Executive Summary

The Myth of the Rational Voter:
How Democracies Choose Bad Policies

o one who's paying attention can doubt that there's something wrong with democracy in America. We often blame the politicians, but in a democracy, the ultimate responsibility falls upon the voters. Bryan Caplan's thesis is simple: voters are not necessarily stupid, but they are irrational. Democracy fails because it does what voters want.

By irrational, Caplan doesn't mean crazy. He means their behavior doesn't conform to the economists' simple theories of homo economicus. If the great mass of what Rush Limbaugh called “low-information voters” merely voted randomly, their votes would cancel each other out, leaving only the few high-information ones to decide the outcome. Economists have always assumed this, but Caplan dismisses the idea, saying the voters are selectively misinformed. They are right about one or two things, but they have false beliefs about protectionism, free trade, and other issues dear to economists' hearts. So they are consistently anti-market, anti-foreign, pro-make-work, and pessimistic, and this makes them choose bad policies.

Caplan seems to have written this book because of a strong dislike for President Bush. But his conclusions also apply to Bush's successor, and even more to the short-lived Occupy movement, whose every principle must have driven economists up the wall.

This is not a new book, but the topic is so important that we need to scrutinize Caplan's arguments to try to understand what's going wrong. The next election could be our last chance to undo the damage wrought by our politicians and the irrational people who elected them.

The Diagnosis

What's wrong with voters' understanding of economics, and why is it a problem?

Let's take an example from science. Nutritional information in the research literature is very often wrong, yet the government bases policies on it, and companies tailor their products to match it. For biochemists, it's frustrating to see consumers accepting beliefs about food that are quite clearly wrong. We end up with bad-tasting food that makes us fat. And the consumers buy it. But is it fair to blame the consumers?

Unlike economists, biochemists can't just come out and tell people that the nutrition information they believe is all wrong. No one would have believed me if I had come out and said eating fat will make you thin. We have to do a big, expensive study to prove it first.

Economists have it easy. In economics, it seems, the experts are always right just by definition. In Chapter 3, Caplan reports on a Washington Post survey of economic attitudes based on responses from 1510 members of the public and 250 economics Ph.D.s. The assumption is that people who know more about economics make better decisions. A typical graph is Fig. 3.23, showing that the public thinks downsizing of big corporations is bad for the economy, while economists think is good.

Which group is right? Downsizing benefits the company, but it is usually just an adjustment to a bad economy. Corporations would not need to downsize if the economy were doing well. So the interpretation is ambiguous: economists and the public just have a different perspective.

What about a big company that routinely buys up smaller companies and fires most or all of the employees? The big company then eliminates its research staff and stops innovating, because there is less competition. Is this good for the economy? I suspect that the “economic illiterates” may be closer to the truth here. M&As and downsizing might help the company survive, and they usually help the stock price, so in that sense you could call them good, but they are symptoms of an industry in deep decline, or at the very least, under stress.

Just recently, one such big company tried to acquire a British company for the sole purpose of moving to the UK to reduce its tax burden. (You know our taxes are too high when people move to England to get relief!) Yet Caplan says that regulation and taxation have little effect on business. Why is the learned professor right and the executives running a business with total assets of $172 billion wrong?

Caplan doesn't say. He just says that as political IQ increases, voters become more free market, more equal rights, and less supportive of government intervention in the economy, high taxes and redistribution of wealth. That sounds reasonable. But his theory actually works just as well when run backwards: if received opinion is wrong, the voters who know the least will make the best decisions.

How does one prove which is right other than by appealing to authority? No one could dispute that the lay public knows less about economics than professional economists. But his data mostly show that when the two groups diverge, it's because of their different perspectives. So the data don't help his case much. They only show that the two groups differ. (I didn't recalculate his P-values, and am assuming they are all correct.)

Voters are not just being “rationally irrational” and they are not just a collection of homo economicusses. They are buying services from the government. As Caplan himself says (p.141) “When voters talk about solving social problems, they primary aim is to boost their self-worth by casting off the workaday shackles of objectivity” [typo in the original].

So voters will vote to raise their own taxes, or institute tariffs, or elect an incompetent politician because they like his ethnicity, knowing that it harms them individually as well as collectively. Yet as with any transaction, they do it willingly, because they are buying a full service: in this case, the feeling that they are doing good. They will vote for someone who wants to start a war, knowing their own children might get killed, because they believe something good might come out of it. A rich urban dweller will purchase more services from the government, but a rural one will not, because government has little a rural person wants to buy.

Illegal Aliens

An example of why voters do not, and probably should not, listen to economists is Caplan's argument about immigration. He criticizes the public for being opposed to immigration, using the argument that an immigrant is productive and pays sales taxes. Unrestricted immigration, Caplan says, would be great for the economy.

Alas, there is more to life than economics. The public knows the law of supply and demand all too well. They know the huge influx of illegal immigrants depresses wages, so it costs them directly. It also decreases prices. But unlike academic economists, the workers have to mow their own lawns and dust their own collection of Rodins. So workers lose more from depressed wages than they save in reduced costs. And their standard of living becomes closer to that in Mexico.

Thus, immigration has a depressive effect on the economy. Why is it that economists go into a panic about regular depression, but care little about this type of depression? The economists' beliefs don't fit into the general public's economic model. From this point of view, it's the economists who are acting irrationally.

Perhaps more importantly to voters, there is also culture, there is freedom, self-determination, and national pride. These are all things that don't count in the economists' world view, but which voters are willing to pay dearly for—with life itself, if need be. After all, in the long run, we will all be dead, but unlike homo economicus the voters have to consider their children and grandchildren. So here again we have one perspective pitted against another. Are these values irrational? Maybe.

One might also ask how much of the voters' antimarket bias and antiforeign bias is due to innate stupidity and how much is the fault of pundits, including prominent economists working at big newspapers. This book is packed with quotes from Paul Krugman, which might explain why the New York Times called it “the best political book this year.” But based on what I've seen, Krugman's theory goes something like this: (1) Raise taxes. (2) Raise taxes some more. (3) Print more money. (4) Spend it. (5) A miracle occurs. (6) Prosperity!

Now, maybe I misinterpret or oversimplify Krugman's philosophy. Krugman comes across as too nasty and divisive for my taste, so I rarely read him. Economists who turn their field into a political spit-fest do economics a grave disservice. How can an expert be political and professional at the same time? If economic beliefs are all just political, why should we listen to economists any more than a member of the Caps Lock Brigade?

Caplan avoids this. Whether one entirely agrees with him or not, it's clear his beliefs aren't motivated by political animus. His writing is thoroughly professional. So it's possible to consider his ideas on their merits. I like this guy's style. Other writers would do well to emulate it.

The Self-Interested Voter

Is the self-interested voter a myth, as Caplan claims? Voters, he says, focus primarily on national well-being, not personal well-being. He makes a strong case, but I am still not convinced. Why, for example, are urban voters, poor people, and the very rich overwhelmingly Democrats? These three groups benefit directly from Democrat tax-and-spend policies. Coincidence?

It is certainly true that voters don't vote solely for personal enrichment. But I have discussed politics with many fellow voters, and they are virtually unanimous. One scientist I talked to complained bitterly about Republicans supposedly cutting funding for science, so he voted Democrat. An elderly man said he will never vote for anyone who cuts Social Security, because it was a trust fund and he paid into it for years. A poverty-stricken student votes for whichever candidate offers more student loans. And so on. Self-interest doesn't look like a myth from out here.

Next he argues: “voting to raise your taxes by a thousand dollars when your probability of decisiveness is 1 in 100,000 has an expected cost of a penny.” He concludes that democracy lets the individual enjoy the psychological benefits of irrational beliefs at no cost to himself.

Here I believe Caplan may be mistaken. Cost-benefit analysis does not apply in the voting booth. The voter casts a ballot as if the policies are 100% guaranteed to take effect if his candidate wins and 0% if the candidate loses. To say the cost is low because your vote is diluted by other votes is not true. It's a common statistical fallacy.

Another example from science illustrates the flaw. Suppose a scientist estimated that the probability of a given fact being true was 20%. Would his experiment then succeed 20% of the time and fail 80% of the time? No, because there is no statistical population here. The probability cannot be 20%. It must be either true or false. The population size is 1; therefore, the probability is either 1 or 0. Likewise with voters. Their candidate will either win or lose. The voter will either get what he or she wants, or not. People have killed themselves when their candidate loses. I wouldn't call that cheap.

The idea that it's cheap for the voter to make stupid decisions is the basis for Caplan's theory. Unfortunately, as shown here, it's based on a statistical fallacy. That doesn't necessarily mean his conclusion is wrong, or that voters' decisions aren't stupid. It just means there must be some other explanation.

Nevertheless, it's clear that, as Caplan says, when voters do purchase social programs to benefit others, the results are worse than if they are selfish, because their votes are based on wishful thinking more than understanding of how the world works. He writes: “Their irrationality points them in the wrong direction; their unselfishness keeps them in marching formation .... Precisely because people put personal interests aside when they enter the political arena, intellectual errors readily blossom into foolish policies.” [p.153].

The Conclusion

Finally, his conclusion: voters want specific policies but resent their predictable consequences. Therefore, no matter what the politician does, the voters are always dissatisfied. This, he thinks, is what's really wrong with democracy.

His prescriptions are: increase voter literacy, by abandoning attempts to get out the vote. Or maybe give really smart people, like tenured economists at GMU, more than one vote. Or maybe educate people more about economics. Or maybe even channel Bastiat in the classroom. His hope is to revive the Chicago school, with which he sympathizes. Make it so!

His main objective is not so much to eliminate irrationality, but to convince his colleagues to incorporate it into their models. Still, it would probably also be nice if the public would vote more intelligently.

But there's an oversight here as well. The job of a politician is to be a leader. That means educating when necessary, and convincing, explaining, and getting the public to believe and follow. If the politician can't do that, he or she should be tarred and feathered and driven into the most ignominious fate possible—like forced to teach Econ 101 for all eternity, only to have the students each time roll back down into irrationality.

Ultimately, it's far too risky for politicians to tell the truth, and for that you can thank the news media. These days, just opening their mouth could provide a tempting target for one of their wayward feet. Or, while their mouth is open, the word “macaca” might accidentally slip out. It's not just a matter of the media being sensationalistic. They are vicious, dishonest, and politically biased. So the prudent course is not to lead, but instead silently pander to what the public wants.

Democracy could function just fine, even if the voters were ignorant slobs, if they had honest leaders and an ample supply of accurate information about what the politicians are doing. Without it, democracy cannot function at all. Caplan pooh-poohs the idea that media bias has much effect. Maybe, but even Caplan can't claim that the news media are an accurate source of information.

Caplan praises politicians for telling the public one thing while directing the bureaucracy to do another. This dishonesty may be inevitable, but it will not save democracy. It could even hasten its demise. The public may be ignorant, but ignorance can be cured if politicians show leadership and courage, and if some source of accurate information is available.

He might be right when he says that voters don't want politicians with economic expertise. But, as Samuelson said, economists get to write the textbooks. There's no democracy there at all.

jun 01 2014; updated jun 06 2014