0803Freemanbookreviews

vincingly challenges the argument that the biases of Book Reviews economists render their views on economic issues no more credible than those of the general public. He next considers Public Choice explanations for The Myth of the Rational Voter: why mistaken views inform the typical voter’s deci- Why Democracies Choose Bad Policies sions. Because of the extremely low probability that the by Bryan Caplan outcome of an election will turn on one vote, voters Princeton University Press • 2007 • 276 pages • $29.95 have little motivation to become well informed. This has become known as rational ignorance—voters are Reviewed by Dwight R. Lee rational to remain ignorant on most, if not all, issues n one sense, The Myth of the they’re voting on. But Caplan doesn’t think the concept IRational Voter makes a strong case of rational ignorance adequately explains voting behav- for democracy. Bryan Caplan, pro- ior. He argues that rationality requires updating one’s fessor of economics at George beliefs in response to new evidence or arguments. Even Mason University, argues that 1) by this minimum standard, however, most voters are citizens accurately communicate irrational because they have emotional attachments to their preferences to politicians their political views that make them resistant to oppos- through voting; 2) politicians are ing evidence. This is “rational irrationality” because, responsive to those preferences, Caplan explains, it’s subject to the law of demand.The except that 3) when voter preferences are particularly higher the personal cost of irrationality, the less irra- misguided, politicians will often exert leadership and tional people will be. Unfortunately, the arithmetic of enact policies that deviate somewhat from the citizens’ voting eliminates the personal cost of holding and preferences in socially beneficial ways. But if this is cor- expressing silly beliefs at the polls. So they persist. rect, why does Caplan subtitle his book Why Democra- If most people don’t take the time to become cies Choose Bad Policies? He quickly dispels any informed and their views were random, then informed confusion by letting us know that he believes that while voters would determine the outcomes of elections. But democracy gives citizens most of what they want, most most voters are misinformed in the same way—accord- of what they want is nonsense. ing to the four biases. And with no cost to expressing Caplan discusses four systematic biases in most citi- those biases at the polls, rational irrationality results in zens that lead to harmful policies.These are 1) an anti- voters consistently choosing bad policies. market bias, 2) an antiforeign bias, 3) a make-work My brief review cannot do justice to all the insights bias, and 4) a pessimistic bias. In order, people underes- Caplan pulls from the notion of rational irrationality. I timate how much we benefit from what they see as the particularly appreciated his answer to the question, why uncoordinated pursuit of self-interest and profit; are aren’t policies even worse than they are? Caplan puts suspicious of foreigners and skeptical of claims that we forth a compelling reason for believing that politicians benefit from dealing with them; applaud the creation of often ignore the expressed wishes of their constituents jobs and lament the loss of jobs regardless of the value for the constituents’ own benefit. He also does a nice being produced; and concentrate on economic prob- job responding to the criticism that economists are a lems while underestimating economic successes. bunch of “market fundamentalists.” But couldn’t the typical voter be correct in his biases The only nit I would pick with Caplan is that I and economists wrong in overwhelmingly seeing them think he tries to draw too much of a distinction as errors? Caplan devotes his longest chapter to address- between rational irrationality and “expressive voting” as ing this question with creative use of data from the Sur- developed by Loren Lomasky and Geoffrey Brennan in vey of Americans and Economists on the Economy. I their 1993 book Democracy and Decision. Brennan and won’t attempt to explain Caplan’s analysis, but he con- Lomasky use the arithmetic of voting to explain why THE FREEMAN: Ideas on Liberty 42 Book Reviews people express support for feel-good proposals at the Koch thinks and usually creates successful long-run polls even when aware that they’ll be worse off if those company outcomes. His vision includes running an proposals pass. Caplan praises Democracy and Decision, entrepreneurial meritocracy,a fused individual and team acknowledging that expressive voting and rational irra- effort, and shrewd reinvesting of earnings for growth. tionality aren’t mutually exclusive, but he distinguishes He has been phenomenally good at that, and this book between the two by claiming that expressive voters is all about his philosophy that has made it possible. “know that feel-good policies are ineffective.” Most He calls his system Market-Based Management expressive voters as envisioned by Brennan and (MBM), a unique scientific approach to business Lomasky, however, surely believe the proposals they management rooted in what our author describes favor are worth feeling good about. How common is it as “the Science of Human Action.” The system has to feel good about voting for a proposal you believe is five dimensions: socially harmful? It no doubt happens. A woman voter, • Vision: Determining where and how the business for example, might feel good voting for a woman can- can create the greatest long-term value. didate even if convinced she favors bad policies, but this • Virtue and Talents: Helping ensure that people is surely an exceptional situation.To the extent that it’s with the right values, skills, and capabilities are hired, true, it makes the theory of expressive voting more retained, and developed. general than the theory of rational irrationality. • Knowledge Processes: Creating, acquiring, sharing, That’s a minor quibble. Caplan has written a won- and applying relevant knowledge, and measuring and derful and readable book—one generating new and tracking profitability. impressive insights into political behavior. • Decision Rights: Ensuring the right people are in the right roles with the right authority to make deci- Contributing editor Dwight Lee ([email protected]) is Ramsey Professor at the Terry School of Business, University of Georgia. sions and holding them accountable. • Incentives: Rewarding people according to the The Science of Success: value they create for the business. (He turns Marx How Market-Based Management Built the around by proposing the maxim “From each according World’s Largest Private Company to his ability, to each according to his contribution.”) by Charles G. Koch What Koch has done is to take key insights about Wiley • 2007 • 201 pages • $22.95 what works for an economy and apply them to his business ventures. The MBM prowess of our author on Reviewed by William H. Peterson the firing line is in outthinking and so staying ahead he Science of Success and its of competition, thanks in part to a team of profound T remarkable author bring to manager-thinkers bent on creating “the greatest long- mind a sonnet strategy of Shake- term value.” By establishing a corporate climate that speare:“Let me not to the marriage rewards efficiency and innovation—as the larger econ- of true minds omy should do—Koch has seen his enterprises grow Admit impediments.” and prosper. Meet then corporate thinker, His ideas did not emerge out of a vacuum. Koch entrepreneur, investor, hard-headed cites as particularly important two great books whose visionary,and impediment overcomer, Charles G. Koch. authors were both closely associated with FEE. One Koch, CEO of Koch Industries, Inc., with his rule of was F.A. Harper’s Why Wages Rise; the other, Ludwig highly principled direction, has built the world’s largest von Mises’s Human Action. private firm, a mainly energy enterprise of 80,000 Harper’s book is hailed for spotting the causes employees and $90 billion in annual sales, one that of real, sustainable wage gains. The main cause, invested $21 billion in 2005 to purchase the publicly said Harper, lies in ongoing capital creation, which traded paper and wood giant Georgia Pacific. raises marginal productivity and enables producers 43 MARCH 2008 Book Reviews to bid more for labor and talent. That’s been the history good tips on investing and managing; you can also read of markets and rising living standards over the last his book for a coherent philosophy combining great 300 years. economic insights with the challenges of business. In Human Action Mises showed how a market soci- Contributing editor William Peterson ([email protected]) is the 2005 ety, based on private property rights and tightly limited winner of the Schlarbaum Award for Lifetime Achievement in the Study of government, yields civility, peace, and prosperity. Koch Liberty given by the Ludwig von Mises Institute. quotes Mises, whose writings helped inspire the MBM methodology:“The market determines who shall [have what property and who shall do what work]. None of Overdose: How Excessive Government Regulation these decisions is made once and for all; they are revo- Stifles Pharmaceutical Innovation cable every day. The selective process never stops.” by Richard A. Epstein That fact challenges our author constantly. Yale University Press • 2006 • 271 pages • $30.00 No one picks winners all the time, though. In an Reviewed by George C. Leef appendix, Koch lists over 40 businesses exited by his firm. Included are tankers, drilling rigs, Canadian ver the course of his distin- pipelines, service stations, and telecommunications. Oguished career in the law, That is much exiting, and in most cases from profitable Professor Richard Epstein has done operations.

Load more