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1. IV. Political Market Imperfections The citizen-voter: Citizens use votes, lobbying, campaign contributions, etc. to demand political goods. Voters will tend to support those candidates whom they believe will provide them with the most political goods, services, and transfer benefits net of personal costs. Rational Ignorance – voters are typically poorly informed. Low incentive to be informed on generic issues – “It is more likely that a voter will be struck by lightning on the way to the polls than it is that his vote will decide who is elected mayor or county commissioner…” Since you won’t decide the outcome there is little incentive to study the issues and research the positions of the alternative candidates.
2. “The scanty information voters have on most political issues – a fact confirmed again and again by voter surveys – merely indicates that they are responding to the political incentive structure.” 3. Rational ignorance analysis a. costs of being informed: b. benefits of being informed: c. outcome
3. 4. Voter apathy a. Costs b. Benefits 5. Problems with aggregating preferences – elected/appointed representatives must actually have information on everyone’s preferences in order to accurately vote (they must know what the median voter wants).
4. Relevance of Rational Ignorance and (Rational) Voter Apathy Example: choices about import restrictions (tariffs, quotas, etc.) have more impact on the price of apparel than finding a particular sale price or consistently cheap store, but since an individual voter has little impact on electoral outcomes, it is more logical to spend time finding the sale price than becoming informed on trade policy. So why do people vote at all?
5. 6. Expressive Voting: based on a disconnect between the choices and the consequences A voter receives utility from voting for candidates and issues they consider worthy. Lack of a decisive vote lowers the cost of political expression.
6. Example Suppose you are voting on a candidate who (all else equal) will support a proposal to raise tariffs on imported textiles claiming that it will “save US jobs” (several thousand textiles jobs will be saved, but of course thousands of other jobs in export and non-trade sectors will be lost – you do not know this because of rational ignorance). You believe in protecting US jobs, but the bill will increase your annual costs (clothing, etc.) by $100. You obviously would not privately donate the $100. BUT suppose you have a one in one million chance of altering the outcome of the election (realistically less in large elections). Your expected net cost of voting for the candidate is $100/1,000,000 = $0.0001. One one-hundredth of one cent! So if you get more than 1/100 of a penny worth of utility from ‘supporting US jobs’ then you will vote for the candidate.
7. Prisoner’s Dilemma Suppose you gain $1.00 worth of benefit from expressive voting. All Other Voters Voter’s Strategies Majority for Candidate Majority Against Vote For – $99 $1 Vote Against – $101 – $1 Expressive voting is only a problem when there is a difference between the voter’s private benefits what they feel is good for the general public, but there are many instances where this is the case.
8. “Attempts to secure private advantage through political influence are masqueraded behind the rhetoric of public advantage”. Because of expressive voting, the “rhetoric” does not have to convince the individual it will be better for him/her, only that it will be better for the public good. And the interest groups can take advantage of rational ignorance to do this.
9. Are rational ignorance and expressive voting really a problem? Do competing interest groups simply make political markets, and democracy as a whole, efficient? Democracy could overcome rational ignorance alone (the miracle of aggregation). Example 1: suppose bad candidate X opposes good candidate Y. With 100% rational ignorance then there is a 50-50 shot we get the bad candidate. But suppose there is 99% rational ignorance AND ALL IGNORANCE ERRORS ARE RANDOM. There are no systematic errors (non-biased errors). Then the 99% cancel each other out and the 1% get us the good candidate.
10. Suppose a politician gets campaign funds from “big oil” and kills new (beneficial) policies. Uninformed voters may vote randomly for or against him, but the few informed voters will vote against him and democracy works great!! Of course, this ignores the fact that the politician can use those campaign funds to sway the ignorant voters to vote for him and democracy fails (this is the “rational choice” view). BUT, what if errors by voters are not random? Are voter errors due to rational ignorance and expressive voting systematic on questions of direct political relevance? Yes, there are systematic errors (biases).
11. Some Major Biases: Anti-market Bias: a tendency to underestimate the economic benefits of the market mechanisms. One of the most common errors is to equate market payments with transfers. A transfer is a movement of wealth from one person to another. Profits are not a transfer (not gifts from poor to rich). Profits give incentives to reduce production costs, move resources from less-valued to more-valued industries and to come up with new products. 2. Anti-foreign Bias: a tendency to underestimate the economic benefits of interaction with foreigners.
12. Make-work Bias: a tendency to underestimate the economic benefits of conserving labor. Newcomb (1893) – “The idea that the utility and importance of an industry are to be measured by the employment which it gives to labor is so deeply rooted in human nature that economists can scarcely claim to have taken the first step towards its eradication.” Blinder (1987) – “Jobs can be created in two ways. The socially beneficial way is to enlarge GNP, so that there will be more useful work to be done. But we can also create jobs by seeing to it that each worker is less productive. Then more labor will be required to produce the same bill of goods. The latter form of job creation does raise employment; but it is the path to rags, not riches.
13. Pessimistic Bias: a tendency to overestimate the severity of economic problems and underestimate the (recent) past, present, and future performance of the economy. The Survey and Biases – Questions 1-11: Regardless of how well the economy is doing, there are always some problems that keep it from being as good as it might be. Below is a list of reasons some people have given for why the economy is not doing better than it is. For each one, tell me if you think it is: 0 = not a reason at all 1 = a minor reason 2 = a major reason
14. Foreign aid spending is too high. Public: 1.55; Economists: 0.15; Enlightened: 0.25 3403: 0.92; Econ: 0.95 → Anti-foreign Bias. There are too many immigrants. Public: 1.22; Economists: 0.21; Enlightened: 0.31 3403: 0.55; Econ: 0.67 → Anti-foreign Bias. Too many tax breaks for business. Public: 1.30; Economists: 0.63; Enlightened: 0.83 3403: 1.21; Econ: 1.00 → Anti-market Bias
15. Education and job training are inadequate. Public: 1.55; Economists: 1.61; Enlightened: 1.63 3403: 1.33; Econ: 1.18 Too many people are on welfare. Public: 1.60; Economists: 0.71; Enlightened: 0.95 3403: 1.07; Econ: 1.05 → Pessimistic Bias People place too little value on hard work. Public: 1.43; Economists: 0.81; Enlightened: 0.82 3403: 1.07; Econ: 0.98 → Pessimistic Bias
16. Business profits are too high. Public: 1.27; Economists: 0.19; Enlightened: 0.40 3403: 0.78; Econ: 0.50 → Anti-market Bias Top executives are paid too much. Public: 1.59; Economists: 0.68; Enlightened: 0.82 3403: 1.32; Econ: 0.93 → Anti-market Bias Technology is displacing workers. Public: 1.26; Economists: 0.26; Enlightened: 0.42 3403: 1.14; Econ: 0.75 → Make-work Bias
17. Companies are sending jobs overseas. Public: 1.59; Economists: 0.47; Enlightened: 0.60 3403: 1.30; Econ: 1.18 →Anti-foreign Bias Companies are downsizing. Public: 1.51; Economists: 0.47; Enlightened: 0.62 3403: 1.16; Econ: 0.90 →Make-work Bias
18. Questions 12-15 Generally speaking, do you think each of the following is good or bad for the nation’s economy, or don’t you think it makes much difference? 0 = bad 1 = doesn’t make much difference 2 = good 12. More women entering the workforce. Public: 1.46; Economists: 1.74; Enlightened: 1.66 3403: 1.72; Econ: 1.47 → Pessimistic Bias
19. 13. Increased use of technology in the workplace. Public: 1.58; Economists: 1.99; Enlightened: 1.82 3403: 1.75; Econ: 1.89 →Make-work Bias Trade agreements between the US and other countries. Public: 1.33; Economists: 1.87; Enlightened: 1.78 3403: 1.76; Econ: 1.86 →Anti-foreign Bias The recent down-sizing of large corporations. Public: 0.61; Economists: 1.40; Enlightened: 1.34 3403: 0.71; Econ: 0.83 → Make-work Bias
20. Three views of democracy: Naïve view: democracy works because it does what voters want. Rational choice view: democracy fails because it doesn’t do what voters want. Rational ignorance, expressive voting and special-interests rig the political game against the median voter. “Rational irrationality” view: democracy fails because it does what voters want and they want what is bad for the economy. Systematic biases insure that democracy cannot result in optimal policies.