Caplan in the Media - Early Coverage


Economic Journal Press Release:

The Dangers of Public Economic Illiteracy


Caplan in The Times of London

From Graham Searjeant, Financial Editor
The Times, April 26, 2002:

AMERICAN economists are alarmed that ordinary people do not understand how
their economy works. How can the country operate the right economic
policies, they ask, if most voters systematically have the wrong ideas? A
survey taken at the height of the long economic boom asked the same
questions of economics PhDs and a cross-section of the public. They agreed
on hardly anything, except that people needed to save more and that
inadequate education and training were damaging the economy.

Gordon Brown and Tony Blair might think that was a good start, until they
came to the other issues. The American public was convinced that the economy
was suffering from high taxes, excess public spending, too much foreign aid,
too many immigrants, and having too many people drawing welfare benefits.
Economists did not rate any of those much of a problem.

The public saw high business profits, executives paying themselves too much,
technology displacing people and companies restructuring as detrimental to
the economy. To the economists, none of these were bad and some were good.
Ominously, the public said that freer trade costs American jobs while
economists are convinced that it creates more. Worst of all, ordinary people
were convinced that they had become worse off over the previous two decades
while the income and output statistics relied on by the economists showed
precisely the opposite.

A similar survey taken in Britain now might yield similar results.
Fortunately, bureaucrats will think, the ignorant masses who complain about
the trains and job insecurity have no say on things that matter such as
extending trade.

Bryan Caplan, of George Mason University, Washington, has analysed in this
month's Economic Journal why voters and economists are at odds. It is not
because economists have safe, well-paid jobs. Other wealthy folk agree with
the rest of the public. Nor is it that the economists are all free market
ideologues. Most are in US terms, left of centre.

Sheer ignorance and prejudice is to blame, the professor concludes. Surely
it is no coincidence that the average American thinks anything involving
foreigners hurts the economy.

Most of us are producers as well as consumers. For the individual, the ideal
world is a contradictory and impossible one. All other industries would be
open to free competition and imports; bonus-seeking executives would
relentlessly axe uneconomic lines and replace people with machines to cut
costs and prices and accelerate productivity growth, In one's own line of
work, however, it would be nicer to have a safe, ordered monopoly in which
little ever changed except for pay going up regularly.

In some respects, however, the public may be right and the economists wrong.
The professional tends to think of economic progress as a rise in output or
gross domestic product per head. Yet that does not fully reflect living
standards.

Suppose for instance that you used to take time off from work to decorate
your own living room. Now, however, higher pay makes it worthwhile for you
to work longer hours (always supposing you have a choice) and hire a
handyman or trendy decorator to do the job for you. Provided that the
decorator is not an unreliable bodger, there should be an economic gain from
division of labour, with both you and the decorator doing the job you are
better at. But there is also a spurious statistical gain to output because
your amateur DIY efforts do not count while the decorator's paid work does.
For the same reason, peasants in developing countries are not always as
grateful as economists think they should be when income rises because they
produce for the market rather than for their own consumption or for barter.

In Britain, families in which all the adults go out to work know that having
to hire childminders and cleaners is not an unalloyed economic benefit.
Higher incomes also go with higher overheads, such as mortgages that are
only affordable if everyone is in work. Converting unpaid labour into
measurable output does not of itself improve living standards.
Higher productivity also carries costs. Ambitious women professionals are
currently being invited to worry about the difficulty of fitting in
children.

If your local factory closes and you get a comparable job at the same pay an
hour's journey away, you will be worse off. Transport costs must be paid.
You also lose valuable hours that could otherwise have been devoted to
family, DIY, play or community. Involuntary changes in work patterns to
boost productivity can ruin carefully designed family arrangements and cause
stress. These are not counted, unless they make you ill.

Economists are too ready to assume that output is the sole measure of living
standards, rather than just being the best available. To make the economy
work better, voters may need to be better educated. They also need to elect
Governments that can bridge that statistical gulf.

Sometimes, voters may take decisions that seem economically irrational. The
common agricultural policy costs EU citizens tens of billion a year in lost
output, misallocated resources and higher prices. Yet powerful French rural
voters may be rational in demanding some kind of policy that protects a
healthy country life.

At home, it is economic nonsense to pile up ever more rail subsidies. They
make us statistically poorer. But voters seem to believe that the
uncountable saving in time, worry and uncertainty from a better rail system
is worth the loss.

Free markets are powerful engines of progress but also fearsome bringers of
change. Change is painful but economic statistics are on the side of free
markets.

One of the key functions of governments in advanced Western countries is to
improve unmeasured living standards by softening the impact of all this
change. Economists have a vital role in this process. It is to inform our
choices. If we opt for lifestyle over progress, or slow down economic
forces, we should know just how much it is costing us.

graham.searjeant@thetimes.co.uk


Caplan in The Financial Times

From "Observer Column,"
The Financial Times, April 26, 2002:


              Go figure

              Writing in today's Economic Journal, 
              Professor Bryan Caplan of George Mason University, 
              Virginia, claims he can "prove" that economists' 
              views are neither self-serving nor based on ideology. 
              It is democracy, coupled with "the electorate's 
              systematically biased beliefs about economics", that
              causes "political failure", he thunders. If only 
              economists ruled the world ...


Caplan in The Economist

From "Rethinking Thinking,"
The Economist, December 18, 1999, pp.63-65:


              Being irrational may even be rational,
              according to some rationalists.
              Irrationality can be a good to be
              consumed like any other, argues Bryan
              Caplan, an economist at George Mason
              University—in the sense that the less it
              costs a person, the more of it they buy.
              A peculiar feature of beliefs about
              politics and religion, he says, is that the
              costs to an individual of error are
              “virtually non-existent, setting the
              private cost of irrationality at zero; it is
              therefore in these areas that irrational
              views are most apparent.” Maybe,
              although Mr Caplan may grow sick of
              having those views read back to him for
              eternity should he ever end up in hell. (p.65)



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