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  • Stupid, Ignorant or Biased?

    Stupid, Ignorant or Biased?

    Stupid, Ignorant or Biased?

    President Franklin D. Roosevelt's closest adviser and architect of the New Deal, Harry Hopkins, advised, "Tax and tax, spend and spend, elect and elect, because the people are too damn dumb to know the difference." Professor Bryan Caplan, my colleague at George Mason University, sheds some light on Hopkins' observation in his new book, "The Myth of the Rational Voter: Why Democracies Choose Bad Policies."

    Caplan is far more generous than Hopkins. Instead, he says people harbor economic biases, several of which he discusses. There's the anti-market bias, the failure to believe that market forces determine prices. Many believe that prices are a function of a CEO's intentions and conspiracies. If a CEO wakes up feeling greedy, he'll raise prices. They also believe that profits are undeserving gifts. They fail to see that, at least in open markets, profits are incentives for firms to satisfy customers, find least-cost production methods and move resources from low-valued to high-valued uses.

    Then there's the make-work bias, where many believe that labor is better to use than conserve. Thus, the destruction of jobs is seen as a danger. Technology, as well as outsourcing, throws some people out of work. Caplan reminds us that in 1800 it took nearly 95 of every 100 Americans, working on farms, to feed the nation. In 1900, it took 40. Today, it takes three. Workers no longer needed to farm became available to produce homes, cars, pharmaceuticals, computers and thousands of other goods. Caplan doesn't make the equation, but outsourcing, just as technological innovation, frees up labor to produce other things as well.

    Next is the anti-foreign bias. Caplan explains that there are two methods for Americans to have cars. One is to get a bunch of workers into Detroit factories. Another is to grow a lot of wheat in Iowa. You harvest the wheat, load it on ships sailing westward on the Pacific Ocean, and a few months later the ships reappear loaded down with Toyotas. We have cars as if we produced them. In other words, exchange is an alternative method of production.

    Added to the anti-foreign bias is the balance-of-trade fallacy. Caplan says that nobody loses sleep over whether there's a trade balance between California and Nevada, or between him and iTunes. Trade balance fears arise only when another country is involved. The fallacy is not treating all purchases as a cost but only foreign purchases as a cost. There might be another bias as well. Caplan reports that, according to an opinion survey, 28 percent of Americans admitted they dislike Japan but only 8 percent dislike England and a scant 3 percent dislike Canada.

    People have a pessimistic bias where they believe economic conditions are not as good as they really are and things are going from bad to worse. This is the message of doomsayers, but the reality is quite different. By any measure of well-being, Americans at the start of this century are far better off than Americans at the beginning of the last century. Perennial doom-and-gloom predictions about resource depletion, overpopulation and environmental quality are exaggerated and often the opposite of the truth. Preaching doom and gloom has been beneficial to the political class. They use it to gain more power and control.

    Caplan is one of George Mason University Economics Department's up-and-coming young scholars. In fact, I'm proud to say, he was hired during my department chairmanship. "The Myth of the Rational Voter: Why Democracies Choose Bad Policies" is a highly readable and interesting political-economic discussion of why we choose bad policies. Those policies are harmful to the general public but beneficial to particular interest groups who gain from restrictions on peaceable, voluntary exchange. Maybe that's why our founders loathed a democracy and gave us a republic -- which we've lost.

    Walter E. Williams is a professor of economics at George Mason University. To find out more about Walter E. Williams and read features by other Creators Syndicate writers and cartoonists, visit the Creators Syndicate Web page at Creators Syndicate - Celebrating 20 Years as a World-Class Syndicate Of Talent.
    "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

  • #2
    Well, unfortunately the vast majority of people don't understand the workings of the market or capitalism and turn to populists policies and other idiot policies that hurt the economy. Worst, the politicians will say whatever idiocy to please the population and their twisted view of the economy.

    Just like those anti-globalization protesters, they are actually hurting the very people they said they're protecting.
    Last edited by wkllaw; 22 Sep 07,, 15:14.
    Those who can't change become extinct.

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    • #3
      It is very true what wkllaw says, the people have no understanding of economy or politics. They think in direct terms such as "cheap - good, expensive - bad" or are too naive or close-minded to see the big picture, and blame corporations, capitalism or whatever comes to mind for their problems.

      In Belgium, the near-Nazi party Vlaams Belang, lacking a decent economic and foreign policy (they want to separate themselves from the EU to build a sovereign Great White Flemish State, indirectly said of course), won a lot of votes by playing on anti-immigration sentiments. The party wants to kill the free market because it sees the EU as a destructor of Flemish culture and economy.

      The best argument against democracy is a five-minute conversation with the average voter - Winston Churchill.

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      • #4
        Originally posted by wkllaw View Post
        Well, unfortunately the vast majority of people don't understand the workings of the market or capitalism and turn to populists policies and other idiot policies that hurt the economy. Worst, the politicians will say whatever idiocy to please the population and their twisted view of the economy.

        Just like those anti-globalization protesters, they are actually hurting the very people they said they're protecting.
        ABSOLUTELY TRUE, and a VERY insightful post. Right on the money.

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        • #5
          Does this mean that democracy has turned into Commercialcracy - the one with the most colourful and promising commercials wins?

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          • #6
            Entropy,

            The problem is that incentives don't align. Politicians care about the economy, but they also care to stay in office. They usually choose staying in office over the general economy.

            Additionally, when they do care about the economy, they care most about how the economy affects their local constituency whom they represent. Thus, they try to protect their local industry at the expense of everyone else.

            For example, it's easy to show the pain of a laid off textile worker in South Carolina who loses a $40-50K salary, but not the small and diffuse gains of $0.50 for every now imported garmet that when added up far exceeds the loss of a small, concentrated group that has an incentive to mobilize and make their plight known. An even more egregious example is the outcry from Michigan about how foreign car makers are putting them out of business. What would protectionism do here? Save jobs in Michigan while creating layoffs next door in Ohio by the "foreign" car makers.
            "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

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            • #7
              Politicians are whores, and we're horny. I don't think that it gets more complicated than that.

              -dale

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              • #8
                Roosevelt was surrounded by communists. The man was certainly not the best president of the 20th century.
                "I tremble for my country when I reflect that God is just; that His justice cannot sleep forever."
                - Thomas Jefferson

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                • #9
                  Balance of trade does matter, if only as a cause of inflation. Utah and Nevada share the same currency. One ton of wheat sells for much less than one ton of automobiles - the trade is not between equal products. Plus, how many workers does it take to produce one ton of automobiles compared to those needed to produce wheat? Profits made due to loss of jobs are concentrated upwards. Less jobs equals more poor - this is ok? Sure, as long as you haven't lost your own job. But HEY, they can just "conserve their labor"! Except that they need to eat and stuff... Well, they are freed up to produce automobiles; guess they'll all be moving to Japan - maybe they can afford a bowl of rice there with their severance pay, (if they had any, that is). If the author borrows against his house in order to pay ITunes, his banker will begin to worry. The guy is a hack if these platitudes are all he has to say.

                  If you look at "the market" and globalization and all you care about are earnings posted by corporations, everything seems rosy. But your neighbor has his car repossessed and the price of coffee has risen 250%. I may be better off than I was 100 years ago, but I am worse off than I was 20 years ago - I dont have the money which will allow me to enrich myself off corporate profit. I must work for my living. Most people need jobs.

                  I realize this is just a laud for his protege, but do you have a link for the full article or is that all? I'd like to read it if there is something of substance.

                  EDIT: So yes, I agree. Stupid, ignorant and biased.
                  Last edited by Dwarven Pirate; 24 Sep 07,, 22:00. Reason: HAve to say

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                  • #10
                    Originally posted by Dwarven Pirate View Post
                    Balance of trade does matter, if only as a cause of inflation. Utah and Nevada share the same currency. One ton of wheat sells for much less than one ton of automobiles - the trade is not between equal products. Plus, how many workers does it take to produce one ton of automobiles compared to those needed to produce wheat? Profits made due to loss of jobs are concentrated upwards. Less jobs equals more poor - this is ok? Sure, as long as you haven't lost your own job. But HEY, they can just "conserve their labor"! Except that they need to eat and stuff... Well, they are freed up to produce automobiles; guess they'll all be moving to Japan - maybe they can afford a bowl of rice there with their severance pay, (if they had any, that is). If the author borrows against his house in order to pay ITunes, his banker will begin to worry. The guy is a hack if these platitudes are all he has to say.

                    If you look at "the market" and globalization and all you care about are earnings posted by corporations, everything seems rosy. But your neighbor has his car repossessed and the price of coffee has risen 250%. I may be better off than I was 100 years ago, but I am worse off than I was 20 years ago - I dont have the money which will allow me to enrich myself off corporate profit. I must work for my living. Most people need jobs.

                    I realize this is just a laud for his protege, but do you have a link for the full article or is that all? I'd like to read it if there is something of substance.

                    EDIT: So yes, I agree. Stupid, ignorant and biased.
                    DP,

                    Actually, this oped piece is well backed up by economic theory and empirics. Your first mistake is to conflate profit as solely an upperclass phenomenom. While income inequality has risen, this can also be misleading about the nature of the economy. The reality is that 4 out of every 5 millionaires are self-made. So, if your argument is about one of class, then it is off. If it is that only upperclass income has increased, it is also off.

                    Next, you throw out the red herring that those that no longer need to farm to survive should make automobiles. Not much money to be made there since the US doesn't have a comparative advantage in that sector anymore. Why not move into other sectors where we do have the advantage? This may take a generation for some to adjust, but it need not be that long. You can read about creative destruction here. Additionally, the fact that the US economy has grown by leaps and bounds in the past decades also shows that money on average moves to where it can get the best return, which is not in declining or dying sectors.

                    Lastly, you conflate your situation with the general trend. They don't match. Both real mean and real median incomes in the US have increased by 25% in the past 20 years (real means that this accounts for inflation). Also, could you cite where coffee is 250% more costly now than it was 20 years ago? Is this because coffee is more expensive, or is it because the "neighbor" has chosen to consume a lactose tolerant skim milk latte with caramel from Starbucks instead of Folgers "in your cup" brewed at home (besides, how much of a person's budget is dedicated to paying for coffee anyways?).

                    I'd highly recommend getting the book "The Choice" by Russell Roberts. It's a quick read that takes one through the fallacies presented by politicians to advance their interests at the cost of economic policies that creates more losers than winners.
                    "So little pains do the vulgar take in the investigation of truth, accepting readily the first story that comes to hand." Thucydides 1.20.3

                    Comment


                    • #11
                      Whilst most voters don't understand politics and economics, neither do most politicians and economists. In fact very few people grasp the latter and if they do it is normally only termporarily.

                      Whilst "conserve the labour" is a nice parallel to "conserve momentum) the two are of course disimilar in the momentum is easily transferable, however an unemployed farm worker is not easily transferable into a financial database programmer or a web designer. "conserve the labour" is true but theoretical. What it often means is "conserve the labour downwards" and thus you might get ex-carworkers flipping burgers for minimum wage.

                      Anybody who has ever worked in a large corporate where something has been outsourced or automated (and i have worked with a couple) people are often "redeployed" but to the job centre, not to other areas of the same organisation because they do not have skills or experience to redeploy internally. And also because there simply might not be the need internally.

                      Equally whilst it is true that open markets set prices, i don't think any of us on this board live in an open market. The vast majority of us live in some sort of protectionist regime with tax burdens / loopholes. Prices have to include that.

                      Even if you assume that these are added into the true market cost then this assume there is no deliberate or even sub-conscious price rigging. For example if you are making profits your price needs only be low to maintain them. There are numerous (especially retail) areas where the market has a soft landing for prices with little variation over time because companies are maintaining an unspoken cartel (they don't want a price war even though there may be headway to achieve it). The best example of such things is CD / DVD sales. There is huge uniformity of price and has been for some time yet unit costs are now neglible and returned investment on production should be seeing genuine prices wars between talent costs. However a new artist on their first album (who will have nearly zero contract (i.e. talent) costs) has the same sticker price as a massive star with enormous contract costs.
                      at

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                      • #12
                        Originally posted by Trooth View Post
                        Equally whilst it is true that open markets set prices, i don't think any of us on this board live in an open market.
                        I do. Well as close as any country has yet got to it.
                        In the realm of spirit, seek clarity; in the material world, seek utility.

                        Leibniz

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                        • #13
                          Originally posted by Parihaka View Post
                          I do. Well as close as any country has yet got to it.
                          I'll take your word for the latter, but there is a fair amount of stuff that will incur tariffs :- The Working Tariff Document of New Zealand
                          at

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                          • #14
                            Originally posted by Trooth View Post
                            I'll take your word for the latter, but there is a fair amount of stuff that will incur tariffs :- The Working Tariff Document of New Zealand
                            LOL, compared to other countries with a weighted average tariff rate of 3% in 2004, it's miniscule and dropping.
                            95% of goods coming into NZ are tariff free
                            In the realm of spirit, seek clarity; in the material world, seek utility.

                            Leibniz

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                            • #15
                              [QUOTE=Trooth;410086]Whilst "conserve the labour" is a nice parallel to "conserve momentum) the two are of course disimilar in the momentum is easily transferable, however an unemployed farm worker is not easily transferable into a financial database programmer or a web designer. "conserve the labour" is true but theoretical. What it often means is "conserve the labour downwards" and thus you might get ex-carworkers flipping burgers for minimum wage.[QUOTE]

                              You've stated the paradox quite well. Following the path of comparative advantage where land, labor and capital flows in the most efficient direction results in an ongoing cycle of job losses accompanied by individual pain and economic loss. From that perspective it is natural to want to help workers keep their jobs in the face of foreign competition and/or technological advances. But by erecting trade barriers and whatnot to protect less productive jobs, job formation in more efficient industries is stunted as a direct result. The book Shek recommended explains this phenomenon very well. We basically have to think in terms of what is good for the entire workforce and bite the bullet when it comes to those pockets of employment threatened by foreign competition.

                              But I believe that the federal and state government could do more to cushion the blow for workers who lose their jobs to foreign competition. I'd favor a program which finances them during a retraining period similar to what we do for college students who get low interest, government guaranteed loans. This would help them survive with reasonable security for 2 years or more, and would make more economic sense than erecting trade barriers to protect them.
                              Last edited by JAD_333; 26 Sep 07,, 06:08.
                              To be Truly ignorant, Man requires an Education - Plato

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