hell is wrong with all of these people I have to share the planet with? It's just so frustrating, it makes me want to slap ignorant, stupid people, repeatedly.

/rant

|9.26.07 @ 5:14PM|#

Should be titled The Four Boneheaded Biases of
Dan T.

|9.26.07 @ 5:20PM|#

Thanks, Bryan. Quite a meal, but worth every bite. Makes me want to subscribe.

|9.26.07 @ 5:20PM|#

"""This pessimistic bias is a general-interest prop to political demagoguery of all kinds. It creates a presumption that matters, left uncontrolled, are spiraling to destruction, and that something has to be done, no matter how costly or ultimately counterproductive to wealth or freedom. This mind-set plays a role in almost every modern political controversy, from downsizing to immigration to global warming. """"

War on terror.

carrick|9.26.07 @ 5:24PM|#

So dan, instead of snark, why don't you give us a counter-analysis that explains why the free market doesn't really work; why foreign trade and/or immigration are bad for us 'mericans; why productivity enhancement through technology is going to hurt everyone; and why, dear god why, the world is going to hell in a hand basket.

|9.26.07 @ 5:33PM|#

a scant 3 percent [of Americans] disliked Canada.

Damn maple-sucking puck slappers.

|9.26.07 @ 5:35PM|#

Yes, but how do we stop Paris Hilton from voting? Or worse, her "fans"?

|9.26.07 @ 5:38PM|#

Damn maple-sucking puck slappers.

LOL. Possibly, the best non-derogatory, insult I've ever heard.

|9.26.07 @ 5:43PM|#

Generation X's entry into the work force accompanied the marvels of the Internet age, not a stupor-induced decline in productivity and innovation.

Only to have the internet bring about a decline in productivity.

Shannon Love|9.26.07 @ 5:48PM|#

I think economist don't understand how the economy produces rational results with irrational actors because they mistake the rationalizing forces of the market with rational acts of individuals.

In game theory, rationalizing forces are the economic rewards that, over time push all players in a game towards the most optimal strategy. For example, anyone who plays Tic-Tack-Toe more than a few times figures out the winning move of putting the the first mark in the center square. Likewise, in a free market, Individuals making purchasing decisions quickly evolve the system to its most efficient configuration even if each individual does not understand what he/she is doing.

A vast gulf exist between what people think and say they want and what they actually do. For example, people say they want to eat "right" and exercise but most people don't. Companies that try to base their offerings on what people say they want to buy fail in comparison with those that offer what people actually demonstrate they will buy.

The achilles hill of political management of the economy springs from the disconnect from what people think and how they actually act. We base political policy on our conscious, articulated ideas but our actual economic actions arise largely from our unconscious, unexamined choices.

|9.26.07 @ 5:53PM|#

J sub D - it was from here.

The Canadian responded "you Shatner stealing Mexico touchers!"

stephen the goldberger|9.26.07 @ 5:54PM|#

I was following Shannon Love until she said the optimal tic tac toe strategy 1st move is the center square. Everyone knows the best tic tac toe square to start at is a corner one.

Stephen Dedalus|9.26.07 @ 5:55PM|#

This site has some good content, but when it talks economics it veers sharply into la-la land. Your devotion to libertarian free-market capitalism is religious in nature; it is neither supported by any real-world experiments nor is it advocated by all economists, as you scandalously imply in your opening paragraphs. As are all easy panaceas, the notion that this simplistic economic model will produce prosperity for all is belied by reality. Maybe people vote for more government intervention because they see that it benefits them, them of course not being the 12 rich white guys who end up prospering from libertarianism.

|9.26.07 @ 5:59PM|#

Should be titled "The Four Ways Voters Sometimes Disagree With Bryan Caplan's Opinions Regarding Economics".

These aren't his "opinions", they're basic economic truths agreed to by nearly all economists. It's not about libertarians versus statists, it's about economic ignorance versus economic understanding. For example, even if you desire universal healthcare, a bias against markets would lead you to favor inefficient means of providing that healthcare.

|9.26.07 @ 6:00PM|#

Wow, Stephen. Those were some mighty nice five dollar words you used there in coming to a conclusion that you support with ... with ... well, with absolutely nothing.

But good job on 'panaceas' and 'scandalously'. They really sell your otherwise empty argument, which I will now sum up:

"I think free markets are bad. There's a lot of evidence they're bad. No, I won't share the evidence. Isn't my claiming it to be true enough? Also, lolracism."

NP|9.26.07 @ 6:03PM|#

Bryan Caplan debunks four boneheaded biases of stupid voters.

Whoever crafted this gem must be feeling pretty generous today. At least he/she wanted to assure us before the roller-coaster ride that our intelligence is superior.

|9.26.07 @ 6:03PM|#

Should be titled "The Four Ways Voters Sometimes Disagree With Bryan Caplan's Opinions Regarding Economics".
I agree-there are plenty of reasons why to think that voters are "boneheaded", but I'd feel like a dick if I were to say one of those reasons was because they disagreed with me.

|9.26.07 @ 6:06PM|#

Should be titled "The Four Ways Voters Sometimes Disagree With Bryan Caplan's Opinions Regarding Economics".

Remember, evolution is JUST a theory. Somebody's opinion. Jeez.

|9.26.07 @ 6:10PM|#

Don't miss Caplan's point that we all have these biases, that they appear to be universal and are only overcome by rational effort. The first three are ones that are easiest for libertarians to notice in others, but the last one, pessimistic bias, is the one that libertarians themselves are most prone to. Libertarian pessimism is all about erosions of civil rights and the threat of growing regulation, entitlement, and nannyism.

I personally think that these biases can be abstracted even more. Anti-market bias is essentially a punishment bias, in that markets don't punish bad behavior quickly or clearly enough for their taste so markets need to be supplemented with a big stick like regulation. Libertarians have more faith in markets to punish bad actors, but our punishment bias comes in when we see politicians and pundits going unpunished for their bad policies or bad predictions. We scream for policy accountability.

Anti-foreign bias is already abstract, but libertarians cringe when they see socialist governments declaring the success of socialism by capitalizing on a valuable commodity. They are our ideological foreigners.

The make-work bias is just a microeconomic bias. People tend to focus on the parts of the system that are apparent to them. Use Plato's cave or whatever your favorite metaphor might be, but they are unable to see the larger impact of minor changes. For the majority of voters, a good economy is represented by plentiful, steady, high-paying jobs, not one where there is constant change in skill demand and frequent business failure, even if the second is far more likely to improve their overall equity faster.

Pessimistic bias appears to be a natural human function. Either it is due to evaluating their personal equity by its second derivative or it is a cognitive protection mechanism to guard against bad surprises or any number of possibilities or combinations. It appears to be an intrinsic part of the biology of human cognition.

Jacob|9.26.07 @ 6:16PM|#

Make sure to reddit this:

http://reddit.com/info/2tw9k/comments

|9.26.07 @ 6:27PM|#

In my opinion, economics is such a complex discipline, with so many changes made continuously, that any simple assertion (for example, "protectionism helps the economy,") cannot be accurately described as stupid or brilliant.

Depending on how one defines "protectionism" and "the economy," the bias Caplan describes could be stupid or useful. Thoughtful students of the best-proven economic information may conclude that outsourcing/offshoring low-paying, low-skilled jobs improves the economy, because it causes the DJIA to rise, but that economy is not the one that most voters are participating in.

|9.26.07 @ 6:43PM|#

Stephen Dedalus,

Your devotion to libertarian free-market capitalism is religious in nature; it is neither supported by any real-world experiments...

Thanks for the cue to mention that Caplan teaches experimental economics.

|9.26.07 @ 6:47PM|#

"libertarian free-market capitalism is religious in nature; it is neither supported by any real-world experiments nor is it advocated by all economists."

This is silly. First, I cannot think of any economic system supported by "all" economists. Second, if you wish to provide evidence of a more productive economic system than free market capitalism, I (and the other readers of H&R) wait with breathless anticipation. As noted on this thread, a "word-a-day" calendar is not an suitable subsitute for a reasoned argument with factual evidence.

z|9.26.07 @ 6:47PM|#

ok, I'll take a stab at this....

1) monopolies. businesses always try for monopoly, they don't want competition. Free markets without significant regulation will lead to monopolies which will eventually hurt everyone. libertarians like to pretend we have something like a free market - we don't. It was closer to a free market back when we had the robber barons of the late 1800's. The author mentions, but does not address this issue. why do libertarians prefer to have their heads in the sand rather than address the real problems with markets.

2)Foreigners. a)I admit to having a bias for my family and friends and people i know benefiting from my economic activity rather than someone in a different country. why? because we share the same burden of taxation, leadership, and hopefully some shared values that come from being a nation. If your theories of the world reject the basic facts of being human - well good luck. b) a country must be sure to keep some aspects of critical industries inside the country in the event of war etc. It is not the most efficient in the short run, but makes good sense if you don't have some sort of belief in endless world peace.

3)The most basic problem with the arguments presented in the article is that they work at the macro scale pretty well - however they lead to a lot of misery and hardship for individuals. It is perfectly rational to think that i would trade a little macro-efficiency for more personal security. of course, it does require one to think on a human scale. Libertarians are generally in favor of ignoring actual individual peoples lives - "some must suffer so i can get richer"?

Thats why a mixed economy of mostly free markets ( for efficiency), but with significant regulation (to avaid monopolies and market manipulation), and a social safety net (to avoid starvation and misery etc.) is pretty much what everyone is actually using. This formulation is broadly accepted (except for the few remaining communists and libertarians), and mostly comes down to arguing about the correct mix - the goldilocks spot - "just right".

I think it would be useful to acknowledge reality and then argue about it - instead of arguing about abstract principles that have never been tried in the real word.

|9.26.07 @ 6:57PM|#

Yes, but how do we stop Paris Hilton from voting? Or worse, her "fans"?

I just like her vagina...does that make me a fan?

(Actually I don't. I like meatier girls, but it just struck me as weird that being sexually attracted to a sexualized person is somehow a sign of stupidity or lack of economic understanding.)

|9.26.07 @ 6:58PM|#

Rimfax: some thoughts:

This so-called libertarian pessimism has some foundation. Take the US. Personal privacy has steadily ebbed away. The right to carry firearms has also suffered. Income tax rates have varied wildly during the century. The tax code, meanwhile, has become progressively more and more byzantine.

To be fair, things haven't gone all bad. We have nearly universal suffrage. Many laws restricting personal freedom, particularly in the area of sexual conduct, are no longer. Slavery's gone. These are pretty big things, to say the least.

It's an interesting question.

|9.26.07 @ 6:59PM|#

Only to have the internet bring about a decline in productivity.

Evidence is to the contrary...since 1994 productivity has climbed faster then any other time in US history.

|9.26.07 @ 7:04PM|#

Libertarians are generally in favor of ignoring actual individual peoples lives - "some must suffer so i can get richer"?

I personally believe that "some must suffer so more can get richer." But, I'm also glad that there is a social safety net that helps the more that get richer avoid getting mugged by the some that suffer.

Elemenope|9.26.07 @ 7:06PM|#

I'd agree that most people hold these biases (because they are intuitive) and most economists don't, but these four are not usually the bones of contention in the field of Economics right now; Economists fight over much more interesting points that, coincidentally, call into more basic question the assumptions of Capitalism than these four.

My two favorites are problems of information asymmetry and irrational actors. In most real markets, a rational actor will still have difficulty making a productive set of choices because often the information required to make the most beneficial choice is obscured or unavailable. This comes up a great deal in technology sales (why Lemon laws exist for cars, for example, in a somewhat successful attempt to account for the imbalance) and in medicine (where it is nearly impossible to do so).

Which in turn assumes that actors are rational at all. There is a great degree of evidence, probably forcefully enough argued by the very existence of these four endemic biases, that humans as economic agents are by-and-large anything but rational most of the time, and are fundamentally incapable in real situations of consistently determining the course that would be dictated by a rational analysis.

|9.26.07 @ 7:08PM|#

z, we certainly did NOT have a freer market in those days. Your ignorance needs remedy. Read one of those much-vaunted progressive tomes like "A People's History of the United States" or "Fast Food Nation". You will find that each of the robber barons (or captains of industry, as goes the dichotomy I was taught in high school) benefited from governments that were grotesquely and unashamedly collusive with them and served their interests - in tax breaks, lending, outright gifts, the passage of favorable laws and the striking down of unfavorable laws, strikebreaking with local, state, and federal police, protection from international suppliers - to a far greater degree than they go today.

For chrissakes, in the time you speak of, well over half the country was prevented from voting one way or another. Libertarians know that you need free markets and equal treatment under the law; one without the other won't get you far.

|9.26.07 @ 7:13PM|#

Depending on how one defines "protectionism" and "the economy," the bias Caplan describes could be stupid or useful. Thoughtful students of the best-proven economic information may conclude that outsourcing/offshoring low-paying, low-skilled jobs improves the economy, because it causes the DJIA to rise, but that economy is not the one that most voters are participating in.

I think Boneheaded stupidity is an apt description...It not only describes a general ignorance (stupidity) but also describes an willfulness, despite all evidence, to that stupidity (boneheaded)....just look at the guy I quoted...despite more and more off shoring and despite historically low unemployment he still thinks foreigners take our jobs.

|9.26.07 @ 7:23PM|#

My two favorites are problems of information asymmetry and irrational actors.

Look more idiots...i like how this moron said this about the above statement:

Economists fight over much more interesting points that, coincidentally, call into more basic question the assumptions of Capitalism than these four.

Which is funny because of the lead economists who's work is focused on "information asymmetry and irrational actors" was Paul Krugman...the very economist quoted in the piece as saying:

"This innovative stuff is not a priority for today's undergraduates. In the last decade of the 20th century, the essential things to teach students are still the insights of Hume and Ricardo. That is, we need to teach them that trade deficits are self-correcting and that the benefits of trade do not depend on a country having an absolute advantage over its rivals."

|9.26.07 @ 7:26PM|#

Both the writer of the article, Bryan Caplan, and commenter Stephen Dedelus, address the matter of how pro-free market economists are. At the Volokh blog a few days ago there was a link to an interesting scholarly article looking at this very question, and concluding that few economists are dedicated supporters of markets.

http://www.sofi.su.se/wp/WP06-6.pdf

Z|9.26.07 @ 7:31PM|#

larry states "Libertarians know that you need free markets and equal treatment under the law; one without the other won't get you far."

true - you just never hear libertarians talk about the second point.

regarding my ignorance: look at Custer Battles- how it was formed etc. most of the collusion still exists - look at health care, farm policy (which supports agribusiness - not farming), big pharma, the harnessing of university research funded by the public to enrich individuals. not to mention the military! The collusion is still there. but we have made significant strides on individuals being treated fairly by the law.

how are labor laws more "free market" than the exploitation of the late 1800's? and, um, did i hear a libertarian stating that Union busting is anti-free market? aren't libertarians completely opposed to unions?

my understanding:
1) we still have rampant collusion between govt. and big business - the military-industrial-congressional complex being the most obvious example.

2) we now have more protection of the individual through labor laws, product safety laws etc. These laws are generally considered regulation - and are not supported by libertarians.

therefore - less of a free market than in the late 1800s.

I will, however, admit to having vast amounts of ignorance. and I am always looking for knowlwdge to fill those wide-open spaces. I recommend a little humility - you are undoubtedly very nearly as ignorant as I. The quantity of information and knowledge in the world is such that this is the human condition.

JBinMO|9.26.07 @ 7:40PM|#

"aren't libertarians completely opposed to unions?"

Why would we opposed to unions? We might be opposed to legal protections for unions. But if people want to get together to negociate...that is their business.

JBinMO|9.26.07 @ 7:40PM|#

Also if they want to get together to learn how to spell.

|9.26.07 @ 7:42PM|#

This is an excellent article and right on the money. I have read an opinion of some evolutionary biologist, I can't recall his name. That those biases are deeply pre-programmed instincts in our species that have been left over since pre-historic times.

Up until 10 thousand years ago our ancestors lived in small groups of no more then few dozens of individuals, and all those biases were important for their survival.

The distrust of foreigners was important. Groups competed for limited resources around them and were often on the edge of starvation.

They had to divide food and other resources equally (or more equally among themselves) since they were just one big extended family. They disliked individuals who were hoarding stuff for their own use because in their economy it really was a zero sum game. It was to the detriment of the group. Bias of market economy is a leftover instinct from those times.

Make work bias came from the fact that economy was much more simple then consisting mostly of foraging and hunting. Maybe some tool making to. So everybody had to be busy in some way all the time.

Pessimism bias was a necessary survival tool. They new that few good, plentiful months are not going to last so it is better not to relax too much. This is probably true in the present also, may be not as far as economy in general is concerned but as a fact in a majority of human lives.

Then 10 thousand years ago economy, human way of life, and culture began to change much faster than the evolution of a human animal.

Rational Human|9.26.07 @ 7:47PM|#

Ha, the so-called "pessimistic bias" is going to be very useful once peak oil hits. No more high standard of living, the west is going to have to cut down a lot on its standard of living. The developing countries won't be so lucky, the growth rates of China and India will be a thing of the past. The developing world will be subjected to a new colonailism and imperailism, think massive biofuels plants built by the multinational corportaions next to ethanol plntations so their wealth can be shpipped off to the west.

|9.26.07 @ 7:51PM|#

z,
If you think the corporate-government oligarchies of the late 1800s were free-market, you need to redefine your terms. The term "exploitation" that you use to describe the system at the time is accurate - employment at the steel mill where you were forced to live was, most of the time, not mutually beneficial.

Your examples of government-business collusion from modern times are very real, and there is a great deal of libertarian scholarship about them. Read up, you could learn something!

|9.26.07 @ 8:01PM|#

but the last one, pessimistic bias, is the one that libertarians themselves are most prone to.

How true. Go to a libertarian supperclub or Ron Paul meetup, and get inundated with negativity. To most of them we are living in the worst of all possible times. Some even get downright hostile if you appear optimistic.

The truth is that we have made huge strides for liberty. It's almost a driving force of history. Don't compare this year to last year though, compare this year to fifty years ago, or a hundred years ago. If you really want an optimistic lift to your spirits, compare this year to a thousand years ago. Not everything has improved, of course, but on the whole we are so much better off than our ancestors, that only an idiot would want to trade places with them.

Says the pessimist: "They may only have had a life expectancy of thirty five, their teeth may have rotted away by twenty five, and they may never have known more than fifteen people in their entire lives, but dammit at least they were free!"

Edward|9.26.07 @ 8:22PM|#

"If you want to get rich, you have to do something people will pay for."

Maybe, but if you want to be rich, it's enough to be born into the lucky sperm club.

|9.26.07 @ 8:26PM|#

In addition to Adam Smith's 'invisible hand' there appear to be these other forces at work, 'invisible shoulders' as it were. These biases, based on perceived self interest are the first thing that comes to mind for many people when trying to explain some temporary misfortune or other. A simple explanation might put them right in many cases, but economists and others often don't get the chance to explain or at least to be heard, what with the politicians going at it hook and tong to exploit these natural human fears and insecurities.
Everywhere, but in this country especially, politicians measure their success by how skillful they are in appealing to some bias or fear. They are very good at it, and the more successful they are, the more they get elected.

|9.26.07 @ 8:40PM|#

Maybe, but if you want to be rich, it's enough to be born into the lucky sperm club.

That's good enough for the son, but it's not going to help the grandson much. Dynastic wealth (e.i. aristocracy) is very rare in this country. I happen to know a few millionaires, and they all started out poor or middle class. None inherited their wealth.

Rational Human|9.26.07 @ 8:42PM|#

""""That's good enough for the son, but it's not going to help the grandson much. Dynastic wealth (e.i. aristocracy) is very rare in this country."""

Only if you live in the liber fantasy land. Inherited wealth is the norm,, lookat Bush Rockefeller Duponts Paris Hilton etc etc...

|9.26.07 @ 9:01PM|#

The achilles hill of political management of the economy springs from the disconnect from what people think and how they actually act. We base political policy on our conscious, articulated ideas but our actual economic actions arise largely from our unconscious, unexamined choices.

Shannon -- the disconnect of politicial management springs from an unwarranted extrapolation. The quasi-socialist economics of a family can work well, because the members of the family are closely genetically related, know each other intimately, can expect reciprocal altruism, and can exact direct consequences if the other person fails to reciprocate the altruism. For example, one spouse (generally female) can legitimately ask for redistribution of wealth from the other spouse because she / he is working toward meeting the needs of their spouse and children.

The problem arises when people try to apply this same workable model to the general economy, where voters generally aren't genetically related, are complete strangers, can't expect reciprocal altruism, and individually have extremely tenous control over the actions of those "leading" the society.

Socialism and collectivism is viable for families, but it doesn't scale worth a damn.

Lord Jubjub|9.26.07 @ 9:08PM|#

Says the pessimist: "They may only have had a life expectancy of thirty five, their teeth may have rotted away by twenty five, and they may never have known more than fifteen people in their entire lives, but dammit at least they were free!"



. . .as long as you weren't a serf tied to the land and forced to labor for your lord. . .

How many people in those Ren-Fairs are brightly dressed lord, ladies, knights, shopkeepers. . .and how many of them were thinly dressed dirt diggers?

Lord Jubjub|9.26.07 @ 9:10PM|#

Only if you live in the liber fantasy land. Inherited wealth is the norm,, lookat Bush Rockefeller Duponts Paris Hilton etc etc...



There are a few families that maintain wealth over multiple generations, but I've read recently (sorry, I can't back this up) that most inherited wealth disappears by the second generation after the patriarch.

|9.26.07 @ 9:13PM|#

We're going down, down, down into a burning ring of fire, because "terrorism" increases bias against foreigners which, in turn increases the bias in favor of pessimism.
Meanwhile, Dubya is pouring fuel on it all as fast as he and the other neo-cons can.

I remember how polite we were when Nikita came over here.

|9.27.07 @ 1:58AM|#

Ha, the so-called "pessimistic bias" is going to be very useful once peak oil hits.

We have like 400 years worth of coal right here in the lower 48....not to mention 10,000 years of uranium....peak oil is a joke....only slightly more funny then you

MikeL|9.27.07 @ 2:02AM|#

Thank you, Ilya, for bringing up evolutionary psychology. It's probably the best way to explain these biases, IMO.

MikeL|9.27.07 @ 2:05AM|#

By the way, David Friedman has a piece on evolutionary psychology and economics on his website, very interesting reading.

scabbers|9.27.07 @ 2:59AM|#

>>>or immigration are bad for us 'mericans

Unrestrained illegal immigration composed mainly og poor and unskilled worker is bad. Anyone who can't see that has their up their ass and probably thinks the sky is green.

And this is from someone who is in the "bring in all the workers we need to keep the economy humming" camp, but this open border advocacy is utter bullshit mouthed by folks who are utterly out of touch with objective reality.

Mike Laursen|9.27.07 @ 3:00AM|#

1) monopolies. businesses always try for monopoly, they don't want competition.

I don't know how much experience you have in the business world, but it is not true that every business is trying for a monopoly. A common strategy in the software business, for example, is to cooperate to create a new market segment where both you and your competitors can will get a piece of an expanding pie. Even Microsoft follows this strategy.

Free markets without significant regulation will lead to monopolies which will eventually hurt everyone.

It is incredibly hard to maintain a monopoly without government backing. Especially if the business tries to abuse its monopoly position; their customers will eventually find alternatives to the abusive monopoly's products.

libertarians like to pretend we have something like a free market - we don't.

Libertarians are actuely aware that we don't have a free market.

2)Foreigners. a)I admit to having a bias for my family and friends and people i know benefiting from my economic activity rather than someone in a different country.

I feel the same way about my family and friends, but a lot of my family and friends are in different countries. In this day of jet travel, global trade, and the Internet, you may find yourself with friends and family throughout the world someday, too. My guess is that you are still young, so you haven't had time to build a wide circle of friends and acquaintances.

b) a country must be sure to keep some aspects of critical industries inside the country in the event of war etc.

Perhaps, but international commerce is one of the best ways to prevent war from happening.

Libertarians are generally in favor of ignoring actual individual peoples lives - "some must suffer so i can get richer"?

Yeah, I've met libertarians who just don't care about people who get burned by economic change, but that's not all libertarians. And (this is important), economic change has to happen for the long-term benefit of the human race. It is a really bad idea to try to hold it back. I really have no problem with providing a social safety net for people caught up in change.

I think it would be useful to acknowledge reality and then argue about it - instead of arguing about abstract principles that have never been tried in the real word.

It shouldn't have to be one or the other. The human mind works by building an abstract model of reality. The best we can do is to constantly refine those abstractions based on abstract logic and real-world experience together.

Quiet_Desperation|9.27.07 @ 3:08AM|#

>>> I just like her vagina...does that
>>> make me a fan?

No, it makes you the Indiana Jones of bacteriologists.

|9.27.07 @ 3:45AM|#

I hereby resolve to pay less attention than ever to people who start off sentences with "Libertarians like to pretend" or "Libertarians tend to forget", or refer to the "libertarian fantasy land", and the like.

I'd prefer that these posters make arguments and debate the issues rather than troll amongst people they seem to have a bone to pick with.

|9.27.07 @ 8:28AM|#

Z,

The argument that market monopolies are always bad is one of the biggest economic misconceptions. The history of bad monopolies consists exclusively of government sanctioned monopolies (or oligopolies).

An historical example of government sanctioned monopolies/oligopolies were the robber barons. (Thanks for mentioning them.) A modern example of government sanctioned oligopolies are Freddie Mac and Fannie Mae and the oil industry. In both cases the government prevents the development of new competition and the result is stagnant industries.

An historical example of a market monopoly was Standard Oil. Under their market monopoly, the number of oil-related companies increased every year and the price of oil went down every year. Upon their government-mandated breakup, the number of oil-related companies stopped growing and the price of oil began climbing. A modern example is Microsoft. They transitioned a computer illiterate consumer base to a multitasking multiuser GUI OS in about 10 years (about 1990-2000). Although there were a few competitors with arguably technically superior products, no one else came close to the combination of ease of installation, ease of use, and price that Microsoft was able to do.

Clearly, they have abused their advantage and the market as started to punish them for it. The market tends not to punish quickly, but it does punish relentlessly. If they aren't punished quickly enough for you, by all means have the government break them up and regulate the software industry. I'm sure that the resulting companies will innovate every bit as well as the modern oil industry.

|9.27.07 @ 9:21AM|#

One other annoying thing about this piece is the way (and Caplan's not the only one who does this) the word "bias" has come to mean "someone who disagrees with me."

True bias is more along the lines of "conflict of interest" - I could never fairly judge my daughter in a beauty pagent because I'd be biased towards her.

But if I was judging a beauty contest featuring women I didn't have any connection to, I could be fair. And if I picked the blonde over the brunette it wouldn't mean I was "biased" towards blondes.

So that's what I meant when I said that Caplan was not talking about biases but rather just complaining that not all voters share his opinion on things.

jack|9.27.07 @ 9:38AM|#

"Pessimistic bias is widely thought to have grown worse in the modern era."

awesome.

herodotus|9.27.07 @ 9:38AM|#

Strangely, Dan, the American Heritage Dictionary doesn't share your 'opinion' of what the word bias means.

I have italicized the relevant entries for your convenience.

bias

NOUN: 1. A line going diagonally across the grain of fabric: 'Cut the cloth on the bias'. 2a. A preference or an inclination, especially one that inhibits impartial judgment. b. An unfair act or policy stemming from prejudice. 3. A statistical sampling or testing error caused by systematically favoring some outcomes over others.

|9.27.07 @ 9:53AM|#

A preference or an inclination, especially one that inhibits impartial judgment.

That's basically what I said. My preference for my daughter would inhibit the impartial judgment of a beauty contest she participated in.

When it comes to voting, if my father is running for office I'm going to be biased and thus for for him even if his opponent is the better candidate. But Caplan appears to be arguing that any criteria you use to choose a candidate or policy amounts to "bias", which renders the word meaningless.

|9.27.07 @ 10:37AM|#

Interesting essay, but he drops the ball on unskilled immigration here:

"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."

First, immigrants from Mexico don't spend all their earnings here -- they send billions of dollars back to Mexico every year. Second, the public is right to be worried about public services consumed: since unskilled immigrants tend to receive more in government benefits than the pay in taxes, we are worse off with the unskilled immigrant here. We'd be better off paying a two American teenagers to mow are lawns part time than one Mexican immigrant to do it full time.

|9.27.07 @ 10:45AM|#

Second, the public is right to be worried about public services consumed: since unskilled immigrants tend to receive more in government benefits than the pay in taxes, we are worse off with the unskilled immigrant here.

But isn't that also true of native unskilled workers? If anything, being illegal probably means a low-paid Mexican worker is less likely to apply for public aid than a citizen would.

|9.27.07 @ 11:01AM|#

First, immigrants from Mexico don't spend all their earnings here -- they send billions of dollars back to Mexico every year. Second, the public is right to be worried about public services consumed: since unskilled immigrants tend to receive more in government benefits than the pay in taxes, we are worse off with the unskilled immigrant here. We'd be better off paying a two American teenagers to mow are lawns part time than one Mexican immigrant to do it full time.

The problem is they don't just mow lawns and clean houses. They pack our meat, pick our veggies and fruit, build our homes, pave our roads, cook in our restaurants and do countless other skilled and unskilled jobs at a lower wage. That makes the price of all those products and services cheaper. The question is, does the benefit of having a willing and able cheap labor force outweigh the cost of providing them with benefits? I haven't crunched the numbers, but I would imagine it does.

Plus, pumping a little cash into the Mexican economy can only serve to benefit us long term. The families that receive it will use it to build homes and start businesses in Mexico giving them less incentive to come here and more of a steak in their own country's future.

Stephen Dedalus|9.27.07 @ 11:38AM|#

Jose Ortega y Gasset and others:

There is plenty of evidence of quasi-socialist economies working brilliantly. After all, it wasn't a free-market free-for-all that Roosevelt spearheaded in order to turn the US into the most powerful country on earth. That sort of economy led to the gilded age and, alas, depression. But maybe that's not the proper definition of "working." Perhaps a better definition is what we see in Europe and Canada, where people don't kill themselves worrying how they're going to pay for healthcare.

I don't feel the burden of proof is on me. Name a single country that has a pure free-market economy. Name a single shred of evidence that this simplistic calculus actually works to advance civilization rather than returning it to stone-age dog-eat-dog barbarity.

I'm a libertarian when it comes to social issues. The government has no valid stake in policing people's bedrooms and, to as much an extent as possible without trampling people, boardrooms. But the government is supposed to be representative of the people. Whether it is or not is an open question--but it's certainly clear that corporations have not even such a facade of accountability. I trust the government long before I trust Wal-Mart to serve the interests of the people. What's important is to get off this Reagan-era nonsense bandwagon of automatic disdain for it, when improvement can only come from the citizenry.

What a clever bit of rhetoric to call people irrational voters because they vote their immediate interests rather than for some unproved, unworkable fantasy theory that libertarians promise us might, one day, make life better. Just let the economy fairy do her magic.

Wait, there was an experiment in free-market capitalism run on a mass scale. It's called Iraq.

|9.27.07 @ 11:57AM|#

Wait, there was an experiment in free-market capitalism run on a mass scale. It's called Iraq.

You should have put this at the beginning of your post, to save me the time I spent reading it. What utter bullshit.

|9.27.07 @ 12:13PM|#

I just want to get this straight:

Is Caplan saying that free markets would work perfectly if it weren't for the natural condition of the consumer's behavior?

|9.27.07 @ 12:40PM|#

There is plenty of evidence of quasi-socialist economies working brilliantly. After all, it wasn't a free-market free-for-all that Roosevelt spearheaded in order to turn the US into the most powerful country on earth.

Stephen, FDR's socialist policies turned a recession into the Great Depression. People's standard of living didn't really take off until that SOB was dead and buried (yeah, yeah, employment rose during WWII due to government spending, but the standard of living didn't fare so well -- look at the 139 cars produced in the entire nation from about 1942 until the end of the war, as cited in Ken Burns' "The War").

How anyone still believes that the worst president in our nation's history was the best president -- now there's a "boneheaded bias"!

|9.27.07 @ 12:44PM|#

Is Caplan saying that free markets would work perfectly if it weren't for the natural condition of the consumer's behavior?

trip grass -- no, he's saying that free markets work better than unfree markets, but irrational biases of voters prevent us from enjoying the benefits of a fully free market.

But hey -- feel free to revel in the glorious serfdom of a less free market if that's your wont.

|9.27.07 @ 12:50PM|#

Stephen -- North Korea versus South Korea. West Germany versus East Germany. Cuba versus Florida.

I could go on and on, but if these side-by-side comparisons of socialism versus somewhat free markets don't convince you that you're wrong, nothing will. You're immune to logic and evidence.

|9.27.07 @ 1:03PM|#

"Bryan Caplan debunks four boneheaded biases of stupid voters."

"Whoever crafted this gem must be feeling pretty generous today. At least he/she wanted to assure us before the roller-coaster ride that our intelligence is superior."

Too bad you freeloaders don't get the print edition. Then you'd see "And we're all boneheaded voters" noted prominently on the cover.

"Maybe, but if you want to be rich, it's enough to be born into the lucky sperm club."

"That's good enough for the son, but it's not going to help the grandson much. Dynastic wealth (e.i. aristocracy) is very rare in this country. I happen to know a few millionaires, and they all started out poor or middle class. None inherited their wealth."

Rational Human | September 26, 2007, 8:42pm | #

""That's good enough for the son, but it's not going to help the grandson much. Dynastic wealth (e.i. aristocracy) is very rare in this country.""

"Only if you live in the liber fantasy land. Inherited wealth is the norm,, lookat Bush Rockefeller Duponts Paris Hilton etc etc..."

Which fantasy land is it where Bush, Rockefeller and the Hiltons are "the norm"?

|9.27.07 @ 1:26PM|#

prolefeed - "he's saying that free markets work better than unfree markets, but irrational biases of voters prevent us from enjoying the benefits of a fully free market."

and my back would feel better after a night of sleep in a world without gravity - unfortunately i sleep in this one.

|9.27.07 @ 2:05PM|#

Only if you live in the liber fantasy land. Inherited wealth is the norm,, lookat Bush Rockefeller Duponts Paris Hilton etc etc...

You are using the word "norm" in a manner I am not used to. If inherited wealth were the norm, then the average person would have inherited wealth. But it is most certainly NOT the norm, it is an aberation. You list a handful of people on the far far right of the bell curve and claim it to be the "norm". Ridiculous.

Stephen Dedalus|9.27.07 @ 2:25PM|#

Jack Boone--

I grant you that probably enough time hasn't elapsed to unveil the glories of the free market in Iraq, assuming there will still be an Iraq around to enjoy them, but Iraq was quite clearly an attempt at an experiment in forcing a radical economic model on an unwilling population, just to prove to the world that it's the best way, thus, by the ever-proven domino effect, wash the Middle East in virtuous capitalism and, presto, we have Utopia.

This is the problem I have with the libertarian model. It's not pragmatic enough. Comparing North and South Korea or East and West Germany won't do. None of these parties was a libertarian society, and I will be the first to criticize the equally ideological, and equally untenable, pure communist experiments that were run in the last century.

We have to get our heads out of the clouds and stop it with this obsessive compulsive loyalty to an economic theory that was, it must be said, championed by Reagan after he had it explained to him on the back of a napkin. I think reality demands a mixed economy, capitalistic for the sake of innovation and healthy competition, but socialistic in ways as well, because there will always be losers (by definition) in capitalism, and I think we have to make the moral decision not to let those losers fall out of the game completely.

Because in the end, it's not really about which abstract theory is most correct or tenable, but about what kind of a society we want to live in. It's a moral question, not a scientific one. I just get the feeling sometimes libertarians prefer a society in which they're free to get rich at everyone else's expense. Thank you Ayn Rand for making selfishness and greed fashionable.

Jay|9.27.07 @ 3:19PM|#

NO NO NO!!! Why would anybody approve more taxes to "fix" something that is not "broke?" The great majority of global warming on our planet is directly related to NATURAL phenomena that we as humans have NO control over.

Biofuels contribute more to carbon emissions than petroleum based products.

Thank goodness for "global warming" or we would still be in the Ice Age.

I wonder if human activity is the cause of global climate change on Mars as well. They are the ones in need of the Carbon Tax! ;-)

In short: Human caused "global warming" is a sham and hoax. It does not exist. It is a rediculous idea to tax to fix something that does not exist.

Mike Laursen|9.27.07 @ 3:39PM|#

Wait, there was an experiment in free-market capitalism run on a mass scale. It's called Iraq.

Wow, you've thrown a lot of assertions out there. Maybe we can start by getting to the bottom of this one. What's your definition of "free-market capitalism"?

|9.27.07 @ 4:14PM|#

[...] but Iraq was quite clearly an attempt at an experiment in forcing a radical economic model on an unwilling population, just to prove to the world that it's the best way [...]

Where did you get that idea? Do you really think Halliburton, Blackwater, and the Department of Defense are paragons of the free market? Or that the Bush administation is in any way populated by free marketeers?

Christ on a cracker, you really have no clue what the hell you're talking about. You're conflating free markets (what libertarians like) with corporatism (what Enron likes). You've confused libertarians (us) with Republicans (Reagan), and smug, ignorant assholes (yourself) with critical thinkers (not yourself).

Stephen Dedalus|9.27.07 @ 4:42PM|#

Mike and Jake:

You've touched precisely upon the problem. There is no good definition of libertarian free markets because none has ever existed. I've confused Republicanism with libertarianism in this case because the Republicans have confused it. They've used the rhetoric of the free market to enact policies that shift risk from the wealthy to the non-wealthy.

I haven't been terribly clear, but really my only point is about rhetoric and reality. It makes no sense to be in favor of a free market. A free market is the same thing as anarchy. It's the natural state of things, a state that governments were invented to improve upon.

I'm fully aware that the Bush regime and its corporate puppeteers are libertarians in much the same way that Hillary Clinton is a communist, that is, absolutely not at all. My point about Iraq was that one of the war's goals was to use the "free market" (which Bush has confused with "letting big corporations do whatever they want") to transform the region and vindicate Republican anti-government (pro-corporate) rhetoric. The point is, when tantalizing ideologies seem to contain everything to make the world right, and once we begin measuring every policy and political utterance on the metric of that ideology, bad things tend to happen.

|9.27.07 @ 6:57PM|#

I'll spend a couple of hours translating this to portuguese so my father will be able to read and, maybe, stop hating Pigou, who he says tried to prove scientifically that money can buy everything...

Mike Laursen|9.27.07 @ 9:00PM|#

Stephan,

Just because different people or different groups have different definitions of terms like "free market" and "captialism" that doesn't equate to those terms not having a definition. I can't think of one term used in politics that doesn't have different meanings when used by different groups.

Here, at this libertarian blog, you'll find some variation in what people mean by "free market" and "capitalism", but they don't vary that much. Our libertarian definitions are not invalidated by strange Republican ideas; we're generally not Republicans. And a lot of libertarians here would also distinguish between free markets and anarchy.

It seems like you are trying to criticize libertarianism by giving examples of things that people that aren't libertarians have said and done.

boqueronman|9.29.07 @ 6:35PM|#

"...they're free to get rich at everyone else's expense." Marx, Engels, Lenin and Stalin couldn't have said it better. Well done. No rejoinder could possibly penetrate a mind that dense.

Mathew|10.8.07 @ 12:12PM|#

I've felt for a long time that if the public as a whole was better educated in economic principles then at least they would have the tools to make informed decisions. That being said, I have a couple comments. In regards to free trade, one of the basic tenants of free trade is that goods are mobile, but capital is not. The problem with our current system is that often times instead of trading wool for wine, we are purchasing both on the international market. Thus, our balance of payments problems. Moreover, in our never ending quest to get goods at the cheapest possible price, we tend to create the "race to the bottom" where only the companies that employ the worst labor practices, and pollute the most can compete on price. Moreover, even assuming that the producing country was considered the jobs from the factory to be adequate compensation for the extra pollution, we know that pollution has no borders. For example, the wastes from factories in China end up in the air over CA.

Finally a note about people attitudes and happiness. I would argue that happiness is continually assaulted by a barrage of advertising that tries to convince you that you are miserable, but true happiness awaits if only you will buy this product, or get this look. Unfortunately time and again we find out that true happiness comes from things like time with family etc. I am by no ways trying to insinuate that all consumption is bad, but instead to say that we often focus way to much on it.