A while back I posted in response to Bryan Caplan’s essay (and now book) on voter irrationality. He views human misconceptions, about economics in particular, (he quotes how people are wrong in orders of magnitude about the extent of foreign aid given by the US, the effects of immigration etc.) as irrational. That is, people will wrap themselves in the blanket of stupidity despite knowing how dumb they’re being. Because we are so stupid, then experts, who have concensus views on such issues, should make policy to attain objectives.
My (unchanged) is that Bryan is too optimistic about humans. In many instances we are simply ignorant rather than irrational. We just don’t know the salient fact or theory at the heart of the debate. Ricardian trade theory or the concept of opportunity cost may come to me naturally but why should I assume that others are so well versed? Furthermore, why would I assume that we can all make the distinction between Ricardian and Heckscher-Ohlin models of trade? Can you even imagine an expert panel on trade consisting of Dani Rodrik, Paul Krugman and Don Boudreaux? As Dani has pointed out, the debate is hardly about whether trade is good any more, but about the detail: whether more bilateral agreements are preferred; should competition policy be incorporated into WTO rules etc. Similarly when Bryan chides irrational individuals for blaming foreigners for taking their jobs I’m inclined to ask, why? Again, As Dani has pointed out, there is no presumption, even in a simple Ricardian model, that all or most people will be better off with free trade; the median voter may see and feel things that can’t be represented in an objective function but that matter nonetheless.
Perhaps he really believes that archaic theory and calculus-ridden models rain down from an ivory perch onto humanity to be absorbed by osmosis but as he correctly notices, most people don’t give a damn, but this is NOT because it doesn’t affect them or because ignorance is cheap as Bryan thinks, but because his supposed academic concensus is a mirage, at least on the substantive issues which are at the heart of the policy debate; economists do indeed have two hands.
Which brings me to another related issue doing the rounds in the blogosphere at the moment: Chris Hayes essay on the neoclassical mafia. Chris surely over does it a little but he’s on the right track. The neoclassical hegemony and its claim to rightness, is largely an accident of history. Walras’ application of concepts from physics to economics was based on a simple presumption that concepts like conservation of energy translated from one environment to the other. This is blatantly false but a more accurate model was simply too intractable at the time. By the time techniques of evolutionary modelling became available, the neoclassical Citadel had solid foundations and a well established network of journals and insiders, and accepted theories to propogate itself, and not because those theories were right. Presumably, Bryan’s economic experts would be chosen from this neoclassical world because the heterodox experts are ‘unproven’. But in the eyes of the heterodox economists, Bryan is just as irrational because he surely knows that, for example complexity theory is a better model of the stock market than the efficient markets hypothesis, but he must just choose to ignore it.
Bryan’s view is a vindication of the curse of knowledge: the idea that when you know something, it’s very difficult to not only ignore that thing, but to project your own knowledge onto someone else. But this isn’t his biggest mistake. In order to conclude that humans are irrational is to apply the normative standard of homo economicus as the benchmark. This means not only that we all know the relevant theory, but act (ordinarily) in a way consistent with it. But if we have altrusitic motives, let our emotions override our cold calculating minds or are apparently inconsistent in our choices over the long and short-term, then Bryan is apt to conclude that somebody should make our choices for us.
As a long-time advocate of behavioural economists, I’m sympathetic to the first part of his argument, but not even Richard Thaler would conclude that our irrationality requires the heavy paternalism Bryan appears to favour. And what about his other recommendations. If irrationality in democracies results in individuals forcing bad policies onto the rest of us, perhaps the market can correct that? Except that markets also have a habit of foisting their sometimes poor outcomes onto the rest of us (if food wasn’t labelled, many of us economists would probably seek out the right information, but surely poor quality food would result and many people would eat it). Remember that markets, like democracies rely not only on their outcomes to justify their superiority over other methods, but because from a process perspective, they tick the right boxes, in spite of their occasional blips.
And finally, what incentives to experts have to be ‘right’? What happens, after all, to those members of the MPC who, ex post, turned out to have got it ‘wrong’? Professional standing perhaps? But would you trust an expert who only has to face the snide remarks in the JCR and retreat to the cold comfort of a tenured faculty position? I rest my case.
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