Prof. Bryan Caplan

bcaplan@gmu.edu

http://www.gmu.edu/departments/economics/bcaplan

Public Choice Outreach Seminar

Summer, 1998

Is Democratic Failure a Myth?

  1. Wittman Turns Public Choice on Its Head
    1. The "public interest" view of government remains common even in the economics discipline.
    2. Public choice theorists have almost always attacked this view, arguing that people in government - democratically elected or not - are self-interested like everyone else.
    3. Public choice theorists have further argued that because people in government are self-interested, there are numerous examples of "political failure."
    4. While most critics of public choice object to its "economistic" approach, a quite different line of attack has been pioneered by Prof. Donald Wittman. According to Wittman, the standard tools of microeconomic analysis show that political markets work just as well as economic markets.
    5. As a corollary, Wittman argues that the political failures emphasized in public choice theory are largely imaginary. The results of public choice theory depend on one or more of the following strong, implausible assumptions:
      1. Extreme voter stupidity
      2. Serious lack of competition
      3. Excessively high negotiation/transfer costs
  2. How to Think Like Wittman
    1. Principle #1: Voter ignorance is not a serious problem. Voters can simply ask their preferred experts for information, and they appropriately discount biased information.
    2. Application: Just as I don't need to know anything about heart surgery to get a first-rate bypass operation, I don't need to know anything about current gun control proposals to vote intelligently about gun control. If I like guns, I just vote the NRA line; if I don't like guns, I follow the advice of Citizens for Gun Control.
    3. Principle #2: Politics, like the market, is competitive. If one politician carries out policies that harm the majority, a competing politician (a "political entrepreneur") will happily campaign on a platform to abolish that policy. Over the longer run, politicians need to maintain their reputation in order to win future elections and advance their careers.
    4. Application: sugar tariffs. If the current crop of politicians is harming the majority of the public by raising the price of sugar, then this is an obvious opportunity for competing candidates, who will offer the electorate a better deal in order to win.
    5. Principle #3: Political bargaining can eliminate any remaining significant inefficiencies. Majority voting merely assigns initial property rights; the Coase theorem tells us to expect parties to bargain to the efficient solution. (Also note that transactions costs are lower under majority rule than with unanimity).
    6. Application: If a 1000 tenants get a $1 benefit each from rent control, but 20 landlords lose $100 each, democracy apparently yields an inefficient outcome. But this leaves obvious gains from trade on the table. It is extremely likely that the landlords' representatives will bargain with the tenants' representatives for an efficient transfer of, say, $1.50 per tenant in exchange for repealing rent control.
    7. Advanced Applications
      1. Diffuse costs/concentrated benefits is not a problem. A political entrepreneur could easily campaign to eliminate 1000 small impositions on tax-payers (the "omnibus repeal bill").
      2. Even if some groups enjoy organization advantages for lobbying, there is nothing inefficient about it. "[I]nequality of political power is no more an argument against efficiency than inequality of economic power." (Thus, Wittman's efficiency argument extends to every political structure, not just democracy).
  3. The Weak Link in Wittman: Voters Are Extremely Stupid
    1. Wittman's thesis is, in my view, both extremely well-argued and entirely mistaken. Why? Simply put, voters are extremely stupid, and Wittman can't get around this problem.
    2. Wittman's theoretical mistake: Political experts are not analogous to medical experts. If I pick a quack doctor, I pay the full burden of my poor choice; the marginal cost of inadequate research may be death. In contrast, if I pick a quack political expert, what is the marginal cost to me? Zero. In an election with more than a few hundred participants, the chance that I cast the decisive vote is nil, so I might as well ask Bozo the clown as consult a reliable expert.
    3. Wittman's empirical mistake: it is not necessary to simply theorize a priori about voters' information. There is a wealth of empirical evidence, all of which points in one direction: most voters know as much about politics and economics as they do about trigonometry, astronomy, or ancient Egypt. Some fun facts about what voters don't know (from Dye and Zeigler, The Irony of Democracy):
      1. About half of adult Americans don't know that each state has two senators.
      2. Just over half could name one state senator, and just below half could name their representative.
      3. Two 1984 polls: the Sandanistas vs. the Contras; Mondale's "Where's the beef?" slogan.
    4. Schumpeter, Capitalism, Socialism, and Democracy: "Thus the typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in a way which he would readily recognize as infantile within the sphere of his real interests. He becomes a primitive again."
  4. Why Voters are Extremely Stupid: The Demand for Idiocy
    1. Rational ignorance vs. rational idiocy: the case of the tariff.
    2. While the facts on what voters don't know are clear, the question remains: Why would people be rational some of the time, and irrational at other times?
    3. A simple economic explanation: think of irrationality as a good like any other; put the price of irrationality on the y-axis, and the quantity consumed on the x-axis.
      1. For many beliefs, ignorance or idiocy are very (privately) costly. E.g., if you believe that you can do your job perfectly well while intoxicated.
      2. For many other beliefs, however, ignorance or idiocy are (privately) costless. E.g., what practical difference does it make if you don't believe in evolution?
    4. Thus, far from being inconsistent with economic theory, economists should expect a lot of people to have systematically crazy views about issues where the marginal cost of being wrong is zero.
    5. Political irrationality is not an ad hoc exception: It is just one topic on a long list that includes not just politics, but religion, philosophy, a lot of science, etc.
    6. Why is this inefficient? While the private cost of voter idiocy is zero, the social cost can be enormous.
  5. Public Choice After Wittman
    1. Wittman's contribution is important in spite of its flaws. His critique strongly suggests that some arguments for political failure are mistaken, while other arguments need far more elaboration.
    2. Wittman's work helps to expose the latent schizophrenia of many economists, who alternate between "voters are rational" and "voters are idiots" without comment.
    3. Wittman's work also indirectly shows that most of the efficiency arguments for democracy also hold for dictatorship. This further clarifies our thinking about political economy.
    4. Public Choice after Wittman becomes even more important. The ability of democracy to make government work is much more limited than previously realized.

Further Reading

Donald Wittman, The Myth of Democratic Failure

Geoffrey Brennan and Loren Lomasky, Democracy and Decision