Economics and Government

One of the most interesting articles is one that is very brief and to the point, but somewhat dated. It comes from MSNBC.com in January 2006, but is very relevant to the issue of rational ignorance in voting. It is entitled, Political bias affects brain activity, study finds. It concisely points out the lack of reasoning that many people fail to go through when making decisions about important issues. The article and the study look at biases that are on both sides of the political spectrum with regard to the way that people vote or decide who to support. When test subjects were presented with statements from candidates President George W. Bush and Senator John Kerry their reactions were based more on the emotional feelings rather than what reason may tell them.

“The study points to a total lack of reason in political decision-making. ‘None of the circuits involved in conscious reasoning were particularly engaged,’ Westen said. ‘Essentially, it appears as if partisans twirl the cognitive kaleidoscope until they get the conclusions they want, and then they get massively reinforced for it, with the elimination of negative emotional states and activation of positive ones.’ Notably absent were any increases in activation of the dorsolateral prefrontal cortex, the part of the brain most associated with reasoning ...‘The result is that the partisan beliefs are calcified, and the person can learn very little from the new data,’ Westen said.”

With this information in mind it is important to note that even though the study looked at those voters who were clearly on one side of the political scale or the other, when looking at other issues that were not politically based many people looked primarily at the emotional aspect of the questions at hand. Not only is their emotion involved, but some even viewed it similar to that of resolving a conflict when discussing their own views. If this is truly the way that many people think about various situations it life or with voting, it may be fair to say that in many of our choices we choose to be rationally ignorant of the truth even when it may be right in front of us. We walk away from what is real and justify our own personal beliefs no matter how wrong or right they truly are.

Source: http://www.msnbc.msn.com/id/11009379/print/1/displaymode/1098

With elections around the corner, it isn't surprising to hear the populist rhetoric coming from politicians. Protectionism and talk of "obscene" profits being made by "big business" have been staples of populism for thousands of years. These ideas have pulled at the hearts of voters, but an there is interesting new approach being used. Political opportunists have found a way to exploit the Bush administration's reputation for not considering science.

In a New York Times editorial, Stephen Johnson, the administrator of the EPA, is heavily criticised for proposing to rewrite the Clean Air Act. His policy was "weaker than those his scientists had recommended — and more to the liking of industry". They continue that "science would be the sure loser unless insulated from special interests" and name their article "Science at Risk". What was his Policy? It was to allow costs to be considered when setting air standards. My question is... what does this have to do with science?

Ozone levels are measured in parts per billion, and Mr. Johnson wants to lower the acceptable standard from 84 to 75 ppb. The independent group of experts advising him, the Clean Air Scientific Advisory Committee, recommended 60 to 70 ppb. The editorial board said that the "difference of a few points could prevent several thousand premature deaths". Again, why does the consideration of costs and benefits ignore science? If there is a large cost to going to 70 ppb, why not save the money and use it elsewhere? More lives can probably be saved by using more cost effective methods, malaria nets in Africa, for example.

The editorial board wrote "In the Bush administration, contests between politics and science are usually resolved in favor of politics". They are right about one thing, the real issue is politics. In possibly the craziest sentence in the article, they reject the consideration of costs and note that "Since this would permanently devalue the role of science while strengthening the hand of industry, the proposal has no chance of success in a Democratic Congress". This is still populism, only with an intellectual twist. It seems to me that for the New York Times, contests between politics and logic are often resolved in favor of politics.

The 2008 election race heated up some more when both Democratic nominees criticized Senator McCain over the economy. Both Democratic senators argued that McCain “isn’t ready or willing to handle an economic emergency” yet I feel that all the senators running have not given enough information of their own on how to handle a possible economic emergency. This lack of information out there might be related to the belief of the rational ignorance of the voters. Why should the candidates outline a plan of action or provide information when on average it appears that the voter has no real incentive to become informed in the political issues? It would take up time, money, and many people might not listen or interpret the information correctly.

According to the article “Clinton, Obama Criticize McCain Over Economy” written by Barrett and Fouhy, Clinton’s plan of action is to focus on job insecurity and the government’s responsibility to help displaced workers. Obama, on the other hand, would “stiffen regulations of the financial system.” There was no apparent information on where McCain stood at all in the article even though the policies of the Democrats are supposed to contrast the Republican candidate’s policy. If this is what many American voters see as information, how could they possibly make an informed decision? It does not help when the same article or topic is published many times in different publications with the same lack of information. The voters might just ignore the “information” since there is no real information, making them fall in the category of the “rational ignorant voter.”

The article also appeared to assume that voters are only looking at the policies of the Democrat nominees. For some, that is not the case at all. Yes, some voters have already made their choice; others are trying to figure out who to vote for. While the election may be in November, it takes time to look at any information on policies if people were inclined to do so. This oversight that people are looking only at nominees might cause people to not have time to look at policies of the presidential candidates come the actual election. By this time, people are tired of the election and do not necessarily want to look at the news headlines, policies, or ads. They begin to avoid the information that they have already gained since that is all that is being “replayed” or “republished.” They have no more incentives to comprehend policies, causing them to become “rationally ignorant.”

However, there are individuals who would like to know some of the information that candidates and nominees are not providing. Personally, I know that I do not have time to know every little detail about the policies, but I would like to see more information provided to the public. Yes, I understand that any information I collect has little bearing on the outcome of an election, but I would like to have some knowledge of the proposed policy. However, if there are enough voters out there who would like more information that is not just verbiage, there is a possibility of changing the outcome of an election or securing an outcome, and making the election more efficient.

I’m often interested whenever I hear a candidate for any political office claim they want to bring the divergent sides together or reach an agreeable compromise. The reason my ears perk up at such a statement is usually the laughable impossibility of it all. Putting aside the natural animosity between political parties and looking merely at the issues, many of them seem to offer few avenues in the way of compromise. Take, for example, abortion. One side views it as outright murder the other as simply expunging an unwanted part of their own body. What exactly is the compromise here? A little bit of killing and a little bit government say so about your internals and everyone’s happy? Or how about Global Warming? One side sees Armageddon on the horizon and the other sees the outright collapse of our economy if proposed restrictions are put in place. What’s the middle ground policy here? Only cripple the economy rather then destroy it so Armageddon can, not be prevented, but staved off for an extra few decades?

I’ve come to believe anytime comments regarding closing the gap between the two parties are made it boils down to little more then an appeal to the median voter model. It at least makes the candidate appear as though they’re drifting to the center to collect the voters there. Compromise appeals to those in the middle who can’t pick a side, because now they no longer have to, there’s someone who offers the sheen of both political spectrums, even if the substance is questionable.

The main player making such statements in the current presidential race is undoubtedly Barrack Obama, but I’m sure if listened to close enough both Hillary and McCain could be heard making the same claims.

Our current President did the same thing several years ago. Recognizing that many had begun to view the right as draconian individuals who only cared about their pocket books and weren’t interested in the lower rungs of society in the least, he branded himself with the moniker of a “compassionate conservative,” implying he valued and held the views of both democrats and republicans. In fact a large part of his original campaign was based on this as demonstrated by further buzzwords and platitudes attached to it, such as the label of a “uniter” and someone who would “reach across the aisle.” And of course it worked, Bush captured just enough median votes to take two elections. The question now is can Obama do the same?

-Jaeson Madison

For the last few months the Federal Reserve has been cutting interest rates in a bid to stave off recession and have the housing market rebound. What are the effects of the interest rate cuts? This could cause inflation to increase and no economic growth to result (stag-flation). The correct response to crisis would have been to watch inflation numbers, be an inflation fighter and the credit crunch may not have been as bad. If the credit crunch was only about interest rates then the home owners could refinance today and get out from underneath their bad loans, but that doesn’t seem to be happening (on the whole). So another problem looks like it may be effecting the housing/mortgage market. If those people with sub-prime loans are people in the lower income brackets (as expected) then an increase in the cost of the monthly mortgage would tighten spending by the group, and may in fact lead to some failure to repay. But not on the scale seen today; however, if that person’s food and fuel costs also increase then the person facing rising costs all around him/her. Food and fuel are less of a percentage as income increases but for those in the sub-prime mess they are typically the lower end of the scale and therefore have a higher percentage of food and fuel in their budget. This then asks the question; why do democracies make bad policies?
Rational ignorance and rational irrationality are to blame, and in this case the pressure of public sentiment could have lead the Federal Reserve to make some bad choices. But, another example of the public (and its representative) err is of more regulation. Today, Henry Paulson announced that the federal reserve will receive more funding and more regulation duties. The plan gives more power to the federal reserve to spy on financial institutions and all for the protection of the citizens of the world and the stability of the financial institutions. This strikes me as a problem. The Federal Reserve already had the power to fix the situation years ago (raise interest rates) and had the responsibility of stopping or easing inflation. Yet on both these counts the Federal Reserve has failed. What makes the public believe that more power and more regulation will fix the problem?
What if instead of bailing out failing banks if the federal reserve just let them fail and the market respond to the incentives? Wouldn’t that force bankers to then be less risky than they would otherwise be (with the previous knowledge that if they get into trouble they will be bailed out). Then if the federal reserve let the banks fail the economy would loss a certain amount of ability to spend (lowering the money supply, possibly) and by chance possibly raising the interest rate, and thus lowering the fears of inflation upon the economy. Also 3 or so years ago the federal reserve instead of worrying about how many jobs the “President was creating” the should have focused on the inflation aspect and pulled back a little more cutting the money supply. This could have slowed growth, but I don’t believe would have pushed us into a recession.
Another government failure appears on the horizon. Tax cuts (rebates). Every person in this here country shall receive a tax refund so long as that person is a citizen, who paid taxes last year and this year, and whom we like, and whom sink is the correct color, etc. Currently the federal reserve is pumping more into the economy (drowning the economy would be closer) and this money is lower interest rates, etc. But in a few weeks time the IRS will start sending out checks across the nation, rebate checks. Those increasing the money supply again. That means as the money from the Reserve and the money from the IRS will be hitting the consumer at about the same time. Inflation fears? Food and Fuel costs still seem to be rising and pulling inflation across the board with them. So, have we not only shot ourselves in the foot by not fighting inflation we seem to have also taken out our knee by feeding the inflation beast.

Don Boudreaux finds an example of Caplan's "anti-foreign bias" and responds with a letter to the editor:

Peter Morici unloads a riotous barrage of accusations against free trade: Free trade caused, among other misfortunes, the collapse of the market for adjustable-rate mortgages, excessively high CEO compensation, inflationary monetary policy, and Uncle Sam's inexcusable bailout of Bear Stearns ("It's Time To Cut The Trade Deficit," March 26). Mr. Morici, however, doesn't explain how allowing consumers to take advantage of bargains from abroad caused these calamities. He simply assumes it to be self-evident that America's growing trade deficit proves that free trade triggers countless system-wide maladies.

Bret Stephens:

. . . There really is a broad rethink sweeping the Muslim world about the practical utility -- and moral defensibility -- of terrorism, particularly since al Qaeda began targeting fellow Sunni Muslims, as it did with the 2005 suicide bombings of three hotels in Amman, Jordan. Al Qaeda knows this. Osama bin Laden is no longer quite the folk hero he was in 2001. Reports of al Qaeda's torture chambers in Iraq have also percolated through Arab consciousness, replacing, to some extent, the images of Abu Ghraib. Even among Saudis, a recent survey by Terror Free Tomorrow finds that "less than one in ten Saudis have a favorable opinion of Al Qaeda, and 88 percent approve the Saudi military and police pursuing Al Qaeda fighters."

No less significant is that the rejection of al Qaeda is not a liberal phenomenon, in the sense that it represents a more tolerant mindset or a better opinion of the U.S. On the contrary, this is a revolt of the elders, whether among the tribal chiefs of Anbar province or Islamist godfathers like Sayyed Imam. They have seen through (or punctured) the al Qaeda mythology of standing for an older, supposedly truer form of Islam. Rather, they have come to know al Qaeda as fundamentally a radical movement -- the antithesis of the traditional social order represented by the local sovereign, the religious establishment, the head of the clan and, not least, the father who expects to know the whereabouts of his children.

You probably should read the whole piece.

Colorado House Bill 1280 proposes to change the way water rights are administered in Colorado.

Under the current system, if the holder of the rights does not use the water, they risk having their water rights revoked. This is a form of Adverse Possession, which has also been in the Colorado news when landowners used adverse posession to sieze ownership of property that they had trespassed on for several years.

http://www.abajournal.com/news/landowners_lose_lawyers_win_in_adverse_possession_fight/

From a Liberty and Efficiency perspective, it makes sense to remove the provision. Under the current system, water users would need to ensure that they used water in line with their past draws, whether they needed it or not. Thus, there is an incentive to waste, as conservation will lower or eliminate the amount of water the entity is allowed to draw. This benefits efficiency as it removes a discouragement to conservation. Changing the law benefits Liberty arguments as it give the owner greater control to dispose of the water (or not) as they see fit.

However, there is a significant equity hurdle to this change. In this sense, water is a perishable good- once it flows downstream, it is gone. A person holding water rights that doesn't draw the water is not just wasting it for them , they are preventing others from utilizing it (in their area) as well.

In 2004, the State of New Mexico (which has a 'use it or lose it' policy) condemned water rights that had been held by a mining company. The mine in question had closed in 1939, but continued to hold rights for 2200 acre feet of water a year, even though it had not been used for 65 years.

http://www.waterbank.org/Newsletters/nws45.html

This change in water rights may keep more water in the river, but it may be at the expense of drinking water if abandoned rights cannot be challenged.

Here is an mp3 of Russell Roberts debating this question with a doctor.

After reading my lecture on ethical foundations for policy analysis, you should consider whether you think a person can have a right to something.

Check out this post by Greg Mankiw with respect to Senator Obama's views on NAFTA.

Labels: Trade

Russell Roberts discusses his answers to a reporter about NAFTA:

My view of the world is that when we widen the ability of our fellow citizens and ourselves to trade with people other than just our own kind or nationality or religion or color, that that in turn allows trade to take place more productively. That in turn creates wealth, a higher standard of living. And that in turn creates new opportunities for employment that come along and replace the old.

This view of the world is supported by logic and lots of empirical evidence. But again, it's not the empirical evidence of an overarching kind that let's me evaluate one corner of increased specialization, say the overall impact of NAFTA.

When I told the reporter that the net job loss numbers of the EPI are meaningless because they miss many of the jobs that are created, he said, so tell me where to look for those new jobs. And again, I had to disappoint him. I said that I couldn't tell him where to look.

Why?

Because when we trade more with each other and use our limited resources more effectively, two kinds of new opportunities get created. We take the wealth and resources that have been freed up by more efficient trade (or the same effect when productivity increases) and we use those extra resources to produce more of what we like and to get some new stuff we couldn't have had before. And yes, we also get an expansion of export-related jobs.

But the export-related jobs can't capture all the job gains from having a more effective use of our skills and time and energy that comes from trading more widely. Especially if you run a trade deficit. That means that a lot of the new jobs that are going to be created aren't going to have anything to do with trade. Just like finding ways to make steel with fewer people and more machines leads to new jobs in the steel-machinery making business but in lots of other industries that you can't identify, that come from people being able to spend less on steel and having more resources to spend on other things.

So I can't tell the reporter where to look. He has to look everywhere. It doesn't make for a very good feature story.

Consider the entire post by Roberts an assigned reading for the course. You should probably check out his link at the end of his post

Labels: Trade

Peter Gordon notes a service provided by the Cato Institute that summarizes the votes of members of Congress with respect to free trade issues.

He suggests the opportunity cost of choosing to becoming a more informed voter has decreased:

Rational voters may under-invest in due diligence but when modern communications lower its cost, we have to appreciate progress.

How much of a difference do you think this kind of change in technology will make in elections and public policy?

Does this change in technology provide any basis for distinguishing between whether voters tend to choose ignorance or irrationality?

Consider that Colorado's Senators seem to be opposites on trade issues with Senator Allard tending to be a Free Trader while Senator Salazar seems to tend toward being an Interventionist. What might public choice theory say about such a result of the election process?

"The Myth of The Rational Voter" may be more than just a myth!

I've decided, since seeing the army of ominous sheep on the cover of Bryan Caplan's book, to look around and wonder if the people I live with, work with, wait on, see in the computer lab, are dark ominous sheep!

I've started asking people about what they think of politics. Most people say they hate politics! I ask them about the candidates, everybody has an opinion about which candidate is the best, but can’t really explain why they think that way. Either that, or they say they like a candidate because he/she is not so-and-so, whom they abhor! Sounds like great reason to vote for President, doesn’t it? A lot of people even say that it won’t matter how they vote because there are powers at large that make their vote obsolete. So, I ask who they’ll vote for and it usually leads to glazing over of their eyes and a change of subject.

So, who’ll win the Presidential election? Well, obviously the candidate with the most votes! Well, thinking of the median voter, it will come down to a popularity contest. A popularity contest! What does that mean about America? To me, I take it that Americans live a nation that isn’t so much a representative democracy, but rather a popularity contest. Arguably, I suppose, the majority will have the majority of people’s interest in mind and will allow the needs of the majority to be met. Doesn’t sound so good for the minority does it? Well, if the minority can accept that the popular vote is the way of things, then maybe they’ll just adjust their needs so that they will conform to what is available.

Yuck!

With that dynamic, it’s no wonder there are so many people ‘in the middle’ and sitting the fence. People want to feel like they have semblance of importance or significance! The best way to prevent being disappointed is to hang out in the middle and to simply adjust BEFORE the disappointment so that after the fact, a person won’t feel like they HAD TO change. Thus, it makes perfect sense to hang out in the middle.

It’s just ironic to me that people will be proud to be American, but will not even have the boldness to stake a claim, to fight for what they believe in, to stand up to political processes! But, people have found it much easier to simply be a part of the median to play along with the game.

Bah bah, black sheep!