Bryan Caplan

Mises and Bastiat on How Democracy Goes Wrong, Part II

Bryan Caplan*
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"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."
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.

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.

How popular is the status quo? The General Social Survey, or GSS, is one of the highest-quality and broadest-ranging sources of information on public opinion.1 It reveals several startling facts about the public's policy preferences.

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.

The most plausible reading of this data is that the public wants a free lunch. They hope to spend less on government without touching any of its main functions. If forced to face a realistic trade-off, though, they abandon anti-government rhetoric. Thus, when asked "If the government had a choice between reducing taxes or spending more on social programs like health care, social security, and unemployment benefits, which do you think it should do?," the split was roughly 40/60 in favor of more spending.7 In all probability, adding the status quo as a third choice would reveal that the median respondent's first choice is to keep things as they are.

Public opinion on regulation looks much the same. At the most abstract level, the median American favors the status quo, but those who want less regulation consistently outnumber those who want more. During the 1983-7 period, advocates of deregulation had an absolute majority. But even this moderate skepticism about regulation is superficial. Americans who believe that it is "government's responsibility to keep prices under control" predominate more than 2:1. About 80% of Americans think that government should "require businesses to provide consumers with the information they need to make informed choices." Industrial policy for both high-tech and declining industries enjoys majority support. The median American persistently favors "government financing of projects to create new jobs," and at least does not oppose French-style "work sharing," though he does balk at the idea that government ought to "provide a job for everyone who wants one."8

Protectionism is similarly popular. Even in what it bills as an era of "declining concern" about foreign competition, the carefully crafted Worldviews 2002 survey finds that "only 38% of Americans say they sympathize more with those who want to eliminate tariffs while 50% say they sympathize more with those who think such tariffs are necessary."9 Over 80% of Americans believe that "protecting the jobs of American workers" should be a "very important" goal of U.S. foreign policy.10

The only strong piece of contrary evidence is that a large majority of Americans will endorse free trade if it is combined with a government assistance program for displaced workers.11 But there are good reasons to suspect that this is largely a question-wording effect. The choices were: free trade without assistance, free trade with assistance, and "I do not favor free trade." Most obviously, the last option should have been split into (no free trade + worker assistance) and (no free trade + no worker assistance). Furthermore, the binary choice between "free trade" and "no free trade" probably masks the public's preference for an intermediate policy. And finally, the alternative to free trade should have a label its proponents accept, like "fair trade."

Are the public's beliefs about economics systematically biased? To answer this question, we need to know more than just what the public believes; we also need a benchmark for accurate beliefs to which the public's can be compared. The Survey of Americans and Economists on the Economy,12 or SAEE—a wide-ranging comparative study of 1510 non-economists and 250 economists—fits the bill.

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!

This analysis admittedly takes economists' expertise for granted. The skeptic could interject: Perhaps the public is right and economists are wrong. Unlike mathematicians or physicists, economists' objectivity has often been impugned. Many critics accuse economists of self-serving bias, an insensitive "What's good for me is good for the world" outlook. Others paint them as dogmatic conservative ideologues.

A particularly helpful feature of the SAEE it contains data on respondents' income, job security, party identification, and much more. This enables us test for the presence of self-serving or ideological bias. It turns out that both of these alternative hypotheses fall flat. Non-economists across the income distribution tend to agree with each other and disagree with economists; controlling for self-serving bias reduces the typical belief gap by less than 20%. There is even less evidence for ideological bias; if anything, statistically adjusting for respondents' political slant makes belief gaps a little bigger. Yes, there is a hint of truth in economists' ultra-conservative image: Economists do believe that supply-and-demand governs prices, that downsizing is good, and executives are not over-paid. But that is only half the story: Economists also embrace a number of "far left" views. For example, liberals are unusually optimistic about the effects of immigration and increased female labor force participation, and economists agree on both counts.

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.

Overall, one cannot help but be impressed by how far-sighted these two economists were. Who would guess from reading the newspaper or talking politics over Thanksgiving dinner that there would be such a tight correspondence between public policy and public opinion? And who would imagine that economic misconceptions would be so stable over time and place?

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

Mises goes even further, putting the weight of civilization itself on economic education:

The body of economic knowledge is an essential element in the structure of human civilization; it is the foundation upon which modern industrialism and all the moral, intellectual, technological, and therapeutical achievements of the last centuries have been built... [I]f [men] fail to take the best advantage of it and disregard its teachings and warnings, they will not annul economics; they will stamp out society and the human race.16

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.


Footnotes
2.

GSS variable identifier CUTGOVT.

3.

GSS variable identifiers NATSOC, NATHEAL, and NATARMS.

4.

GSS variable identifiers NATSPAC and NATFARE.

5.

National Survey of Public Knowledge of Welfare Reform and the Federal Budget (1995), http://www.kff.org/kaiserpolls/1001-index.cfm, Question 19.

6.

GSS variable identifier NATAID.

7.

GSS variable identifiers CUTGOVT and TAXSPEND.

8.

GSS variable identifiers LESSREG, PRICECON, REQINFO, HLPHITEC, SAVEJOBS, MAKEJOBS, CUTHOURS, and JOBSALL.

12.

Survey of Americans and Economists on the Economy. http://www.kff.org/kaiserpolls/1199-index.cfm. For more detailed discussion, see Caplan, Bryan. "Systematically Biased Beliefs About Economics: Robust Evidence of Judgemental Anomalies from the Survey of Americans and Economists on the Economy." April 2002. Economic Journal 112, pp.433-458.

13.

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]

14.

Mises, Ludwig Von (1978) Liberalism: A Socio-Economic Exposition. Kansas City: Sheed, Andrews, and McMeel, p.156.

15.

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

16.

Mises, Ludwig Von (1998) Human Action. Auburn, AL: Mises Institute, p.885. [Specifically, see Part 7, Chapter 39 paragraph 7.XXXIX.18]


*Bryan Caplan is an Associate Professor of Economics at George Mason University. His webpage, www.bcaplan.com, features both his academic research and his numerous other interests, including the online Museum of Communism. Caplan's articles have appeared in the Economic Journal, the Journal of Law and Economics, the Journal of Public Economics,Social Science Quarterly, and numerous other outlets. He can be reached at bcaplan at gmu.edu.

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