Bryan Caplan’s Free-Market Malarkey: Why We Should Be Terrified of Economist’s “Rational” Electionomics
By letterhead | September 19, 2007
This is Part I of an ongoing series.
Arguing with an economist is like trying to eat spaghetti with a spoon. It’s slippery, messy and seldom worth the effort.
But occasionally the claims are so outlandish and the affront so egregious that one can’t back away from a confrontation. Such is the case with a screed called “The Myth of the Rational Voter,” by Bryan Caplan and reviewed (glowingly) in the New Yorker by Harvard English professor Louis Menand.
The dubious point of the book is that “those who worship at the temple of democracy,” as Caplan derisively calls the majority of the U.S. population, do more harm than good by voting. The reason: we are “morbidly ignorant” of the laws of economics and therefore vote for unsound economic policies, harming society’s economic well-being.
In his view, we’d all be better off if the only people whose votes counted were economists and like minded “economically literate” people. He also argues that a market-based political system would take care of social needs more efficiently and better than a democratic one.
Now, there are a lot of problems with the book. (Too many to cover in a single post.) But the initial problem is one of scale: when faced with a mountain of bullshit so enormous as this, it’s difficult to know where to dig in the shovel first. But here is a clue: you know you’re in trouble when the author quotes Ayn Rand in the very first chapter.
(I will leave it to the Philosopher’s Playground to place her inhuman philosophy in the proper context: it’s the best rebuttal of the Randian outlook I’ve ever come across. Read it here.)
As is the point of this blog, however, I will take on the PR snow job that is the unrelenting case for “free markets” – a bludgeon with which the public is frequently beaten. The main problem with “free markets” is that, as a concept, it falls within an odd linguistic convention: words-for-things-than-don’t-exist, like “panacea” and “utopia.” They are concepts, but concepts only. Their infinite scope precludes existence in an finite realm; especially a flawed human one. They don’t, and can’t ever exist.
Yes, markets properly harnessed (with mandated openness, enforced transparency, and maybe a bit of government-supplied cheap credit) fuel the growth of material wealth, and can be yoked to deliver social benefits. But economists, enthused with the idea that more is better, exaggerate the markets’ socially beneficial character and relentlessly force the paradigm, arguing that the economic model provides the best explanation for all human behavior… that we are all essentially economic in nature and all our endeavors (including social ones) can be productively managed under the yoke of economic science.
So economics is not yoked to benefit mankind. We are yoked to its rules in order to… in order to what, exactly? To increase the power, scope and freedom of markets, because social benevolence is their byproduct.
A virtuous circle, no?
The idea would be just plain sad, if it weren’t so scary. The objections are too many to cover in a single post, but here’s a Top 10 list from this reader:
10… He’s Disingenuous
Caplan goes to great lengths to strike a fair-and-balanced pose. He talks up disagreements within his own field: the self-doubts and the examples of market failure discovered by economists themselves. He claims to be anti-fundamentalist.
His words, however, betray him. He has nothing good to say for democracy and vilifies those who “worship at the temple of democracy” as being “enthusiasts,” who “embrace dubious ideas on emotional grounds.” He alternately describes such people as:
ignorant, completely ignorant, morbidly ignorant, irrational, naive, hopelessly uninformed, leftists, Hollywood leftists, partisans, religious devotees, ungracious, dogmatic, protectionist, stubbornly wrong-headed, prejudiced, credulous, unenlightened, fundamentalist, and biased.
Economists and their ilk, on the other hand, are showered with praise. In his world, such people shine with goodwill and beneficent intention. Such people:
think like economists, are economically minded, deeper thinkers, sophisticated, informed, well-informed, well-educated, enlightened, expert, economically literate, and less biased
And he complains about all the name calling against economists! As the book progresses, he shows less and less discipline in restraining his contempt for non-economists in general and voters specifically.
This book is less an economic treatise than a political manifesto. His goal is to promote markets through political means, and he believes that the primary purpose of government is to act as a gas pedal, not a brake. Every argument advances the idea: markets good, democracy bad. No nuance. No moderation. No balance. No perceived trade-offs.
Though he claims such a thing barely exists in his profession, his method and tone of attack leaves one with the distinct impression that he is, contrary to his loud denials, a market fundamentalist.
9… Rhetorical Belching
The book is chock-a-block with gaseous pronouncements. One of my favorites is: “Brand names help shoppers far more than Consumer Reports ever will.”
His claim is totally divorced from reality. Had Dr. Caplan spent even one day on a corporate branding team, he would know that brands are designed to lead consumer choice through emotional decision making. They are a compressed message system that aims to circumvent rational faculties. Sometimes brand values reflect reality. More often, especially in consumer products, they make “distinctions without difference” and sell perceived benefits that are only marginally present, if at all.
Caplan’s inflated assertion about the value of brands also runs counter to his claimed respect for rational thought, as well as contradicts his contempt for “embrac[ing] dubious ideas on emotional grounds.”
And how about this gem: “Worldviews are more a mental security blanket than a serious effort to understand the world.”
His own included? And his well-educated economist pals? Or the legions of informed and sophisticated captains of industry who are expected to save the world through the magic of markets? What Caplan’s really claiming is that any worldview other than his own is ill-informed and erroneous.
This kind of arrogant, universal dismissal of other people’s views is nowhere more apparent than in his derision of religion. For example, consider the idea that Caplan himself uses to burnish the reputation of his compatriots: economists themselves have identified most all of the significant cases of market failure.
Theologians can make exactly the same claim about their field. Religious people have, for hundreds of years, been discussing and debating the tension between faith and reason, and many of the thorniest problems have been raised by people of faith themselves. For Caplan, such distinctions are helpful in defending his own profession against charges of fundamentalism, but he is less generous with others. He is also mistaken.
He quotes Gaetano Mosca’s insulting claims about the inherent superiority and self-satisfaction of the religious mind. In the case of Buddhism: “The Buddhist must be taught highly to prize the privilege of attaining Nirvana soonest.”
What? Clearly Mosca and Caplan are clueless about Buddhism. If that religion had “sins,” comparative thinking would be among its worst. The idea that “soonest” equates with “best” or “better than someone else,” is anathema to the most basic Buddhist teaching. Indeed judgmentalism – asserting oneself at the expense of someone else or as better than someone else – is one of its most grievous wrongs.
Caplan is a rhetorical gas bag. He pulls unfounded assertions out of his hind parts and uses them as proof to support his ideas, or trots them out as unquestionable truths on which he can build an argument.
He gets the facts wrong, and in reality his bloviations have almost no resemblance to… um… reality.
8… Mangled Terminology
The problem with all this rhetorical belching is that it carries over into his key arguments. And when he starts contorting the meaning of words to support his claims, things get serious. Take his analysis of voter altruism. It includes two key ideas:
A) In his tortured logic, altruism and morality are “consumption goods like any other.” The idea itself is bizarre, but let’s focus on his core economic argument: “If people [can be expected to] buy more altruism when the price is low… and altruistic voting is basically free… then we should expect voters to consumer more [altruism].”
B) He sees this “altruistic” behavior as proof that voters are not selfish. So he claims that, based on this un-selfish behavior, voting must be seen as the antithesis of shopping.
Here’s the first problem: altruism is never free. It is by definition selfless, and altruistic action, in particular, necessarily entails personal sacrifice. To speak of “free altruism” is to be utterly oxymoronic!
He then mangles “altruism” further by claiming that free altruism leads to voter over-consumption, which he describes as: “‘stuff[ing] themselves with moral rectitude.” Hmmm… Altruism equals cheap moral rectitude? Did he flunk high school English? (And Prof. Menand ought to be ashamed for not calling him on it.) To sum up:
- Voters act altruistically (i.e., give of themselves) only when costs nothing.
- The cheaper it is (i.e., the less they have to sacrifice) the more of it they “consume” (the more they give).
- Which logically implies that the more expensive “altruism” is (i.e., the higher the personal cost) the less they “consume” (give/sacrifice)?
What he’s describing is selfishness, not altruism. And the tendency to over-indulge when it’s on sale is absolutely typical shopper behavior. His example actually reinforces the connection between voting and shopping.
This kind of literal butchering, pervades the book. Another example is his assertion that democracy is not a market but a “commons.” It’s neither. In reality, it’s a cartel.
To wit: It’s a consortium of two. They strictly control production, distribution, and market access to the product. Barriers to entry are prohibitively high and competitors are systematically squeezed out or barred from participating. And the two key participants regulate their own marketplace.
Consider: In 2004, by the end of the “Super Tuesday” primaries, when the major party candidates were a foregone conclusion, only 7 percent of the eligible electorate had voted. And as a registered “Independent” I was not even allowed to vote in the primaries.
The bad voting behavior cited by Caplan all took place in a cartel political-economy in which the only “choice” that the vast majority of voters got was the dregs of what the parties put on the ticket. He is comparing apples and oranges, indicting “democracy” with evidence gleaned from a system that’s only partially democratic.
Moreover, he is too enamored of his own ideas to point out, never mind reconcile, the tensions between “democracy” as a concept (one person one vote) versus the real-life election mechanisms of party politics.
7… Unhinged From Reality
By now, the pattern is plain to see. Caplan lives in world of graphs, demand curves, integers, equations, and illiterate illogic, not real people doing real things. He replaces a complex human social enterprise with a single mathematical paradigm, and shows no inclination to consider what might be lost in translation.
We can call this malady Anti-Social Dissociative Theoretits – this is a condition in which theory swells to the point of displacing the real-world situation from which it was derived; advanced cases become dissociative in that the derivative theory is considered more real than the underlying reality; the most serious cases are anti-social in that the theory is used as a tool of social control in an attempt to extinguish all incompatible activities and beliefs.
Caplan is hermetically sealed inside his own thinking, unhinged from the day-to-day world in which we all live – like so many overzealous academics and think tank policy wonks. And nowhere is this more apparent than in one of his central theses: what I’ll call the “probability discount” theory of voting.
Here’s the idea: The true cost of a bad policy to any voter depends on the odds that he or she will be the one to cast the deciding vote in the election – i.e., if a bad policy costs you $1,000, but your odds of casting the deciding vote are 1/1,000 then the actual cost of your vote is $1.
In an election with millions of voters, your odds of casting the deciding vote are practically zero. Therefore, he says, the cost of bad policy to each voter is really “close to zero,” and he argues that the discounted “zero” cost leads people to over-consume bad policy. This, he claims, is a classically “rational” economic choice. Consume more of what’s cheap.
I have one question: on April 15 when the tax man comes with his hand out, does he ask for $1,000, or does he give me a probability discount of $999 and only bill me $1?
Caplan’s assertion is totally unreal.
In another example, he undoes his own argument. He says that when “Hollywood leftist millionaires” Tim Robbins and Susan Sarandon voted for Bill Clinton in 1992, his victory over Bush probably cost them “hundreds of thousands of dollars in extra taxes.” But in the very next sentence he takes it all back: “In the astronomically unlikely case that Clinton won because of their actions, they would have lost a large sum.” [italics original]
Since they did not cast the deciding votes, he argues, the real cost was only “expectational pennies.”
OK. Head scratch: On their 1040 form, was the “due” amount pennies, or hundreds of thousands of dollars? He admits himself it was the latter! So what gives with the “expectational pennies” BS?
It’s Theoretitis plain and simple. He is totally unhinged from reality.
6… Dishonest Double Standards
His inventive, if unreal, “probability discount” might be more plausible if it were applied fairly and even-handedly, but Caplan is as dishonest as he is unhinged. Here’s the rub. He never applies this same discount method to the question of policy benefits! In every example (pp: 18, 106, 131), he accrues to every voter the full dollar value of free-market policy benefits.
Caplan wants us to believe that discounting is a fact of life whose consequences are unavoidable. But if it’s true, then “probability discounting” should be applied to benefits as well as costs! If the individual cost of voting for bad policy is discounted to zero (leading to over-consumption), then individual benefits of voting for good policy should be discounted to zero as well (leading to under-consumption).
In his analysis, over-consuming bad policy is a “rational” economic choice, given the zero cost; to be consistent, under-consuming good policy must also be a “rational” economic choice given a discounted zero benefit. Why would you over-consumer something with no benefit?
The result is logical spaghetti: voting against free-market [beneficial] policy is an economically “rational” [wise] decision because such [beneficial] policies offer individual voters no tangible benefit.
Caplan is either oblivious to, or dishonest about the self-defeating implications of his own argument.
5… Cultural Prejudice
If Caplan has a childlike faith in his own fantastic concoctions, his faith is even more pronounced when it comes to the goodness, social benevolence, and “magic” of markets. He quotes Adam Smith often and at length, using as a common theme The Wealth of Nations: “…the study of his own advantage naturally, or rather necessarily leads him to prefer that employment which is most advantageous to society.”
In Caplan words: “For economists, greedy intentions establish no presumption of social harm.” Another whopper of a rhetorical belch. It’s a quaint idea, but belies a distinctly Western (and rather Edwardian) cultural prejudice toward commerce: attributing innate goodness to an intrinsically amoral social system. And it has been disproved by a hundred years of direct experience not with markets alone, but with market participants whose bad behavior is legion.
Take monopolies, which Caplan gives the warm-and-fuzzy treatment, saying that their negative impacts are “marginal.” For a moment, let’s leave aside the base cost of price-fixing in everything from airline tickets, to auction markets, to food additives, to computer memory, to pharmaceuticals and vitamins, to electrodes, even to funerals! Let’s instead focus on the social impact.
Enron manipulated markets in the western U.S. for years and raked in more than $1.5 billion in illegal profits. All the while, heartless cowboys on the trading desk gloated over “Grandma Millie’s” complaints about exorbitant rates, which the traders had joyously “jammed up her ass.” Not to mention the untold loss of productivity and revenue by companies affected by blackouts. How’s that for “marginal” cost?
And here’s an even bigger story:
Los Angeles used to have the largest interurban rail system in the in the world! What happened to it? General Motors and a consortium of others (Mack Truck, Standard Oil, Phillips Petroleum, and Firestone Tires) created a shell company to buy the LA system and rip it from the ground, replacing it with bus lines. GM and Mack built the buses; Firestone provided tires; the oil companies sold the fuel.
Rather than compete in a fair and open market, they mugged the competition, dragged it behind the assembly plant, and put a bullet in its head. In one way or another GM participated in or directed the destruction of about 1,200 interurban electric rail systems with 44,000 miles of track and carried 15 billion passengers a year, and this was back in 1921.
The cartel was convicted on federal conspiracy charges. The other key result was the destruction of public rail transport in just about every major US city, which ushered in an age of suburban sprawl, choking pollution and a national addiction to gasoline.
4… His View is Ahistorical
The only way that someone can be so entirely unhinged from reality and so addicted to his own fantasy world, is to be in complete denial of history.
Example: Caplan’s take on Thalidomide.
He says that drug policy experts take the “low road” in telling a “credulous public” that drugs need to kept off the market until effectively tested, even if it means people go untreated. He says that some take the “high road” instead. His example: “The public might be sure that Thalidomide should be totally banned, but defer when the FDA approves it as a treatment of leprosy.”
The “low road” is drug testing? Has he been living in a cave for the past fifty years??? The reason Thalidomide was pulled from the market was that it caused horrific birth defects in children around the world and more than 3,500 hundred babies died in infancy from their deformities. The horrendous cost of this blunder was due to INADEQUATE testing!! Proper testing to establish appropriate guidelines could have saved thousands of lives – those properly treated as well as those saved from fatal improper treatment.
Another example: Sweatshops des Miserables
Caplan quotes a lyric from the show Les Miserables, sung by a villainous innkeeper: “Charge ‘em for the lice / Extra for the mice / Two percent for looking in the mirror twice…” He uses this example to scoff at the public’s urge to demonize greed, claiming that greed is intrinsically “intelligent” because self interest “militates against ‘deceit, unfairness and dishonesty.’”
Consider this reality: In the sweatshops of New York City in the late 1800s seamstresses were charged rent to use the employer’s sewing machines, rent for the stools and boxes they sat on, rent for space in the coat closet, even rent for their needles; they were charged for thread; charged for drinking water at work; they were fined for talking or laughing. And there were 60,000 children working in those sweatshops. (References here and here.)
“Intelligent greed” my ass. Even a cursory tour through the actual history of commerce (as opposed to the fantasy world of economic theory), shows that concentrations of capital tend to foster distinctly anti-social behavior among market participants – who, after all, ARE the “market.” The “market” is not some abstract concept, it is real people in the real world doing real things, and those things are often very ugly.
3… He’d Toss Out the Constitution
One of Caplan’s scariest contentions is actually a small aside, near the end of the book, which knocked me flat. He writes:
If a [Supreme Court] justice defies public opinion by protecting flag-burning, his decision should diminish the popularity of the president who appointed him and the senators who confirmed him. This assumes, however, that the average voters correctly perceive the chain of responsibility. If they systematically underestimate the strength of its connections, delegation undermines the popular will. Politicians have to denounce flag-burning to win voter approval, but it remains legal as long as the decision is in the hands of subordinates who demur.
Caplan, it seems, wants to subject the Constitution to market testing. He is dead silent on the fundamental rights of citizens and appears to be totally ignorant of the complexities of Constitutional law. He seems quite happy to govern according to the popular whims of the market. I guess he believes that liberty is a “consumption good like any other” and ought to be managed as such.
But he says not a peep about how to correct the market when it encroaches on liberty and public good. I wonder what he’d say about the recent censorship of political speech by AT&T, Fox and Fox again here. Probably nothing. Or worse, that commercial entities have a right to control what they distribute.
2… He’s a Wimp
I say “guess” and “probably” about the tangible consequences of his beliefs because there aren’t any specifics. The only direct claim he makes is that markets work better than democracy. (Next we will get to the question of: “Work better” toward what end?)
When he gets close to a recommendation, he wimps out. He talks up English election laws circa 1948, which allowed plural voting for the elite, and adds: “there is much to be said for such weighting schemes.” But then he punts: “I leave it to the reader to decide whether 1948 Britain counts as a democracy.” Boo hiss. Wimp out!
For clues about how Caplan’s brave new world might work, we have to read between the lines. The most telling snippet – aside from his admiration for Ayn Rand – is this claim:
“Before the 1930s… many areas of U.S. economic life were undemocratically shielded from federal and state regulation. The market trumped democracy, on everything from the minimum wage to the National Recovery Administration. And unless you are a democratic fundamentalist, you have to agree that this was all to the good.”
Ah, the truth will out, as they say. Caplan wants to repeal the New Deal, because that would solve everything. And anyone who disagrees with him is an idiot. That’s basically his argument.
Let’s see. We could ask the sweatshop workers in the Triangle Shirtwaist Factory about the minimum wage. But… oh yeah, they’re all dead. Locked in a dank, filthy hovel of a factory and left to die in a fire.
I have no doubt that Caplan would return us to the robber baron capitalism of the late 1800s, quoting Rand along the way:
Robber barons were the “greatest humanitarians and the greatest benefactors of mankind who had ever lived because they had brought the ‘greatest good’ and an impossible standard of living – impossible by all historical trends – to the country in which they functioned.”
The looking glass is getting very twisted indeed. Let’s just finish here with an observation: In 1897 a NYC tenement dweller had about a 1 in 800 chance of having a toilet in his or her apartment. Most toilets were communal and placed in the backyard. In 1901 the city enacted new regulations requiring toilets in each apartment.
What did Caplan’s enlightened, benevolent, humanitarian real estate moguls do? Did they show “socially beneficial behavior?” Did their “intelligent greed… militate against deceit, unfairness and dishonesty?” Did the “magic invisible hand” of the market motivate them to provide better conditions to better compete for tenants? Hmmm???
Hell no! They fought the new regulation all the way to the Supreme Court! And they lost every single case.
Caplan’s most despair-inducing claim comes at the very beginning of the book: “Economic policy is the primary activity of the modern state…”
Ugh. The man is alternately crude, delusional, illiterate, illogical, in denial of history, and plagued by an exponential swelling of the ego. His ideas are also shockingly inhuman. As an antidote to Caplan’s claim, let’s go back to Thomas Hobbes, who originated the concept of self-interested cooperation. In his view, without a central government to restrain our natural war-like condition of “every man against every man,” or “all against all,” we would revert to a “leviathan” life that is “solitary, poor, nasty, brutish and short.”
Caplan’s world, in which government’s primary role is protector and enabler of markets, is terrifying. There is no humanity in it anywhere. Consider one of the heroes of “pre 1930s” capitalism, Alfred P. Sloan, CEO of General Motors and the architect of the destruction of urban rail systems in the United States.
He was also an admirer of Adolph Hitler. Sloan insisted on retaining operational control of German car manufacturer Opel, even as it was building armaments for the invasion of Poland, which Sloan called a “petty international squabble.” GM retained board control of Opel well into the war; the Reich protected GM’s 100% stock ownership; and Sloan appointed to the position of president of GM, the former president of Opel, an American who was awarded the “German Eagle” medal for service to the Nazi Reich.
Sloan, an “economically minded” man through and through, saw the escalating war in purely economic terms and claimed in 1941 that: “I am sure we all realize that this struggle that is going on though the World is really nothing more or less than a conflict between two opposing technocracies manifesting itself to the capitalization of economic resources and products and all that sort of thing.”
But here is the most chilling quote of all:
“It seems clear that the Allies are outclassed on mechanical equipment, and it is foolish to talk about modernizing their Armies in times like these, they ought to have thought of that five years ago. There is no excuse for them not thinking of that except for the unintelligent, in fact, stupid, narrow-minded and selfish leadership which the democracies of the world are cursed with.… When some other system develops stronger leadership, works hard and long, and intelligently and aggressively – which are good traits – and, superimposed upon that, develops the instinct of a racketeer, there is nothing for the democracies to do but fold up. And that is about what it looks as if they are going to do.”
[Thanks to Edwin Black of The Jerusalem Post for the thorough reporting... read it here.]
This is, admittedly, an extreme example. But with someone as dogmatic as Caplan, extreme is the only way to go. Caplan is dangerously wrong to assert market supremacy over democratic politics.
Civil government in general, and democracy in particular, is NOT primarily charged with protecting markets. Their primary responsibility is protecting PEOPLE by acting as a brake on human indecency. If people are biased, irrational and selfish in a democratic enterprise, what would they be in an unrestrained economic one? History gives us too many clues to ignore. Markets do work – of course they work. But they do not automatically do anything, except foster the creation and concentration of capital. And absolutely “free markets” have a proven tendency to squeeze out the “free” part.
Certainly, markets do not automatically provide socially beneficial ends. They need to be managed, like any other social enterprise, to minimize corruption and malignity while maximizing the liberty and welfare of participants… if that’s the goal.
Unfortunately that’s not Caplan’s goal. His aim is more markets, always bigger and less restrained. Using markets as a tool of social engineering is anathema to his thinking because markets are adequate in themselves to deliver the goods, so to speak.
He is wrong in fact, and wrong in principle. A “market” is a means not an end. Without a defined goal, markets just reproduce capital and themselves. Any other result, beneficial or malign, derives from the human social circumstance in which the market operates.
Democracy is also a means, but ours does have an end in mind: balance. Democracy not only balances majority and minority rights, but also balances popular will with enduring principle. As was their wont, the men who wrote the Constitution chose a definition of enduring principle and created a political system to protect it, while also striving to respect the will of the polity. It’s not an easy task. And, if anything, one of the great strengths of this form of government is a built-in braking system that forces restraint. And history shows that this restrained form of democratic capitalism is a lot better at promoting free markets than free markets are at protecting the commonweal.
Caplan will have none of it. He squeezes all non-economic factors and benefits out of policy decision making. In fact, out of human decision making entirely. All aspects of human nature and behavior are “consumption goods” subject to the laws of economics. To him, every aspect of human life is simply an economic variable. (e.g., He believes literally that “Time is money.”) He treats “personal wealth” as the entire scope and limit of human interest.
Caplan would entrust our fate to the captains of industry. I shiver at the thought. Subjected to the whims of the market, liberty does not stand a chance.
Caplan would no doubt scoff and bluster… deride and dismiss… but his magical electionomic machinery is built in a land of make-believe, out of iron-willed self-deception and unyielding superiority — it also comes without any damn brakes.
At worst, it’s a recipe for disaster. At best, it’s an ugly world, and all it provides for its people is unlimited incentive to act like a$$holes.