Holt 7525-9 S15_IT

Appendix: Book Review – “The Myth of the Rational Voter”
In 2007, economist Bryan Caplan published “The Myth of the Rational Voter: Why Democracies
Choose Bad Policies”. In this book, Caplan asserts that voters are not just rationally ignorant, but
are systematically biased in favor of mistaken views.
In theory, policies that are harmful to the best interest of society should not occur in a democracy.
The majority of voters would not vote in favor of socially harmful policies, nor would they vote in
favor of elected officials who enacted socially harmful policies. Yet socially harmful policies (e.g.
trade restrictions) often do occur in democracies. Typically, these socially harmful policies have
been blamed on rational voter ignorance and the influence of special-interest groups. But Caplan
asserts that democracy delivers socially harmful policies because it gives the voters what they
want. Voters are worse than ignorant. They are irrational. They embrace a number of economic
misconceptions and thus consistently favor economic policies that are harmful to the best interest
of society.
Voter ignorance has been recognized for decades. It no longer shocks voter analysts that over
half of Americans cannot name their congressional representative, or that voters believe that
foreign aid consumes a much larger share of the federal budget than it actually does. But
economists have assumed that voter ignorance is not necessarily harmful. It is assumed that
voters will not make systematic errors, but rather random errors. The random errors of the
uninformed voters will cancel each other out and the few informed voters will determine the
outcome.
Example 13: A vote is being held on an economic policy. Policy X is a good policy and Policy Y is
a bad policy. Assume that 98% of voters are uninformed and 2% are well-informed. The
uninformed voters are not biased toward one policy or the other and thus tend to vote randomly.
Half of the uninformed voters vote for Policy X and half vote for Policy Y. Thus, each policy has
received 49% of the total vote. Then the well-informed voters vote. They will all vote in favor of
the good policy (Policy X). Thus, the good policy will win by a 51% to 49% majority. And the fact
that 98% of the voters were uninformed has done no harm.
But what if the majority of voters are not just uninformed, but are systematically biased in favor of
mistaken views? Then the majority of voters may vote in favor of socially harmful policies and in
favor of elected officials who enact socially harmful policies. This is precisely what happens,
according to Caplan. According to Caplan, the vast majority of voters are noneconomists, and
noneconomists are biased toward four common misconceptions:
1. Antimarket bias. This is a tendency to underestimate the economic benefits of the market
mechanism. Noneconomists fail to comprehend that profit-seeking businesses in a competitive
market will generally produce socially beneficial outcomes. Economists recognize that the goal
of profit-maximization causes firms to be responsive to consumer demand and to produce
efficiently. Noneconomists tend to see profits as simply a transfer to the businesses and fail to
see the beneficial incentives that profits provide. Noneconomists also fail to comprehend how
market-determined prices efficiently allocate resources and goods. They tend to see monopoly
and conspiracy behind price movements.
2. Antiforeign bias. This is the tendency to underestimate the economic benefits of interaction
with foreigners. Noneconomists usually can comprehend the mutual benefits of specialization
and trade on a local or national level. But when the trade crosses national boundaries,
noneconomists assume that trade is a zero-sum game. If Japan is benefiting by selling
Toyotas to America, America must be losing.
3. Make-work bias. This is the tendency to underestimate the economic benefits of conserving
labor. Noneconomists tend to have mixed feelings about technological advances that destroy
jobs and to absolutely oppose downsizing and outsourcing. Economists recognize that labor is
a valuable limited resource and that society benefits from conserving labor. The misconception
that job destruction is harmful rests on the idea that employment, not production, is the source
of prosperity. (For more on job destruction and economic growth, see Chapter 4.)
FOR REVIEW ONLY - NOT FOR DISTRIBUTION
Public Choice and Government Failure 28 - 8