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Mises and Bastiat on How Democracy Goes Wrong, Part II: Bryan Caplan
13 paragraphs found.
 

In my last column, I set out Bastiat and Mises' voter-centered explanation for the prevalence of bad economic policies. On the conventional view—widely accepted by economists, pundits, and the man in the street—the public demands policies in its own best interest, but the political system ignores their wishes. Bastiat and Mises dispute both parts of this story. They assert that democratic competition effectively drives politicians to do what the people want, but to their collective misfortune, many popular beliefs about economics are systematically mistaken. Sophisms—like "Exports make us rich, imports make us poor"—are widespread.

 
"The Bastiat-Mises view implies two striking and testable predictions about the configuration of public opinion: First, the status quo will be popular.... Second, the public will have systematically biased beliefs about economics."
 

Who is right? The Bastiat-Mises view implies two striking and testable predictions about the configuration of public opinion:

 

First, the status quo will be popular. To be more precise, the median or "swing" voter should oppose changes in existing policies. Second, the public will have systematically biased beliefs about economics. More specifically, the general public should systematically overestimate the net economic benefits of the policies that economists disfavor. Interpreting public opinion data is admittedly tricky work. But all things considered, the Bastiat-Mises view does well on both counts.

 

Start with spending. Over 80% of respondents in 1996 either "favored" or "strongly favored" cuts in government spending, a clear strike against Bastiat and Mises.2 But making the question slightly more specific reveals that the majority opposes spending cuts on all of the biggest components of the budget, from Social Security and health care to national defense.3 A majority does intermittently favor cuts in space exploration and welfare.4 But opposition even to the latter is tenuous; government-funded job training is more than twice as popular as dropping recipients from the rolls and expecting them to find low-skill jobs.5 The only category of spending that the public invariably wants to cut is foreign aid6—which amounts to about 1% of the federal budget! Thus, if you carried out all of the cuts the public is willing to tolerate, the size of government would barely change.

 

Systematic belief differences between economists and the general public appear for 33 out of 37 questions. Many of the belief gaps are enormous, and few would surprise Bastiat or Mises. The public is far more pessimistic about international trade than economists. A majority of the public, for instance, sees "jobs going overseas" as a "major" problem for the U.S. economy, while a majority of economists deny that this is a problem at all. Unlike economists, few non-economists even begin to grasp the possibility that downsizing could be economically beneficial. Only 26% of the general public buys the supply-and-demand explanation for the 1996 rise in the price of gas, versus 89% of economists.

 

Out of all the sophisms Bastiat ridicules, the crudest is "Sisyphism," (named after the mythological character condemned to eternal, fruitless toil in Hades) the idea that greater productivity causes poverty by increasingly unemployment. "People will perhaps think I am exaggerating," remarks Bastiat, "and that there are no real Sisyphists."13 But modern evidence is on his side. The SAEE exposes a sizable majority of Americans—but very few economists—as Sisyphists. Most non-economists worry about "technology displacing workers." Almost no economists agree. You might think that this divide reflects economists' longer time horizon, but the typical member of the public doubts that today's "new technology, competition from foreign countries, and downsizing" will pay off even twenty years from now!

 

Needless to say, Bastiat and Mises are not the last word on political economy. There is still much to learn. Perhaps the greatest puzzle Bastiat and Mises highlight is: Why isn't economic policy a lot worse? For example, how did tariffs fall to their currently low level? Why doesn't the United States have European-style labor market regulation? Questions like these are hard to answer. But without Bastiat or Mises, few would think to ask.

 

After all, Bastiat was primarily familiar with mid-19th-century France, and Mises was almost 60 years old when he emigrated to the United States. Yet their analysis of economic misconceptions fits the facts here and now. Their views on democracy's responsiveness to public opinion are similarly prescient. Mises did not predict the worldwide shift in the direction of free-market policies, but he strikingly enunciated the necessary and sufficient condition for it to happen:

[I]f a revolution in public opinion could once more give capitalism free rein, the world will be able gradually to raise itself from the condition into which the policies of the combined anticapitalist factions have plunged it.14

 

The Bastiat-Mises view of democracy is often accused of being "pessimistic." This is not only irrelevant; it is false. If special interests are in the driver's seat of democracy, then economic education is in vain. Even if every voter understood economics perfectly, inefficient policy would endure. The Bastiat-Mises view, in contrast, makes economic education the key to a better world. Indeed, the topic inspires both men to wax poetic. Bastiat eloquently calls all economically literate people to this vital task:

To rob the public, it is necessary to deceive it. To deceive it is to persuade it that it is being robbed for its own benefit, and to induce it to accept, in exchange for its property, services that are fictitious or often even worse. This is the purpose of sophistry, whether it be theocratic, economic, political, or monetary. Thus, even since brute force has been held in check, the sophism has been not merely a species of evil, but the very essence of evil. It must, in its turn, be held in check. And to this end, the public must be made more subtle than the subtle, just as it has already become stronger than the strong.15

 

Thus, if Bastiat and Mises are right about how politics works, not only is economic education important. More profoundly, until the friends of economic literacy understand their role in the world, they will be unable to give their best performance.

 

Bastiat, Frederic (1964) Economic Sophisms. Arthur Goddard translator. Irvington-on-Hudson, NY: Foundation for Economic Education, p.21; emphasis original. [Specifically, see Chapter 3, "Effort and Result" paragraph I.3.11]

 

Bastiat (1964), pp.125-6; emphasis original. [Specifically, see Chapter 23, "Conclusion" paragraph I.23.37]