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The
Trouble With Democracy
DIGG THIS
Caplan, Bryan. 2007. The
Myth of the Rational Voter: Why Democracies Choose Bad Policies.
Princeton, N.J.: Princeton University Press, 276 pages
A more complete
analysis of the Caplan book written by Walter Block will soon be
published by the Journal of Libertarian Studies. The present
book review is aimed primarily at the layman; in what appears below,
all footnotes, references, many qualifications and the entire discussion
of several technical issues have been deleted from that longer JLS
version of the review of this book.
 I.
Introduction
Caplan’s
book is like the little girl with the curl: when it is good, it
is very, very good; when it is bad it is horrid. This review is
organized around the following headings: in section II we deal with
the good, section III is devoted to the bad, and in section IV we
deal with the truly horrid. I conclude in section V.
II.
The Good
Let us begin
on a positive note. This publication has several things going for
it, all of them very rare and important.
The thesis
of this book is correct, and this alone is no mean feat.
Why is it that democracies such as the U.S. widely support such
obviously counter-productive policies as minimum wage laws, rent
control and tariffs? Caplan rejects as an incomplete explanation
the familiar notion that minority concentrated special interest
groups are able to trump the public good that would be enjoyed by
the majority: the disparate electorate is too unfocussed to vote
for their own interests. Instead, he offers the view that voters
are irrational; as individuals they lose nothing from indulging
in their pet erroneous theories in the ballot box; hence, since
there are no negative repercussions from so doing, at least as individuals,
this anti-social and anti-economic behavior persists.
No one
who has his finger on the pulse of the electorate’s behavior can
doubt this. Speaking from my own experience as a college instructor
of economics, the preponderance of opinion expressed by my introductory
students in economics illustrates and exemplifies the four fallacies
uncovered by Caplan: anti-market bias, anti-foreign bias, make-work
bias (there are only so many jobs to be done, and if someone hogs
up some of them, by working harder and smarter or with better tools
than others, there will be just that much less work to be done,
and this is the cause of unemployment), and pessimistic bias.
Caplan
brings something truly unique to the table. It would be one thing
if economists had been silent on this issue of irrational, biased
and ideologically intent voters. Worse, virtually all of them have
been wrong with regard to it, dead wrong. Caplan speaks no truer
words when he says: "If I am right, then a good deal of published
research (on this matter) is wrong." Most members of the economics
profession have been modeling what the average citizen does in the
ballot booth along the lines of how he acts at the check-out counter.
But, says Caplan, "the analogy between voting and shopping
is false. Democracy is a commons, not a market." Even had this
author’s insight that voters indulge their personal biases not been
new it would still have been valuable. But this book constitutes
a fresh look at the matter, and that makes it even the more precious.
Our author
takes a thoroughly deserved pot-shot at the public choice school
of thought, a perspective that has been given far too much of a
free ride in my opinion. No book that accomplishes this one task,
and Myth certainly does this, can be all bad. In the view
of Caplan: "Once a few pioneers analogized politics to markets,
however, there was an unfortunate bandwagon effect. It is time to
jump off the bandwagon." Yes, indeed.
This paragraph
alone on the minimum wage law is worth the full price of admission:
"… most people reject the view that pushing up wages increases
unemployment. When I teach intro econ, linking unemployment and
excessive wages frequently elicits not only students’ disbelief,
but anger: How could I be so callous? But irrationality about
labor demand is selective. What happens when my outraged students
reach the ‘Salary Requirements’ line on job applications? They could
ask for a million dollars a year, but they don’t. When their future
rides on it, students honor the economic truism that labor demand
slopes down." I am writing this right before the beginning
of the fall semester, 2007. I am dying to pull this one on
my next batch of students. Thanks to Caplan, I now can.
This author
is a master of the reductio ad absurdum. He employs it to good effect
with regard to: Jain nudity, Mosca and Jihad, suttee, Lysenko, betting.
In this regard he asks: "How many refrain from buying appliances
because it ‘destroys jobs’"? With this single sentence, he
beautifully focuses on the essence of Hazlitt's Economics
in One Lesson.
Caplan offers
us a magnificent critique of the self-interested voter hypothesis.
SIVH is the notion that people vote their pocketbooks, not their
ideologies. I confess that I, along with many other people, have
been taken in by this. However, did you know that "the elderly
are not more in favor of Social Security and Medicare than the rest
of the population"? That men are more pro-choice than women?
That males vulnerable to the draft support it at normal levels?
These insights really blew me away.
All things
taken together, The Myth of the Rational Voter is a plus:
the positives far outweigh the negatives. I am glad I read it. I
learned a lot from it. I underlined, perhaps, one quarter of the
sentences in it as being important. I would recommend it, highly,
to any other economist. And also, certainly, to the layman.
III. The
Bad
With this
very positive review so far, the reader may be excused for thinking
that I am a big fan of this book. I am not. For, as important as
are the positive characteristics of this volume, there are strong
negative ones as well. I would be derelict in my duty did I not
mention its flaws. These are many and serious.
This publication
was written by a neoclassical economist, not an Austrian. It thus
comes replete with all sorts of economic fallacies. Also, my previous
experience with Caplan was that if he was not a praxeologist, at
least he was a libertarian. Sadly, it is difficult to defend this
point in the present case. Let us consider some specifics.
Caplan
thinks there are "innumerable ways that markets can fail."
There are no such things, mainstream economists like Caplan to the
contrary notwithstanding.
Caplan is highly
problematic on the issue of "market monopoly." Let me
assure him, there is and can be no such thing. A monopoly implies
a restriction on entry, but this is logically incompatible with
a market. To the extent that a true free market exists, there are
no legal entry restrictions, and hence it is a logical impossibility
for there to be a monopoly. Of course, for neo-classical economists
such as Caplan, entry restrictions are only a sufficient condition
for monopoly, not a necessary one, as it is for Austrians. For him,
if the numbers of corporations are few enough, that alone, hard
as this is to believe, constitutes a monopoly. So it is a market
failure if entry is unrestricted by law, but there are fewer firms
in an industry than Caplan and his cohorts think there should be.
For shame.
But acceptance
of "market failure" by no means exhausts Caplan's neoclassical and
anti-libertarian mistakes. Let us consider several other difficulties:
He errs by
classifying opposition to tradable rights (TERs) as an instance
of anti-market bias. Not so. Rather, TERs are akin to tradable rape
or murder rights. Pollution is necessarily an invasion or violation
of property rights. It constitutes a trespass of smoke and dust
particles emanating from the aggressor to the lungs or land of another
person. As such, there is not and cannot be a "right" to do so.
Just because TERs "get you more pollution abatement for the same
cost" does not gainsay this fact. Tradable murder or rape or assault
and battery "rights" would undoubtedly function in the same manner,
but this does not in any way render them compatible with libertarian
theory.
According to
Caplan, "Almost all economists recognize the core benefits of the
market mechanism; they disagree only at the margin." It is difficult
to square this statement with the fact that more than 600 members
of this profession signed a statement
to the effect that the minimum wage law would have beneficial effects
on unskilled workers. Some of them, appallingly, can only be characterized
as leading members of the economics profession. For example: Henry
Aaron The Brookings Institution; Kenneth Arrow*+ Stanford University;
William Baumol+ Princeton University and New York University; Rebecca
Blank University of Michigan; Alan Blinder Princeton University;
Peter Diamond+ Massachusetts Institute of Technology; Ronald Ehrenberg,
Cornell University; Clive Granger* University of California, San
Diego; Lawrence Katz Harvard University (AEA Executive Committee);
Lawrence Klein*+ University of Pennsylvania; Frank Levy Massachusetts
Institute of Technology; Lawrence Mishel Economic Policy Institute;
Alice Rivlin+ The Brookings Institution (former Vice Chair of the
Federal Reserve and Director of the Office of Management and Budget);
Robert Solow*+ Massachusetts Institute of Technology; Joseph Stiglitz*
Columbia University (*Nobel Laureate + Past president, American
Economics Association).
Particularly
egregious on Caplan's part is the mention of Stiglitz and Krugman
as exemplars of free enterprise, given that the former was one of
the more high-profile signatories of this minimum wage petition,
and has pushed for socialist nostrums his entire career. As for
Krugman, he is widely, appropriately and justly known as the "resident
socialist of the New York Times."
Caplan also
comes out in support of the North American (so called) Free Trade
Agreement. But Nafta is no more than what in an earlier and simpler
epoch used to be called a customs union: lowering trade barriers
within the arena comprised by the union, but in some sense raising
them between the parties involved in the agreement and the outside
world. Does this constitute an improvement in economic welfare?
Possibly, but it is exceedingly difficult to make this case. But,
surely, an economist favoring the Austrian tradition, or even embodying
libertarianism, would have strongly distinguished NAFTA-type treaties
from full free trade. Perhaps Caplan did not want to be characterized
as a "market fundamentalist." More about this below.
Caplan's attack
on make-work bias is very welcome, but his grasp of the enormity
of this very, very basic economic fallacy falls somewhat short.
He approvingly cites Blinder to the effect that "The socially beneficial
way is to enlarge GNP, so that there will be more useful work to
be done." But this is mistaken. The ideal is to eliminate the need
for work in order not to do "more useful work." Particularly
disappointing is that Caplan gets it right, entirely so, on the
very next page when he quotes Bastiat: "Wealth ... increases proportionately
to the increase in the ratio of result to effort. Absolute
perfection, whose archetype is God, consists in the widest possible
distance between these two terms, that is, a situation in which
no effort at all yields infinite results." Was this a mere typographical
error on Caplan's part? Perhaps every dog deserves one bite? No.
This is extremely unlikely, for Caplan, unhappily, repeats this
error once again: He says, approvingly, "Technology often creates
new jobs." To be sure, this cannot be denied. But it is to be regretted,
not exulted in. Remember, the goal is no jobs, zero
jobs, nada jobs and infinite productivity.
Why is downsizing
"dirty" work? Yes, Caplan merely cites another writer, Blinder,
who offers this opinion, he does not himself say it. But to cite
it approvingly (that is, without remonstrating with that author),
is in effect to accept and support it.
Caplan denies
that taxes are too high and maintains it is but a minor reason for
the economy not being "as good as it might be." This is a more than
passing curious opinion for a supposed free market economist to
offer. Nor, again, can it be dismissed as a mere slip of the pen,
since he repeats it: "locating clear-cut waste ... in government
functions ... is difficult." Nonsense. Locating clear-cut "waste"
[why the scare quotes around the word "waste"?] is easy.
For a start, get rid of entire departments of the U.S. federal government.
(It seems strange that a Republican candidate for president of the
U.S., Ron Paul, can see
all sorts of government waste while Caplan cannot.) To say that
agriculture and education could be dispensed with holus bolus is
a no-brainer. As the number of farmers has decreased, the number
of agricultural bureaucrats has increased. We got along with the
Department of Education before 1980, and can easily get along without
it now. If our troops were but confined to the U.S. and we ceased
being the world’s policeman, the department of defense (actually,
as presently constituted, the department of offense), could be cut
back radically while improving the safety of the US citizenry.
And this is just the tip of the iceberg (see here
on this). How about, also, privatizing the post office, ridding
ourselves of the baleful Bureau of Land Management, army corps of
engineers, FEMA, etc., etc. Locating government waste is "difficult,"
indeed.
Of course the
federal budget deficit is too big, way too big, and this seriously
keeps the economy from doing better than it is, despite Caplan’s
views to the contrary on this matter. For the libertarian at least,
the budget deficit should be zero, and the entire government sector
not much more than that, if it exists at all. How is the public
debt to be repaid? Monetizing it creates inflation. Raising taxes
even more will put a spoke in our economic wheel, compared to the
situation where this does not obtain. And reneging, a delightful
prospect to a libertarian, will place us in the category of a banana
republic.
Caplan’s view,
"Top executives are paid too much" is highly problematic.
Caplan backs the wrong horse: "the salaries of the captains
of industry provide incentives to cut costs, create and improve
products, and accurately predict consumer demand." But our
author reckons as if the entire Michael Milken episode did not occur.
I refer here to the market’s way of ensuring that executive
pay does not exceed that level needed to insure that business leaders
have "incentives to cut costs," etc. But in the absence
of the salutary effects of Milken’s "hostile" takeovers,
it is unclear that this function is now operating, except in a very
attenuated manner. Caplan’s mistake is in thinking that present
executive remuneration is roughly equal to market levels.
Does he think we are now operating under something very akin to
full free enterprise?
Caplan avers:
"The public thinks that taxes are too high, and infers that
tax cuts are a good thing. My interpretation is that noneconomists,
avid pessimists, are convinced that government squanders their money.
They therefore naively hope to pay for tax cuts by cutting unpopular
programs and ‘waste.’ Economists, contrary to their laissez-faire
image, are skeptical. Unpopular programs are only a small fraction
of the budget, and ‘waste’ cannot be identified in an uncontroversial
way."
Again, Caplan
and I are on opposite sides of this matter. To be sure, government
waste cannot be defined uncontroversially among all members of the
public, but it certainly can be amongst libertarians. This
is yet another example of this author distancing himself from the
charge of being a "market fundamentalist." But are not
libertarians necessarily market fundamentalists? I am an economist,
and I am not at all "skeptical" about the claim that taxes
are too high, that most if not all governmental expenditures are
wasteful, and that this is an important explanation for the fact
that the economy is not doing as well as it might otherwise be doing.
In the course
of discussing gas prices and taxes Caplan relieves himself of the
following howler: "Suppose you want to reduce pollution and
congestion. You could do it by command-and-control: emissions regulations,
annual inspections, carpool lanes. But economists realize that the
market mechanism is a more efficient method. A tax on gas gives
people an incentive to reduce pollution and congestion without specifically
dictating anyone’s behavior." Yes, you read that correctly:
for Caplan, a "tax on gas" is a "market mechanism."
This reminds me of that old joke: "Do you know the difference
between a bathroom and a living room? No? Well, don’t come to my
house, then." In like manner we can ask: "Do you know
the difference between a compulsory tax levy and a voluntary
market transaction, Caplan? No? Well, don’t get into political economy,
for this is the most basic distinction in that entire field."
Evidently, however, Caplan is of the opinion that a tax does not
"dictat(e) anyone’s behavior" forsooth. Perhaps this George
Mason professor has never refused to pay a tax. Let me then offer
him some free advice: the government dictates that these
monies be paid; beware of not paying them.
One last of
the minor problems with this book: It is somewhat of a logical contradiction,
okay, okay, there is a tension between, on the one hand calling
upon economists to educate the great unwashed, and on the other
insisting that they are irrational, and not open to economic analysis,
as does Caplan all throughout his book. A further difficulty: our
author is calling upon his professional colleagues to instruct the
public as to the niceties of the dismal science. But, he is relying
on a weak reed indeed. Many, many economists cannot be relied upon
to support the free enterprise position even on basic issues such
as the minimum wage law or tariffs.
IV.
The Horrid
The truly
horrid part of this book is Caplan’s totally gratuitous attack on
Ludwig von Mises and Murray N. Rothbard in particular and on the
Mises Institute in general, on grounds of "market fundamentalism."
And of what, pray tell, does this particular sin consist? Caplan
offers Kuttner’s definition:
"There
is at the core of the celebration of markets a relentless tautology.
If we begin, by assumption, with the premise that nearly everything
can be understood as a market and that markets optimize outcomes,
then everything comes back to the same conclusion – marketize!
If, in the event, a particular market doesn’t optimize, there
is only one possible inference: it must be insufficiently marketlike."
Caplan is not
only at great pains to accept the validity of this concept, but
also to defend economists in general against so monstrous a charge.
And here, I totally agree with him: most economists, unhappily,
are not at all market fundamentalists. Economists, he tells us have
not at all had the concept of "market failure" thrust
upon them, unwillingly. Rather, yes, they have taken to it like
a duck to water. Second, Caplan is adamant in his defense of Milton
Friedman in this regard. Again I fully concur. "Friedman …
has no quasi-religious need to defend the impeccability of the free
market." Caplan writes this as if it is a badge of honor. Hopefully,
I may be excused for seeing this in an entirely different light.
Who, then,
if not Friedman, does have a "quasi-religious need to
defend the impeccability of the free market"? Caplan answers
as follows:
"The
only plausible candidates are the followers of Ludwig von Mises
and especially his student Murray Rothbard. The latter does seem
to categorically reject the notion of suboptimal market performance."
In support
of this infamous and heinous indictment, Caplan quotes Rothbard:
"Such
a view completely misconceives the way in which economic science
asserts that free-market action is ever optimal. It is optimal,
not from the personal ethical views of an economist, but from the
standpoint of the free, voluntary actions of all participants and
in satisfying the freely expressed needs of the consumers. Government
interference, therefore, will necessarily and always move away
from such an optimum."
Let me
confess at this point that I too am a "market fundamentalist"
as least insofar as support for this contention of Rothbard is concerned.
What Rothbard says makes complete sense. How can coercion, the sine
qua non of government, help improve economic welfare? Surely, there
must be at least one person victimized by the initiation of aggression,
and his welfare must necessarily decrease. The difficulty with the
claim that the government necessarily reduces economic welfare is
that all such interactions make at least one person better
off: the statist. In order to reach the conclusion desired by Caplan,
that that government necessarily reduces economic welfare,
one would have to claim that the gain to the aggressor is less than
the loss to the victim, and this cannot be done without resort to
interpersonal comparisons of utility. Caplan, as neoclassical economist,
is willing to embrace so dubious a claim; he treads where Austrians
simply will not go.
Caplan
is erroneous is attributing to Mises the appellation of market fundamentalist.
Exhibit "A" in this matter is that this leader of Austrian
economics was a limited government minarchist, not a laissez faire
anarcho-capitalist. Exhibit "B" is that Mises, as does
Caplan, misunderstands the Austrian case against the supposed market
failure of monopoly. Mises thought it was possible for such an institution
to exist in the free marketplace.
Caplan continues
his unwarranted attack:
"Both
Mises and Rothbard have passed away, but their outlook – including
Ph.D.s who subscribe to it – lives on in the Ludwig von Mises
Institute. But groups like these have basically given up on mainstream
economics; members mostly talk to each other and publish in their
own journals. The closest thing to market fundamentalists are
not merely outside the mainstream of the economics profession.
They are way outside."
There are grave
problems here too.
Yes, Austrians
have indeed "given up" on the views of mainstream
economists. These are rejected as erroneous, when they depart from
praxeological insights. But we most certainly have not "given
up" on mainstream economists themselves, Caplan specifically
included, as he full well knows, as he has been embroiled in a back
and forth debate for almost a decade now, where we have been trying
to convince him of the error of his ways.
Reading Caplan
one would get the impression that Austrianism is some sort of cult
that disdains, or eschews, dealing with non-members. Nothing could
be further from the truth. If anything, matters are the very opposite:
it is the neoclassicals, not the praxeologists, if it is
anyone, who refuse to interact with the other; who characterize
the other as a cult; who claims there is little benefit to be gained
by an interaction between the two. And, as it happens, contrary
to Caplan, and despite the disdain with which the mainstream views
the Austrian school of economics, there have been numerous interactions
between the two, at least in the form of debates, sometimes very
explicit, the overwhelming majority of which have been "won"
by the latter.
These charges
that Caplan launches against the Austrians are very serious; very
serious indeed. How is it then that they come accompanied by not
a single solitary footnote, reference or citation? Caplan is a very
careful researcher. His book contains only 276 pages, and no fewer
than 56 of them are devoted to reference, citations and footnotes.
Yet, he could not spare even one of them to buttress his wild-eyed
accusations against the Austrians. Why is this? Our answer can only
be speculative, but a plausible explanation is that Caplan is only
venting his own quasi-religious views, which are similar in character
to those of which he accuses the great unwashed, the ignorant prejudiced
voting public. It is difficult to reject this hypothesis. As good
logical positivists, we need an empirical "test" for this
contention. Here is the evidence: Caplan is himself guilty of engaging
in market fundamentalism himself, throughout his book. (For example,
he accepts the concept of "economic truism"; this sounds
like "market fundamentalism" to me.) This suggests that
he is indeed guilty of harboring motivations of this sort. He is
a self-hater, in other words, who benefits from condemning vices
he sees in himself.
In the view
of Caplan, "A person who said, ‘All the ills of markets can
be cured by more markets’ would be lampooned as the worst sort of
market fundamentalist." I, myself, would never make such a
statement. But this is because I do not see any "ills of markets"
in the first place. Did I but, then I would gladly embrace this
statement. But are not markets plagued by imperfect information?
Not a bit of it. Rather, this is a characteristic of the human condition,
not markets. But are not markets plagued by products such as pornography,
prostitution, addictive drugs, and other harmful goods and services
such as French fries, tobacco, race car driving, alcohol, etc? Not
at all. Rather, the existence of these goods and services are eloquent
testimony to the efficacy of markets. If blame there is for such
items, it must be laid at the proper door: not markets, but the
choices of human beings. All "markets" consist of is the
concatenation of all voluntary commercial interactions. Market "fundamentalism,"
then, consists of no more than an appreciation of the fact that
free trade promotes economic welfare, and is the only system compatible
with economic liberty. If this be "market fundamentalism,"
let opponents make the most of libertarian support for this system
of "capitalist acts between consenting adults."
According to
Caplan, "Imagine if an economist dismissed complaints about
the free market by snapping: ‘The free market is the worst form
of economic organization, except for all the others.’ This is a
fine objection to communism, but only a market fundamentalist would
buy it as an argument against moderate government intervention."
Say what? What is this? "Moderate government intervention"?
One wonders how Caplan squares his advocacy of "moderate government
intervention" with his well-known support for anarcho-capitalism?
It is also difficult to see how he can reconcile his opposition
to "market fundamentalism" with this statement of his:
"… like all trade, international trade is mutually beneficial…"
But that is all that constitutes markets: trade between people
on a voluntary basis.
A final point
on this topic, and this by far the most astounding. Caplan and Stringham
won a $25,000 Templeton Prize. And here is the abstract of their
prize-winning paper: "The political economy of Ludwig von Mises
and Frédéric Bastiat has been largely ignored even by their admirers.
We argue that Mises' and Bastiat's views in this area were both
original and insightful. While traditional public choice generally
maintains that democracy fails because voters' views are rational
but ignored, the Mises-Bastiat view is that democracy fails because
voters' views are irrational but heeded. Mises and Bastiat anticipate
many of the most effective criticisms of traditional public choice
to emerge during the last decade and point to many avenues for future
research."
As can be seen
by this admission, Caplan’s book, and the entire research program
of this author on the drawbacks of democracy, owes a great self-confessed
debt to that "market fundamentalist," Ludwig von Mises.
How, then, does he come to bite the (intellectual) hand that feeds
him? Truly, amazing.
Welcome to
the wonderful world of "market fundamentalism," Caplan.
V. Conclusion
I end not
with a problem of commission, but with a, well, perhaps not so curious
omission. Caplan’s book is, if it is anything, my previous criticisms
to the contrary notwithstanding, a critique of democracy written
by a libertarian. As such, it is a glaring omission on Caplan’s
part not to even mention, even in passing, a previous book that
falls squarely into this category. I refer here to Hoppe’s Democracy
– The God That Failed: The Economics and Politics of Monarchy, Democracy,
and Natural Order.
Why would
Caplan not even cite this book in his bibliography that stretches
on for 30 single spaced pages? Although this can only be speculative,
one reason for this might be that Hoppe is a leading Austrian economist,
and Caplan has taken on what can only be considered a personal quasi-religious,
cultish antipathy toward this school of thought.
August
25, 2007
Dr.
Block [send him mail] is a
professor of economics at Loyola University New Orleans, and a senior
fellow of the Ludwig von Mises Institute. He is the author of Defending
the Undefendable.
Copyright
© 2007 LewRockwell.com
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