Wednesday, August 01, 2007

Caplanian deep thoughts, part deux

Wow, from reading just one sentence from Bryan's book, I haven't been able to think of hardly anything else the last couple days (good thing I didn't read more or I probably wouldn't be able to sleep!!). To recap the sentence in question:

“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.”

so, here I go again:

First, what has been the policy trend since world war II? To my reading of history it has been increasing trade, freer and freer flows of capital, tons of private sector innovation. I don't think this just happened in a vacuum, we lowered tariffs and capital account restrictions, we subsidized R&D, allowed (after a fashion) large changes in the composition of the economy. America has almost completely remade itself in the last 50 years, hasn't it? So maybe, just maybe, (a) people in general don't ask for foolish policies or (b) our political elites have done a fantastic job giving the people what they need while pretending to give them what they want. I'd also say that from my point of view, organized interests have done more to block this liberalizing, modernizing process than have the irrational average joes of the world.

Second and more subtly, how do we know the "foolish policies" asked for by the public are really foolish? Here I refer to the economic theory of the second best, the oft ignored bete noir of reformists. Simply put, if the polity contains multiple economic distortions, there is no way to guarantee that removing or reducing one or even a subset of them will raise welfare.

We now return you to your regularly scheduled programming.


bd said...

Excellent post.

What does Caplan claim are obviously foolish policies? Take the minimum wage as a case in point. I presume that Caplan, given his libertarian bent, thinks that it is foolish to increase the minimum wage. I also presume that Alan Krueger thinks it is not foolish. I, being completely correct on all policy matters at all times, say that the correct policy in this case depends entirely upon one's objectives.

Caplan's argument can be--and most certainly will be--used by those who want more government involvement in our lives (we irrational voters have opposed nationalized health care, after all) just as easily as by those who want less. And I fear that the Jacobins among us will be more adept at deploying Caplan's argument, tending naturally to believe in the incompetence of the masses.

Juris Naturalist said...

I've heard Caplan discuss this book in person and on Econtalk. Amazon is holding up my copy to ship with Cowen's in a week or so.

But from what I've heard you should finish the book before you go too much further.

He's actually going to agree with you on a few of these ideas. You, too bd.