Friday, January 08, 2010

Boneheaded biases of stupid voters

A somewhat oldie but goodie from Bryan Caplan on common economic biases of voters:
Anti-Market Bias

I first learned about farm price supports in the produce section of the grocery store. I was in kindergarten. My mother explained that price supports seemed to make fruits and vegetables more expensive but assured me that this conclusion was simplistic. If the supports went away, so many farms would go out of business that prices would soon be higher than ever. I accepted what she told me and felt a lingering sense that price competition is bad for buyer and seller alike.

This was one of my first memorable encounters with anti-market bias, a tendency to underestimate the economic benefits of the market mechanism. The public has severe doubts about how much it can count on profit-seeking business to produce socially beneficial outcomes. People focus on the motives of business and neglect the discipline imposed by competition. While economists admit that profit maximization plus market imperfections can yield bad results, noneconomists tend to view successful greed as socially harmful per se.

Joseph Schumpeter, arguably the greatest historian of economic thought, matter-of-factly spoke of “the ineradicable prejudice that every action intended to serve the profit interest must be anti-social by this fact alone.” Anti-market bias, he implied, is not a temporary, culturally specific aberration. It is a deeply rooted pattern of human thinking that has frustrated economists for generations...

Anti-Foreign Bias

A shrewd businessman I know has long thought that everything wrong in the American economy could be solved with two expedients: 1) a naval blockade of Japan, and 2) a Berlin Wall at the Mexican border.

Like most noneconomists, he suffers from anti-foreign bias, a tendency to underestimate the economic benefits of interaction with foreigners. Popular metaphors equate international trade with racing and warfare, so you might say that anti-foreign views are embedded in our language. Perhaps foreigners are sneakier, craftier, or greedier. Whatever the reason, they supposedly have a special power to exploit us.

There is probably no other popular opinion that economists have found so enduringly objectionable. In The Wealth of Nations, Adam Smith admonishes his countrymen: “What is prudence in the conduct of every private family, can scarce be folly in a great kingdom. If a foreign country can supply us with a commodity cheaper than we ourselves can make it, better buy it of them with some part of the produce of our own industry...”

Make-Work Bias

I was an undergraduate when the Cold War ended. I still remember talking about military spending cuts with a conservative student. The whole idea made her nervous; she had no idea how a market economy would absorb the discharged soldiers. In her mind, to lay off 100,000 government employees was virtually equivalent to disemploying 100,000 people for life.

If a well-educated individual ideologically opposed to wasteful government spending thinks like this, it is hardly surprising that she is not alone. The public often literally believes that labor is better to use than conserve. Saving labor, producing more goods with fewer man-hours, is widely perceived not as progress but as a danger. I call this the make-work bias, a tendency to underestimate the economic benefits of conserving labor. Where noneconomists see the destruction of jobs, economists see the essence of economic growth: the production of more with less...

Pessimistic Bias

I first encountered anti-drug propaganda in second grade. It was called “drug education,” but it was mostly scary stories. I was told that kids around me were using drugs and that a pusher would soon offer me some too. Teachers warned that more and more kids would become addicts, and that by the time I was in junior high I would be surrounded by them. Authority figures would occasionally speculate about our adulthood, and wonder how a country could function with such a degenerate work force.

I am still waiting to be offered drugs. The junior high dystopia never materialized. By the time I reached adulthood, it was apparent that most people were not going to their jobs high on PCP. Generation X’s entry into the work force accompanied the marvels of the Internet age, not a stupor-induced decline in productivity and innovation.

My teachers’ predictions about America’s economic future fit nicely into a larger pattern. As a general rule, the public believes economic conditions are not as good as they really are. It sees a world going from bad to worse; the economy faces a long list of grim challenges, leaving little room for hope. We can call this the pessimistic bias, a tendency to overestimate the severity of economic problems and underestimate the economy’s performance in the recent past, the present, and the future...
Read the whole thing and, if you like it, make sure check out Caplan's highly recommended The Myth of the Rational Voter:

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