Spring 2007: the high-water mark of self-confidence for economic neo-liberalism. In March, both Henry Paulson and Ben Bernanke publicly stated that they saw no danger of recession, and that the subprime fiasco had been ‘contained’. As late as mid-May, with the sub-prime crisis in full throe, still Bernanke felt able to say this:
Importantly, we see no serious broader spillover to banks or thrift institutions from the problems in the subprime market. In July, Paulson claimed:
This is far and away the strongest global economy I’ve seen in my business lifetime; and on August 1st,
I see the underlying economy as being very healthy. Neo-liberalism remained a movement triumphal around the world. No bunch of poverty-stricken mortgage-defaulters – who could conveniently be blamed for the little local difficulty – were going to derail this ideology.
Sure, occasionally the masters of the universe would admit that all was not entirely rosy: thus for example, again in 2007, Nick Stern announced that manmade climate change is the biggest market failure in history. Then again, some see manmade climate change as the greatest market success in history – for what are markets for, if not to externalise costs as much as humanly possible, in order to stay as competitive as possible? One person’s externality is another person’s (or rather: firm’s) profit-margin.
Spring 2007: Bryan Caplan’s The myth of the rational voter: Why democracies choose bad policies is published, to vast acclaim. According to the New York Times it’s
The best political book this year. Barron’s Magazine for instance finds it
Scintillating, outstanding. Gregory Mankiw of Harvard University, former chairman of the President’s Council of Economic Advisers and author of the best-selling economics textbook ever, remarks that
Caplan offers readers a delightful mixture of economics, political science, psychology, philosophy, and history to resolve a puzzle that, at one time or another, has intrigued every student of public policy. And so on (and on).
So, what is this idea that is proving so popular? What is The myth of the rational voter? It should be noted immediately that the title of Caplan’s book is somewhat misleading. Caplan believe that voters are reasonably rational in one very important sense – in the sense of self-interested instrumental rationality, the sense central to the ‘Public Choice Theory’ school of thought, of which Caplan is now a very prominent (if iconoclastic) member. Core to his case, in this book, are well-known truths of political science in an age of consumerist individualism, such as that voters are self-interestedly rational not to spend too much time trying to decide what the most rational way to vote is (because they are very unlikely decisively to influence the outcome). Voters are ‘rationally ignorant’.
To justify his title, Caplan clearly needs to go further than this. He first does so by suggesting that it is a myth that voters try their best coldly to work out what is rational for everyone and then vote accordingly.
So far, so obvious. Indeed, if this were merely meant to mean that voters vote in part according to their emotions, their passions, their general way of seeing and feeling the world, then it should certainly be admitted: though it is still not entirely clear that such an admission should really be taken to show that voters are not rational. For instance: according to the arguments made by Drew Westen in his hugely-influential The Political Brain (Obama himself has read it, so we are told), if we mean by ‘rational’ what the word really means, and not a rationalistic caricature thereof, then voters voting with passion generally are voting rationally. For voters generally vote their political values, which are what they want to see society uphold. What could make more sense – what could be more truly rational – than that?
Caplan allows that voters decisions are partly ‘expressive’ / ‘symbolic’ (pp.137-9), but he doesn’t seem much interested in values or passion. What Caplan actually has in mind in speaking of pervasive voter irrationality – what he most consequentially adds to the ‘rational ignorance’ hypothesis – can be seen most clearly in a central chapter in the book, entitled Evidence from the survey of Americans and economists on the economy (Interesting to note that economists are apparently exempt from belonging to a nation). Caplan’s method in this chapter is basically as follows: He contrasts the views of the public with the views of the enlightened (i.e. mainstream economists), and suggests that this shows that the public are irrational. In the particular sense that (according to Caplan) the public tend to have false beliefs about the economy and about other crucial matters of state.
This would perhaps be a convincing method if one were convinced by what economists believe to be true. Those beliefs include that top executives are not over-paid (p.64) and also (Caplan claims) that the minimum wage is inefficient and economically harmful (p.96). In a Caplanian economically-‘rational’ world, evidently, income differentials – and bankers’ bonuses – would be even more obscene than they are today. Moreover, Caplan’s central example, with which he opens the book (‘Protectionism is a classic example. Economists across the political spectrum have pointed out its folly for centuries, but almost every democracy restricts imports’; p.1) and which he dwells on over and over including at length in this key chapter, inspires no confidence, at least not in my part of ‘the political spectrum’. ‘Free trade’ is a nostrum beloved of neoliberal economists; but it was not practised by most powerful economies on their rise, is rightly feared by countries concerned about the take-over of their economy by other more powerful economies, and is part of the problem rather than of the solution in relation to vast ‘market-failures’ such as dangerous climate change. Caplan trots out the law of comparative advantage (p.38, p.66), but omits to consider whether it still applies in a globalised world of free movement of capital, or whether such a world (our world) is instead a world in which absolute advantage is all that counts. For under-performing countries cannot count on retaining their capital at all in order to do even what they are second-best at. (In fact, Caplan proposes an alternative ‘explanation’ for why poor countries stay poor – that their voters are, allegedly, even less ‘economically literate’ than rich countries’ voters (p.158).) Protecting the local, protecting labour, protecting our environment, protecting economies from foreign dominance, protecting the global economy from an excess of inter-dependence and a lack of resilience – in a world subject to the dominance of globalised capital, very many people plausibly argue that these protections are good things, not bugbears. The jury is still out, in the case of Protectionism vs. Free Trade. But Caplan disagrees: it is for him a strictly
empirical finding (p.147) that
voters underestimate the benefit of foreign trade across the board. It tells one a lot about Caplan’s standpoint and method that he is really not interested in the jury’s verdict, if it disagrees with that of the judges (i.e. of economists). The jury metaphor is in fact Caplan’s, not mine. He writes that ‘the jury is in’ (p.10) and that it has ruled that ordinary people do not understand the unrivalled benefits offered them by unregulated privatised markets, free trade, etc. . But he seems in the process to have forgotten what a jury is. It is the verdict of one’s citizen-peers – not of one’s own privileged workmates or one’s friendly ‘experts’.
If Caplan didn’t believe in markets so much, then one surmises that he would turn to the next best thing, as an alternative to democracy: rule by economist-kings. For Caplan, the basic test of rationality – which the people fail – is the following: they don’t agree with neo-liberal economists about political economy.
In order to demonstrate pervasive voter irrationality in the sense of voters having pervasively false beliefs, Caplan would need to actually show that those beliefs were false. But he simply doesn’t do this; he just presupposes that mainstream economists are nearly always right. Caplan is quite correct that the truth often hurts, and that people often tend to avoid it – but he fails to begin to prove that this truth is truer of ordinary voters than it is of neoclassical economists.
To support the thought that voters don’t have any rational motive to become politically-literate, and thus tend rather to use their vote to indulge their (alleged) prejudices – that they are rationally irrational -, Caplan impresses upon us how unlikely we are to influence the outcome of elections. (He patently overplays his hand in this regard at more than one point, as when he claims that the price of political irrationality is
zero, and that voting has
no practical efficacy (p.132, emphasis added). There is a crucial and obvious difference between low probability and no probability. Ordinary people (voters) understand the difference: see below.)
In the literature, this is known as the rational voter paradox: it is allegedly so unlikely that one will swing an election that it is irrational to vote at all. But perhaps professional political scientists should get out more: If they did so, into the real world of elections, they would find some telling counter-examples to this alleged paradox…
I was closely involved in one myself, in the local elections of Spring 2007. In Norwich, England, where I live, the Green Party failed to gain a seat from the Liberal Democrats by one vote. That made the difference between the Greens (who had 10 seats) becoming the official Opposition on the Council, and the LibDems (who had 11) remaining the Opposition. Norwich being one of very few strongholds of Green support in the country at that time, this narrow-as-can-be result made national news. For a little while at least, it held back the Green advance in Norwich, and probably nationally too.
Note this: if, as in this case, an election gets decided by one vote, then every single voter (and non-voter) decisively influenced the outcome. Anyone in the entire ward or constituency in question could have swung – did swing – that election.
But what about larger-scale elections? Caplan says this (p.131):
[I]n elections with millions of voters, the probability that your erroneous policy beliefs cause unwanted policies is approximately zero. The infamous Florida recounts of 2000 do not undermine this analysis. Losing by a few hundred votes is a far cry from losing by one vote. Well, not that far a cry. For Bush of course lost the election on every single measure except the one that the Supreme Court chose to stick with. There must surely have been a point, short of coming down to the very last vote, at which it would have been impossible for them to have sustained the fiction that Bush won. Maybe we were very close indeed to that point. Possibly if as few as 10 or 20 people less had voted Republican in Florida, and had swung Democrat instead, then the Supreme Court would have found it impossible to hold their thin red line against Gore.
While indeed it isn’t true to say that any single individual swung that election – that entire national Presidential election in 2000 – by their vote alone, there will surely be extended families that did so, or certainly small villages, or single activists in terms of the votes they swung. Think it through for a minute: an election which decisively influenced the course of the most powerful nation on Earth, an election that (for instance) decided life or death for hundreds of thousands of Iraqis, and which helped decide the very shape of the entire world’s economy in the noughties, actually was decided by every single township in Florida. If you were a Floridian on that day, then your vote together with that of your workmates or your neighbours literally made history.
So: it’s true that one’s chances of being the decisive influence upon an election outcome are very small. But it’s also true that it happens (and that when it happens as it did in my city, in Spring 2007, every last individual was crucial to the outcome). And that, when it happens, the effect can be very large. IF your vote makes the difference, then you can make quite probably the biggest difference anything that you ever did in your whole life makes.
So it is extremely unclear whether the ‘rational voter paradox’ really is a paradox, at all. Perhaps those pesky voters aren’t so irrational in bothering to turn out…
As it happens, if Caplan’s policy recommendations were acted on then one result would be that there would be more elections decided by just one vote than there already are. For Caplan is keen to keep the number of people voting down, on the grounds that those least likely to vote in elections are also on average the least literate and the least likely to agree with economists. On these grounds, he bluntly opposes ‘get-out-the-vote’ initiatives (p.157). He also notes (p.154) that men are more likely to agree with economists than women. Disappointingly, on this occasion he doesn’t draw the ‘logical’ conclusion – he fails to recommend the abolition of women’s suffrage…
Of course, the ‘rational voter paradox’ would remain a paradox after all, if the difference between one candidate winning and another doing so were of little or no consequence. And of course the alarming consequence of Market-Driven Politics is that it tends to have just that effect. When both candidates that one is choosing between are card-carrying members of the American Neo-Liberal Union, then why bother voting? Caplan’s attempt to entrench neoliberal economics as each nation’s basic wisdom and to allot elected politicians even less power than they already have is calculated precisely to reduce the voter’s incentive to bother educating themselves about politics, to vote rationally, and so forth. It appears that Caplanian thinking (and ‘Rational-Choice’ thinking in general) may be, as Karl Kraus might have put it, the very disease of which it takes itself to be the cure…
Spring 2007: the high plateau before the storm. If a week is a long time in politics, then 100 weeks plus must be some kind of eternity. For so much has changed since then. Everything from Gordon Brown being forced to ‘save the world’ by nationalising the banks, and the demise of all the independent U.S. investment banks and all the demutualised former building societies in this country, to the end of Iceland’s dream, and the beginning of Greece’s nightmare, and Cameron and Clegg’s ‘savage cuts’ here in Britain, and perhaps more imminent sovereign debt and commercial debt crises – and on we go.
When Caplan’s book first appeared on the shelves, his thesis of the superiority of markets to democracy must have seemed so natural, to many. For what is the essence of neo-liberalism? Perhaps this: an endless presumption in favour of markets.
In the final chapter of his book, Caplan attempts to rebut the charge that he rightly anticipates his readers are most likely to make against him: that of market fundamentalism. But his rebuttal isn’t likely to convince, given his willingness still to say things like this: ‘In the 1970s, the Chicago school became notorious for its
markets good, governments bad’ outlook. One could interpret my work as an attempt to revive that tradition. Placed on a foundation of rational irrationality, perhaps the Chicago research program that Friedman inspired can live again. (p.197). It is rather unclear what would count as ‘market fundamentalism’, if a revived full-blown ‘markets good, governments bad’ Chicagoism doesn’t qualify.
Caplan says that his fundamental presumption – markets good, democracy bad – can in theory be overcome; but the burden of proof is heavy in the extreme. Moreover; writing as I am doing in mid-2010, surely one can’t any longer presume in favour of markets. In fact, looking at Obama’s America for instance, it rather looks as if big government, and even democracy, is back. And in that context, a book like Caplan’s that quotes Ayn Rand and Ludwig von Mises as authorities deserving of uncritical approval, while treating Islamic banking as a joke (p.33) and wheeling out Marxian exploitation theory in passing as an example of an ‘obviously false’ theory (p.118), runs the clear risk of already being past its sell-by. It is perhaps worth adding that the new Preface to the Paperback edition of this book, which appeared in August 2008, fully a year after the financial crisis ‘debtonated’, dwells a great deal on the favourable reviews that the book had already received, and also on the main lines of objection that had to date been offered to it, but contains not a word on whether the events of that past year might have cast some little doubt on economists’ faith in markets. It certainly doesn’t contain words which might seem appropriate in relation to that faith, words such as ‘hubris’.
Returning then to the titular claim of Caplan’s book: that voters don’t vote in a way that will be rational for the collective. Here is how he puts it near the start of the book:
In my view, democracy fails because it does what voters want. In economic jargon, democracy has a built-in externality. (p.3) As Caplan sums up the argument of his entire book in his Conclusion (p.206),
Democracy is a commons, not a market. It is a truth universally acknowledged by neoliberal economists that any commons is in want of a market, or of being substituted for by a market. But again, what a difference a couple of years makes.
In October of 2009, Elinor Ostrom won the so-called Economics Nobel Prize for her important work, thoroughly debunking the tragedy of the commons myth. This is by no means the first such thorough debunking – in fact, Polanyi (in The Great Transformation) did a fine job at debunking ‘the tragedy of the commons’ well before Garrett Hardin even invented it. But it must be galling for neoclassicals to see their own beloved quasi-Nobel won by explicitly commons-tragedy-debunking work.
Caplan is quite right to see that politics / democracy is not a market, and in that respect he decisively advances upon the economic theorists of democracy. But we can now see that the conclusion that he draws from this observation, the conclusion that democracy should be largely substituted for by markets, is simply unwarranted, as well as being repugnant and potentially-disastrous. Let us see in more detail why.
Under what circumstances does a commons work well, and not suffer from the ‘tragedy’ that Hardin taught us to fear and expect and that Caplan expands upon? Polanyi, Ostrom et al tell us that the answer is: when people have established practices of working complementarily or together that either accidentally or (best of all) deliberately foster the common good. Democracy is supposed to mean: rule by the people. So: we need to build a people, not just a sea of individuals. The problem then with Caplan’s book is that it recommends moving in precisely the opposite direction. It sees democracy as a hopelessly-flawed attempt at summing individuals’ preferences, and proposes instead an allegedly better vehicle for summing individual rationalities: (more) markets. It would make us more thoroughgoingly consumers than we already are, and strip out the remaining elements of civic identity that ordinary people have.
How can one build a people, a demos? It’s not going to happen overnight; but it is already happening in some places. One powerful example is participatory budgeting, an experiment begun in Porto Alegre in Brazil, which is gradually spreading around the world (I know, because we are just now starting it on a small scale in Norwich). In this version of ‘deliberative democracy’, politicians gradually grant their constituents the right to determine how a progressively larger portion of their budget is spent. To the surprise, presumably, of the Caplans of this world: it works. Other versions of deliberative democracy such as citizens’ juries are also frequently proving successful.
So, rather than conclude from the people’s alleged foibles and failings that we should favour markets over democracy, perhaps we ought to actually try bringing about democracy (the rule of the people) instead. The point could be put thus: perhaps ‘democracies’ would be less likely to choose bad policies if they actually were democracies.
And here, one very hopeful point that emerges from Caplan’s book is that voters are generally altruistic (p.151). The ‘self-interested voter hypothesis’ is largely false; economists and public-choice-theorists have wrongly assumed that voters don’t vote for what they see as the good of the people. Caplan fears that this makes things even worse – for systematically misinformed altruistic voters will impose a worse societal outcome even than misinformed selfish voters (whose false beliefs will tend to cancel each other out more). But this fear can be turned around: to the extent that voters are not systematically misinformed (and I have argued that Caplan grossly over-estimates the extent to which they are, at least when compared to mainstream economists), and to the extent to which such misinformation as there is can be overcome (and that ought to be our task, in building better educational institutions, alternative media, etc), we have every reason to believe that democracy could not only exist, but could work very well indeed.
A key obstacle that needs overcoming if there is to be demo-cracy is the systematic misinformational bias of the media in favour of the interests of their main customers. Namely: of their advertisers. But while Caplan sees media-bias as a factor in the failure of actually-existing democracy, he not only sees it as a relatively small factor, but misidentifies its nature. The main thing he actually says, in this connection, is:
Journalism is a business. If consumers prefer news that fits their prejudices, journalists have an incentive to cater to them. (p.179) True – but it is a worrying mark of economic illiteracy not to be aware that the key product of commercial media is: audiences. Audiences – that is, vast and segmented groups of consumers – who can be sold to advertisers. And what most advertisers care about is reaching audiences with plenty of purchasing power. (They also quite like to avoid those audiences being alerted to any faults in the behaviour of the firms being advertised; that is, of themselves.) Thus the commercial media systematically distorts politics and economics to maintain the interest – and to favour the interests – of its relatively rich readers. Whereas it doesn’t much matter to them whether poorer readers exist or not. Commercial imperatives in the business that is media are such that the consumer-preferences of the poor are of little significance. In not seeing any of this, Caplan fails badly at his own test of empirical economics adequacy. One suspects that, ironically, he fails for the very reason that he promotes in his own pages. He fails to think clearly about the economics of the mass media, which reveals the truth of corporate power and its inegalitarian and harmful effects on citizens and on the democratic polity. Thinking clearly about that economics and politics would strike against his (Caplan’s) own political prejudices.
And yet, and yet: the rave reviews of Caplan continue. His star just won’t stop rising. Late last year (Dec. 8 2009), for instance, an article appeared prominently in the Guardian newspaper entitled: How voters’ whims could scupper Copenhagen: ‘Rationally irrational’ voters could stall any deal on the environment. It was basically a puff piece for Caplan. To be fair to Caplan’s thesis, it is of course perfectly true that democracy has a dire difficulty dealing with long-term issues such as management of our climate. But then again, so do markets. The problem is fundamentally one of a short-termism which is just humanly very difficult to escape. Future generations don’t vote – but neither do they play the markets. There is a real issue as to whether publics in so-called ‘mature’ democracies can/could ever be got to accept the kind of policies that are needed now to keep the planet liveable. Getting people to really care about the future after they are gone is hard; but there is absolutely no sign that Caplan’s preferred alternative will change that state of affairs. In fact, all indications are to the contrary. Carbon-trading will not keep the coal in the ground the burning of which would seal the fate of the Maldives, and Tuvalu, and, further down the line, of all our children.
So one has to ask: why, apart from the enduring attractions of feeling cleverer than the mass of dumb voters, is Caplan becoming so beloved of his public? The answer, presumably, is that his readers, existing in and in a good number of cases profiting from a world still awash with neoliberal ideology, mostly still think that untrammelled capitalism is the only game in town. They have not realised that this vast market-failure that is the financial-cum-economic crisis changes the rules of the game.
Similarly with the climate crisis: tragically, all the solutions on offer at Copenhagen that had any ‘legs’ with the developed world and with the new China-India axis were based around carbon trading, just as Kyoto has been – and just as Caplan recommends (p.33). Sub-prime carbon, anyone? The world’s financial markets are desperately trying to go on living as if it were still Spring 2007… Whereas: If the lessons of the financial meltdown had really been learnt, then we wouldn’t be rushing to sell off banks that are still TBTF.
But the lessons apparently haven’t been learnt. And so it’s worth thinking through for a minute what the Caplanian prescription – of less democracy, and more markets -, would really mean. It would mean that commercial imperatives prevailed virtually everywhere. Thus it would mean, for instance, faster progress than countries like Britain have already seen toward the dismantling of a public health service. The NHS was set up with the votes of soldiers, labourers, and so forth. When the voters that count are only pounds or dollars, then full privatisation is on the way. For everything. (Indeed, Caplan goes so far to insist that even ‘property rights and contracts are possible without government approval.’ (p.194) His example for this, apparently offered without irony, is rather telling. It is that ‘That is why one drug dealer can meaningfully tell another, ‘You stole my crack’ or ‘We had a deal’.’ More truly laissez-faire – i.e. lawless – economics is apparently what we can look forward to, in Bryan Caplan’s brave new world.)
Caplan’s Minervan owl surely flew out of sight already, in 2008 at the latest. The myth of the rational market is dead as a derivative. It looks like, if we are going to have a future worth having, then we have no alternative but to find a way of restoring and building this worst of all possible systems except for all the other systems: democracy. The longer-term background against which it is probably most useful to see Caplan is as the latest incarnation of an idea that is endlessly popular with elites: the idea that the biggest danger for a ‘democracy’ is the people. It goes back to the debates in France over how far the Revolution ought to extend political rights, and in England and the USA about what it means to extend the suffrage to people who are ‘uneducated’ and presumptively not capable of putting the general interest before their own. Famous previous versions of this idea have been presented by Samuel Huntington, the Trilateral Commission, Leo Strauss, Joseph Schumpeter, Walter Lippman, and earlier by Edmund Burke and by some of the Girondins and indeed by most of the founders of the United States of America. These thinkers have argued that ‘democracies’ work to the extent that the great unwashed do not act on the rights they have in a democracy, such as voting, free speech, protesting, and so forth, and to the extent that an elite rules instead. The twists that Caplan adds are primarily these two: first, that the uneducated don’t vote selfishly, but the reason that they are not capable of putting the general interest forward effectively is simply that they (allegedly) have systematically wrong ideas about what is in ‘the general interest’ of the country; and second, that the best way to stop them from messing everything up is to deprive their votes of effectiveness by suborning them to as unfettered a market as is feasible. It is because of this second point that Caplan is a true neo-liberal ideologue, a very model of the kind of writer who bestrode the intellectual universe – in Spring 2007.