The MYTH of the RATIONAL VOTER BRYAN CAPLAN THE MYTH OF THE RATIONAL VOTER THE MYTH OF THE RATIONAL VOTER WHY DEMOCRACIES CHOOSE BAD POLICIES B r y a n C a p l a n PRINCETON UNIVERSITY PRESS PRINCETON AND OXFORD Copyright © 2006 by Princeton University Press Published by Princeton University Press, 41 William Street, Princeton, New Jersey 08540 In the United Kingdom: Princeton University Press, 3 Market Place, Woodstock, Oxfordshire 0X20 1SY All Rights Reserved Library of Congress Cataloging-in-Publication Data Caplan, Bryan Douglas, 1971- The myth of the rational voter : why democracies choose bad policies / Bryan Caplan. p. cm. Includes bibliographical references and index. ISBN-13: 978-0-691-12942-6 (cloth : alk. paper) ISBN-10: 0-691-12942-8 (cloth : alk. paper) 1. Economic policy. 2. Democracy. 3. Political sociology. 4. Representative government and representation. 5. Rationalism. I. Title. HD87.C36 2006 320.6—dc22 2006030855 British Library Cataloging-in-Publication Data is available This book has been composed in Utopia Printed on acid-free paper. °o press.princeton.edu Printed in the United States of America 10 987654321 The serious fact is that the bulk of the really important things economics has to teach are things that people would see for themselves if they were willing to see. —Frank Knight, “The Role of Principles in Economics and Politics” I have often wondered why economists, with these absurd­ ities all around them, so easily adopt the view that men act rationally This may be because they study an eco­ nomic system in which the discipline of the market en­ sures that, in a business setting, decisions are more or less rational. The employee of a corporation who buys some­ thing for $10 and sells it for $8 is not likely to do so for long. Someone who, in a family setting, does much the same thing, may make his wife and children miserable throughout his life. A politician who wastes his country’s resources on a grand scale may have a successful career. —Ronald Coase, “Comment on Thomas W. Hazlett” [T]he superstitions to be feared in the present day are much less religious than political; and of all the forms of idolatry I know none more irrational and ignoble than this blind worship of mere numbers. —William Lecky, Democracy and Liberty CONTENTS A cknowledgments INTRODUCTION The Paradox of Democracy 1 CHAPTER 1 Beyond the Miracle of Aggregation 5 CHAPTER 2 Systematically Biased Beliefs about Economics 23 CHAPTER 3 Evidence from the Survey of Americans and Economists on the Economy 50 CHAPTER 4 Classical Public Choice and the Failure of Rational Ignorance 94 CHAPTER 5 Rational Irrationality 114 CHAPTER 6 From Irrationality to Policy 142 CHAPTER 7 Irrationality and the Supply Side of Politics 166 CHAPTER 8 “Market Fundamentalism” versus the Religion of Democracy 182 CONCLUSION In Praise of the Study of Folly 205 N o t e s 211 R e f e r e n c e s 237 I n d e x 267 ACKNOWLEDGMENTS I am b l e s s e d with an abundance of argumentative but encouraging colleagues, but there are two to whom I am especially grateful. The first is Don Boudreaux, who urged me to begin serious research on voter rationality right after the 1998 Public Choice Outreach Semi­ nar. In a discipline where praise is extremely scarce, Don was quick to tell me that he loved my approach, and hasn’t stopped telling me since. I really wonder whether I would have written this book—or any of the papers it builds on—without Don’s support. The second is Tyler Cowen, my constant critic. Since I joined the faculty at George Mason, Tyler has never failed to read my work and tell me what I’m doing wrong. No one has reviewed more drafts of this book than Tyler did, or asked harder questions. I can’t remember the last time we agreed, but I still feel like he taught me half of every­ thing I know I am also eternally grateful to the institution of lunch. Years of de­ bate with lunchtime regulars Tyler, Robin Hanson, and Alex Tabarrok were required to turn my raw ideas into a finished product. And they were only the beginning. Scores of other lunch-goers have heard my views and given me feedback, including Scott Beaulier, David Bern­ stein, Tim Besley, Pete Boettke, Don Boudreaux, J. C. Bradbury, Geoff Brennan, Corina Caplan, Roger Congleton, Mark Crain, Eric Cramp- ton, Gordon Dahl, Veronique de Rugy, Bill Dickens, Zac Gochenour, Rodolfo Gonzalez, Donald Green, Friedrich Heinemann, Bob Higgs, Randy Holcombe, Dan Houser, Jeff Hummel, Larry Iannaccone, Scott Keeter, Dan Klein, Arnold Kling, Ken Koford, George Krause, Timur Kuran, David Levy, Jacob Levy, Loren Lomasky, John Lott, Daniel Lurker, John Matsusaka, Mitch Mitchell, Kevin McCabe, Nathaniel Paxson, Ben Powell, Ilia Rainer, Carlos Ramirez, Joe Reid, Fab Rojas, Russ Roberts, Charles Rowley, Paul Rubin, Joe Salerno, Jim Schneider, Andrew Sellgren, Thomas Stratmann, Ed Stringham, Tom TerBush, Gordon Tullock, Dick Wagner, Walter Williams, and Donald Wittman. As much fun as the lunches were, though, I especially want to thank those who read drafts of the manuscript and gave me detailed com­ ments: Scott Beaulier, Pete Boettke, Eric Crampton, Tyler Cowen, An­ drew Gelman, David Gordon, Robin Hanson, Michael Huemer, Dan Klein, Arnold Kling, Geoff Lea, David Levenstaum, Steve Miller, Na­ thaniel Paxson, Russ Roberts, Fab Rojas, Russ Sobel, Ilya Somin, Ed Stringham, Koleman Strumpf, Tim Sullivan, Dan Sutter, Alex Tabar- rok, Gordon Tullock, Donald Wittman, and the referees at Princeton University Press. I also want to express my appreciation to the Kaiser Family Foundation, for freely sharing the data from the Survey of Americans and Economists on the Economy; Scott Beaulier, Steve Miller, Eric Crampton, Kail Padgitt, and Geoff Lea for excellent re­ search assistance; my graduate students in microeconomics and pub­ lic finance, and readers of my blog, for years of great feedback; and the Mercatus Center for generous support. Finally, I am very lucky that my wife has both a degree in economics and the daily patience to listen to my latest theory. My apologies to anyone I missed. Can I make it up to you at our next lunch? THE MYTH OF THE RATIONAL VOTER Introduction THE PARADOX OF DEMOCRACY A supporter once called out, “Governor Stevenson, all thinking people are for you!” And Adlai Stevenson an­ swered, “That’s not enough. I need a majority.” —Scott Simon, “Music Cues: Adlai Stevenson In a dictatorship government policy is often appalling, but rarely baffling. The building of the Berlin Wall sparked worldwide outcry, but few wondered, “What Eire the leaders of East Germany thinking?” That was obvious: they wanted to continue ruling over their subjects, who were inconsiderately fleeing en masse. The Berlin Wall had some drawbacks for the ruling clique. It hurt tourism, making it harder to earn hard currency to import Western luxuries. All things considered, though, the Wall protected the interests of elite party members. No wonder democracy is such a popular political panacea. The his­ tory of dictatorships creates a strong impression that bad policies exist because the interests of rulers and ruled diverge.2 A simple solu­ tion is make the rulers and the ruled identical by giving “power to the people.” If the people decide to delegate decisions to full-time politicians, so what? Those who pay the piper—or vote to pay the piper—call the tune. This optimistic story is, however, often at odds with the facts. De­ mocracies frequently adopt and maintain policies harmful for most people. Protectionism is a classic example. Economists across the po­ litical spectrum have pointed out its folly for centuries, but almost every democracy restricts imports. Even when countries negotiate free trade agreements, the subtext is not, “Trade is mutually ben­ eficial,” but, “We’ll do you the favor of buying your imports if you do us the favor of buying ours.” Admittedly, this is less appalling than the Berlin Wall, yet it is more baffling. In theory, democracy is a bul­ wark against socially harmful policies, but in practice it gives them a safe harbor.3 How can this Paradox of Democracy be solved? One answer is that the people’s “representatives” have turned the tables on them. Elec­ tions might be a weaker deterrent to misconduct than they seem on the surface, making it more important to please special interests than the general public. A second answer, which complements the first, is that voters are deeply ignorant about politics. They do not know who their representatives are, much less what they do. This tempts politi­ cians to pursue personal agendas and sell themselves to donors.4 A diametrically opposed solution to the Paradox of Democracy is to deny that it regularly delivers foolish policies. You could insist that the public is right and “the experts” Eire wrong, openly defending the merits of protection, price controls, and so on. That is straightfor­ ward, but risky: It is akin to putting your client on the stand and open­ ing him up to cross-examination. A less direct but safer stance—anal­ ogous to keeping your client from testifying—is to pick holes in the alleged mechanisms of democratic failure. You don’t have to show that your client is innocent if the prosecution lacks a coherent ac­ count of how the crime was committed. In the same way, you need not show that a policy is good if there is no coherent account of how it could be bad. Democracy’s cleverest enthusiasts usually take this safer route.5 Es­ pecially in recent years, their strategy has been successful despite the intuitive appeal of stories about electorally safe politicians and igno­ rant voters.