Tuesday, July 31, 2007

Caplanian testability?

Let me start with two confessions: (1) I like Bryan Caplan very much, (2) I have not read his book. However, I take the following as his central thesis:

“I see neither well-functioning democracies nor democracies hijacked by special interests,” Mr. Caplan writes. “Instead, I see democracies that fall short because voters get the foolish policies they ask for.”

and wish to speculate on how these three points of view might be discriminated between empirically.

My own work, mostly joint with Mungowitz, shows that interest groups systematically give money to legislators best positioned to support their causes, and that the amount an interest group can raise and spend depends on both the potential gains they may receive and the costs of overcoming free riding in their particular interest class. We also predict and find that the economic interests of voters serves to influence the price that specific legislators would have to charge to provide services to an interest group. So I guess we would say that interest groups get what they want subject to (a) their ability to organize, (b) the constraints that having to face voters in periodic elections puts on legislators, and (c) the institutional structure of the government (committee system, term limits, etc.).

I guess the biggest problem for me in the Caplan quote (sorry for going all Rand-ian on you guys) is defining terms. How do we know a well-functioning democracy when we see one? To me, if power changes hands peacefully and fraud is not rampant, then we pretty much have a well-functioning democracy. That is to say, I'd judge democracy on the process and not on the outcomes. I don't know of any proofs of propositions like "well functioning democracies produce efficient economic outcomes". In fact proofs of the opposite are somewhat prevalent, aren't they?

I also find it interesting that a lot of left leaning political scientists (and yes there ARE other kinds as well!!!) bemoan exactly the same alleged phenomenon claiming that poor and middle class people foolishly and repeatedly and mistakenly vote Republican against their own personal economic interests (right, Mungowitz?? Bartells and them guys).

Note that I personally am a very small government kind of guy. I'd like to cap spending at say 10% of GDP, virtually do away with our military, privatize social security, increase competition and ease entry into medicine, law, etc. I am just not sure how effective Bryan's argument is in reaching this kind of conclusion (which I freely acknowledge has probability zero of ever happening).

I guess I should actually say something about what this post is supposed to be about, the testability of Bryan's thesis, so here goes. I don't see any way to actually test between the three positions outlined in the original quote. Anyone?? Anyone?? Ferris??

1 comment:

Anonymous said...

The criteria that Caplan would suggest you measure economic success by is how well economic policies conform to that of the experts. I find this a bit tough with the lack of consensus in the discipline, but I think some measures might be low capital taxes, low capital taxes relative to labor taxes, loose minimum wage laws. I'm sure you could find other measures. With the assumption that the economics consensus is the right one, one could use economic performance as a metric.

As for data- how about using an international panel. Some countries have higher turnout and different people turning out- you could use this variation to see how changes in the electorate (i.e. changes in the voters education etc- factors that Caplan suggests correlate with good economic sense) affect economic policy.

I think their are also answers in looking at various forms of democracy- e.g. do regulations passed through legistlation make more economic sense than those passed by ballot initiative (as the former might be better filtered by economic experts)