This book by Bryan Caplan subtitled "Why Democracies Choose Bad Policies" is groundbreaking and has an easy to understand thesis with a lot of supporting data that is not quite so easy to understand, but quite convincing. Even if it ISN'T convincing, the data is laid out with such rigor, that if it can be disproved, that will move knowledge forward as well.
The thesis is that the real cost to a voter of a single vote is zero so voters "rationally decide to vote irrationally". Since the cost of a vote for a policy that we may suspect to be irrational (eg. protectionism), but makes us "feel like we did something good" (eg. protected American jobs) is zero, we are incented to vote irrationally.
The book opens with "In a Dictatorship; government policy is often appalling, but rarely baffling. The building of the Berlin Wall sparked worldwide outcry, but few wondered, "What are the leaders of East Germany thinking?" That part was pretty clear; their people were fleeing and they wanted to keep them.
On the other hand, protectionism is universally known and proven to be harmful to economies, it was one of the cornerstone causes of the great depression, and the unanimity of professional economists on the subject makes Global Warming look positively outlandish. However; "Even when countries negotiate free trade agreements, the subtext is not, "Trade is mutually beneficial", but, "We'll do you the favor of buying your imports if you do us the favor of buying ours". Admittedly, this is less appalling than the Berlin Wall, yet is is more BAFFLING." The book is about "why does this happen, and what does it mean".
There are no doubt a longer list of biases than are covered here, but this book is written by an economist so that is where the focus is, here is the list of the main ones:
Antimarket Bias - "The public has severe doubts about how much it can count on profit seeking business to produce socially beneficial outcomes. They focus on the motives of business, and neglect the discipline imposed by competition." Unlike a commonly accepted idea like say "global warming", even though we have many solid comparisons of how well markets work next to non-markets (USSR/USA, W Germany/E Germany, Hong Kong and Taiwan vs Communist China, Communist China after adopting markets vs Communist China prior to markets).
The cases where markets have been "shown not to work", as in the Great Depression have turned out to actually be other cases where Government messed things up (inadequate money supply, protectionist trade regulation, raising taxes into the face of a faltering economy, a myriad of switches in direction that caused business to have no idea of what direction to go, attacks on business by government as scapegoating that added to the desire to avoid risk when the only way to move forward is always to take risks).
Anti foreign Bias - "The Law of Comparitive Advantage, one of the most facinating theorems in economics, shows that mutually beneficial international trade is possible even when one nation is less productive in every way. Suppose an American can make 10 cars or 5 bushels of wheat, and a Mexican can make one car or two bushels of wheat. Though the Americans are better at both tasks, specialization and trade increase production. If one American switches from wheat to cars, and three Mexicans switch from cars to wheat, world output goes up by two cars plus one bushel of wheat.
People are biased against foreigners, and even then only SPECIFIC foreigners. In the 1980s it was against Japan, now it is against China. During anti-Japan hysteria of the 1980's, British direct investment in the US always exceeded that of the Japanese by at least 50%, BUT, it was "the Japanese that were buying America".
If you factor out anti-foreign bias, there is no difference in your "balance of trade" with Wal-Mart and the US balance of trade with China. If you believe that to be false and the law of comparative advantage to be false, then simply grow/produce all your own food and see how much "cheaper" it is.
Make-Work Bias - "The public often literally believes that labor is better use than conserve. Saving labor, producing more goods with with fewer man hours, is widely perceived not as progress, but as a danger." ... "No solitary man would ever conclude that, in order to make sure that is own labor had something to occupy it, he should break the tools that save him labor, neutralize the fertility of the soil, or return to the sea the goods that it may have brought him. He would understand, in short, that s
aving in labor is nothing else than progress."
Pessimistic Bias - "Two more generations should saturate the world with population, and should exhaust the mines. When that moment comes, economical decay, or the decay of economical civilization, should set in" (Henry Adams, 1898) It is never very hard to find people to explain to you how the past was better, the present is going downhill and the future is going to be awful. Humans tend to confuse their own life cycle with that of the world.
David Hume said; "The humour of blaming the present and admiring the past, is strongly rooted in human nature, and has an influence on even on persons endued with the profoundest judgment and most extensive learning". It isn't hard to imagine what many of the average voters with below average judgment and learning think.
In order to show what the public thinks, the book leans heavily on the Harvard "Survey of Americans and Economists on the Economy" or SAEE. This part of the book gets a little dry, but the bottom line is that people that have earned money money to improve their economic position (not those born rich, not those that win the lottery) and people with college degrees are much closer to understanding economics.
So after a lot of statistics and other analysis, he concludes that since the cost of each vote is effectively zero, people would much rather vote their biases because those make them feel better, so Democracy is irrational at least for economics. Worse, we seem to keep wanting to move to a more popular vote posture and adding in regular polls to make the "public view" more widely felt, and thus encourage more irrational behavior.
For me the scariest thing was that a lot of what appears to be malevolent behaviour on the part of politicians and the MSM can be explained by simple stupidity. Once again, Heinlein's axiom is proven; "NEVER attribute that to malice that can be explained by simple stupidity".
The book is very entertaining on balance, but a bit frightening. "Should my book push you toward democratic pessimism? Yes. Above all I emphasize that voters are irrational. But I also accept two views common among democratic enthusiasts: That voters are largely unselfish and politicians usually comply with public opinion. Counter-intuitively; this threefold combination - irrational cognition, selfless motivation, and modest slack is "as bad as it gets".
"What economists currently see as the optimal balance between markets and government rests upon an
overestimate of the virtues of democracy. In many cases, economists should embrace the free market in spite of it's defects, because it still outshines the democratic alternative."
The book is WELL worth reading in it's entirety, although not much is lost if one wants to skim the supporting statistical and survey information. There is MUCH more covered than I comment on here, and I'm not really sure that I covered all the high points.
