Business In News
Economists generally assume that “people are rational” in any analytical discussion of preferences and behavior. But it sometimes seems that political “preferences” are not rational, because the effects of policies are the opposite of the stated intention. Some examples:
- Rent control is sold to the public as an antipoverty program, but it clearly harms poor people and makes it harder for them to find housing.
- Anti-gouging laws are supposed to make it possible for everyone to have access to essential supplies in an emergency, but their actual effect is to cause shortages, empty shelves, and long delays in the availability of new shipments of what people need.
- Restrictions on imports of raw material and manufactured products from other countries are supposed to “create jobs” domestically, but their actual effect is to raise the cost of intermediate goods and consumer products so much that the net effect is negative, as consumers pay more than workers receive.
- Minimum wages, occupational licensing, and other regulation of labor markets is supposed to benefit workers, but the actual effect is to reduce total employment and make it difficult for economically marginal folks to acquire the experience they would need to hold a full-time job at a good salary.
Public opinion on these questions indicates that the voting public varies from majority support for trade barriers and rent control to large majorities favoring anti-gouging laws and minimum wages. The typical economist’s response seems to be that people are irrational, or “they just don’t understand.” I think we have atavistic Lifeboat minds, even though we now live in a Walmart world.
An alternate view, argued by Brennan and Lomasky in their 1993 book Democracy in Decision, is that asking people what they want to vote for is not the same thing as asking people “what policy would you implement if you were king?” A rational person, after all, recognizes that they have no influence on the outcome of a vote, and casting a vote in favor of what “feels right” is rational, because it is costless to the individual. So I might prefer outcome A, but vote for outcome B because it makes me feel good to feel solidarity with a group that makes arguments about the public good, even if I know those arguments are specious.
Bryan Caplan’s 2008 The Myth of the Rational Voter goes a step further, pointing out that this free rider/collective action problem extends beyond voting behavior to actual beliefs. Voters are not just rationally ignorant, but are actually rationally irrational. The cause-and-effect relations between policy and outcomes become the subject of what amounts to faith, or a belief in magic, rather than being based on what can be shown to be true.
Atavism: The Lifeboat Mind
At play here is an older, and in some ways more fundamental, claim about human choices and behavior. Friedrich Hayek argued that there are mental architectures, which take the form of moral intuitions and heuristics, which are part of the evolved heritage of the human species. As I have explained before, these are atavisms, an important concept in evolutionary biology. (Along these lines, see Klein, “The People’s Romance”)
In The Fatal Conceit, Hayek argued:
Mankind achieved civilization by developing and learning to follow rules (first in territorial tribes and then over broader reaches) that often forbade him to do what his instincts demanded, and no longer depended on a common perception of events. These rules, in effect constituting a new and different morality, and to which I would indeed prefer to confine the term ‘morality’, suppress or restrain the ‘natural morality’, i.e., those instincts that welded together the small group and secured cooperation within it at the cost of hindering or blocking its expansion.
In Law, Legislation, and Liberty Hayek expanded on this theme:
It should be realized, however, that the ideals of socialism (or of ‘social justice’) which … prove so attractive, do not really offer a new moral but merely appeal to instincts inherited from an earlier type of society. They are an atavism, a vain attempt to impose upon the Open Society the morals of the tribal society which, if it prevails, must not only destroy the Great Society but would also greatly threaten the survival of the large numbers to which some three hundred years of a market order have enabled mankind to grow. (V. 3, p. 304; emphasis here and below added)
At present…an ever increasing part of the population of the Western World grow up as members of large organizations and thus as strangers to those rules of the market which have made the great open society possible. To them the market economy is largely incomprehensible; they have never practised the rules on which it rests, and its results seem to them irrational and immoral.
They often see in it merely an arbitrary structure maintained by some sinister power. In consequence, the long-submerged innate instincts have again surged to the top. Their demand for a just distribution in which organized power is to be used to allocate to each what he deserves, is thus strictly an atavism, based on primordial emotions. And it is these widely prevalent feelings to which prophets, moral philosophers and constructivists appeal by their plan for the deliberate creation of a new type of society.
A “lifeboat” is a common device that philosophers often use as a kind of model, a simplifying device. It might go something like this: “Bert and Connie are in a lifeboat, in the middle of the Pacific Ocean, with no hope of immediate rescue. Bert has money, but he is very thirsty and starting to become dehydrated. Connie has water. Is it legitimate for Connie to charge Bert a high price for some of Connie’s water—She has plenty, and the water is after all worth a lot to Bert, so Bert would pay—or is Connie obliged to give Bert some water, to share?” The answer, in the philosopher’s example, is that if Connie charges Bert a high price, she is simply taking advantage of his desperate need; no additional water will be delivered to the lifeboat because the “signal” of scarcity, transmitted by the high price, is ineffective in the lifeboat model.
But the lifeboat model is not a verisimilar model of a modern market economy, because more stuff, including water, can almost always be obtained for a higher price. In fact, the whole point of markets is the freedom to respond to price signals, with a corresponding increase in supply. If prices go up, then (1) consumers buy less; (2) producers make more; and (3) entrepreneurs devise substitutes. An alternative model, where even small increases in price produce immediate and substantial increases in the quantity available, is Walmart. The chain store famously has an extremely efficient and low-cost supply chain, capable of responding very quickly to specific shortages.
And that’s the problem: We have Lifeboat minds, but we live in a Walmart world. The apparent contradictions I listed above, where economists mostly agree but the public believes something else, are not irrational in any important sense. Our evolved, atavistic response is that we don’t like the price mechanism, and we resent our dependence on a complex system operating in the background, without anyone being “in charge.”
Many of us are willing to pay a substantial amount in foregone material welfare to be able to impose our anachronistic worldview, born of the “lifeboat” setting of hunter-gatherer clans, that we should just share. The advantage of many political initiatives that purport to “help people” is that they appeal to our Lifeboat minds.
Hayek did not think that the situation was hopeless, and it still isn’t. The key is to revive a sense of excitement, a positive optimistic vision of the possible future. As Hayek put it:
We must make the building of a free society once more an intellectual adventure, a deed of courage. What we lack is a liberal Utopia, a programme which seems neither a mere defence of things as they are nor a diluted kind of socialism, but a truly liberal radicalism which …does not confine itself to what appears today as politically possible…
Free trade or the freedom of opportunity are ideals which still may arouse the imaginations of large numbers, but a mere “reasonable freedom of trade” or a mere “relaxation of controls” are neither intellectually respectable nor likely to inspire any enthusiasm…
Unless we can make the philosophic foundations of a free society once more a living intellectual issue, and its implementation a task which challenges the ingenuity and imagination of our liveliest minds, the prospects of freedom are indeed dark. But if we can regain that belief in power of ideas which was the mark of liberalism at its best, the battle is not lost.