Economics 410 Midterm

Prof. Bryan Caplan

Fall, 2012

Part 1: True, False, and Explain

(10 points each - 2 for the right answer, and 8 for the explanation)

State whether each of the following six propositions is true or false.  In 2-3 sentences (and clearly-labeled diagrams, when helpful), explain why.

1. If no country had a military, no country would need a military to defend itself.

T, F, and Explain: This implies that every country’s military spending has negative externalities.

FALSE.  It implies that at least ONE country’s military spending has negative externalities: The first country that arms itself makes the world poorer and less safe.  But it is still conceivable that the military spending of additional countries increases the chance of peace by deterring the aggression of the militarily aggressive country or countries.

2. Suppose that the higher a winning politician’s share of the vote, the bigger the policy changes he implements.

T, F, and Explain:  This gives citizens little additional incentive to vote.

TRUE.  In the normal probability of decisiveness formula, every vote has an infinitesimal chance of making a noticeable difference.  In this question’s scenario, every vote is sure to make an infinitesimal difference.  One person just can’t noticeably change the vote share: With ten million voters, you can only change the vote share by 0.00001%.

3.  Major politicians usually urge everyone to vote.

T, F, and Explain:  This is precisely what the Median Voter Theorem predicts.

FALSE.  The Median Voter Theorem would normally predict that politicians would only urge their supporters to vote: Democrats will encourage probable Democrats, Republicans will encourage  probable Republicans.  However, if voters (especially swing voters) want to hear candidates urging everyone to vote, politicians do have an incentive to urge everyone to vote even though they actually only want their supporters to do vote.

4.  “That might lead us to expect that self-interest would have stronger effects among the better informed.” (Sears and Funk, “Self-Interest in Americans’ Political Opinions)

T, F, and Explain:  Sears and Funk conclude that this view is consistent with the data: more educated voters vote in a more self-interested way.

FALSE.  Sears and Funk discuss the evidence on informed voters rather than educated voters.  And they find that more informed voters are not more self-interested: “But available research does not support this view.  Sears et al. (1980) found that the better-informed were actually the least self-interested in three of four issue areas, but the differences were trivial.”

5.  T, F, and Explain:  The SIVH correctly predicts that the public will prefer pollution regulation to pollution taxes.

FALSE.  Since pollution taxes allow the public to get the same pollution clean-up at a much lower cost, and since both regulation and taxes raise prices, the SIVH predicts that the typical person will prefer taxes to regulation.  Of course, the SIVH predicts that some individuals will selfishly prefer regulation – e.g. polluters with political influence and producers of pollution abatement equipment.  But since both taxes and regulation reduce quantity and raise prices, a self-interested voter will just ask himself, “Which approach cleans the air at the lowest price?”

6.  The General Social Survey asks:

“If the government had a choice between reducing taxes or spending more on social programs like health care, social security, and unemployment benefits, which do you think it should do?”

40.4% of Americans answer “reduce taxes,” versus 59.6% who say “spend more on social programs.”

T, F, and Explain:  This is strong evidence that the median voter genuinely wants to spend more on social programs.

FALSE.  This is very weak evidence because there isn’t an intermediate or status quo option.  With only two response options, any survey result other than 50/50 will “show” that the median voter wants to change policy.  As long as 9.7 percentage-points of the “spend more” people prefer the status quo to higher spending, the median voter doesn’t actually want to spend more.

(20 points each)

In 4-6 sentences, answer both of the following questions.

1. Are Dye and Zeigler’s claims about public opinion consistent with the Median Voter Theorem?  Why or why not?  Defend your conclusion by discussing two specific policies.

Probably not.  Dye and Zeigler show that the majority of Americans favor more intolerant and authoritarian policies than actually exist.  Actual voters are probably somewhat more tolerant and less authoritarian (their education levels are above average, after all), but even so, the median voter does not seem to be getting his way.  Instead, policy fits with the preferences of the elites (see the contrast between the mass public and “community leaders” on pp.122-3).  Examples: 68% of the mass public opposes bail for serious crimes, and 51% say that gay equality in teaching and other public service jobs “may sound fair but is not really a good idea.”

2. Many democracies will soon face a serious fiscal crisis unless their major political parties agree to a compromise to cut spending and/or raise taxes.  Which model of voter motivation – SIVH, sociotropic, ideological, or group-interest – predicts that such a compromise is most likely?  Least likely?  Explain your reasoning.

The sociotropic voting model predicts that a compromise is most likely.  After all, if people want whatever is best for the country, they would naturally prefer to accept higher taxes and lower spending now to prevent a disaster in coming years.  You might think that the SIVH and group-interest would be much more pessimistic, but on reflection they too predict that compromise is fairly likely.  Individuals and groups that especially benefit from the status quo and who would be exceptionally well-protected during a fiscal crisis might oppose a compromise.  But everyone else would rather have the people they care about suffer a little now rather than a lot later.  The model that predicts the lowest chance of compromise is ideological voting.  After all, if both sides think that their ideology has the right answers, why would they want to compromise with people who have the wrong answers?  That could easily make a bad situation worse, no?