Economic Journal Press Release:
Caplan in The Times of London
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
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
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)