I’m a slut for books critical of democracy. Perhaps then, I should be more hesitant to criticize this book, but I’m not going to be.
The overall argument of the book is great. Professor Caplan believes that voters are ignorant in a biased way. Many social scientists believe that voter ignorance cancels out. The pinnacle of this argument can be read here.
It’s true that asking everyone’s opinion and weighting those opinion’s equally is a good way to solve certain problems. However, the masses must not be systematically biased in any way for this problem-solving mechanism to work. Professor Caplan makes the case that the masses are biased in several ways. He believes that people suffer from: antimarket bias; antiforeign bias; make-work bias; and pessimistic bias. I completely agree that the masses a fundamentally biased, but not in the same ways that Professor Caplan thinks they’re biased.
The books suffers from two significant flaws.
The first flaw is that Professor Caplan believes that good governance is identical to good economics. It’s possible that this is the case, but I doubt it and Professor Caplan doesn’t even try to make the case. In other words, Professor Caplan believes that the best government is the one that maximizes economic efficiency.
Here is Moldbug discussing the same problem with a better grasp of the limitations of economics. He’s discussing how a good ruler – a King in this example – would deal with the problem of employing less-productive citizens. I have italicized passages that Professor Caplan explicitly disagrees with:
First, the King has no compunction whatsoever in creating economic distortions that produce employment for low-skilled humans. A good example of such a distortion in the modern world are laws prohibiting self-service gas stations, as in New Jersey or Oregon. These distortions have gotten a bad name among today’s thinkers, because makework is typically the symptom of some corrupt political combination. As the King’s will, it will have a different flavor.
As both a good Carlylean and a good Misesian, the King condemns economism – the theory that any economic indicator can measure human happiness. His goal is a fulfilled and dignified society, not maximum production of widgets. Is it better that teenagers get work experience during the summer, or that gas costs five cents a gallon less? The question is not a function of any mathematical formula. It is a question of judgment and taste. All that free-market economics will tell you is that, if you prohibit self service, there will be more jobs for gas-station attendants, and gas will cost more. It cannot tell you whether this is a good thing or a bad thing. . . .
The full-service gas tax is a tax. . . . Work is not so ennobling that it can convert a low-browed cretin into the Marquis de Lafayette, but it can convert him into a man decent enough to walk the King’s streets.
To put this argument in economic language, you’d say that unemployment has significant negative externalities. This article is a more mainstream discussion of such externalities (here’s another from this week). Professor Caplan would call Moldbug’s approach – which accounts for negative externalities associated with unemployment – "make-work bias."
The Professor’s focus on economics makes some of his points sound ridiculous. In the book, he is discussing some survey results. The survey asked the general population, the enlightened public, and economists some questions and the Professor devotes a good deal of space to comparing their answers. We’re supposed to see that the general public is "wrong" while the economists are "right." Here is the Professor discussing the survey question on increased female labor force participation:
Economists and noneconomists both see increased female labor force participation as a good thing (fig. 3.20), but-ever the pessimists-the latter are less unanimous.
I found this brief discussion hilarious. The economists answer the question through the economic lens: does female labor participation increase GDP? Yes, therefore it’s good. The average citizen considers other things. Does increased female labor participation mean that more children will go to daycare, more women will feel like they have to work, more people will delay or avoid marriage, house prices in good neighborhoods will rise, etc.? It’s not surprising that the answers from non-economists are more varied. I don’t see a reason to attribute this reaction to "pessimistic bias." Again, separating the creation of "a fulfilled and dignified society" from the "maximum production of widgets" opens up lots of doors.
Before I move on, here’s one more example. Professor Caplan is wildly pro-free trade. For example, he specifically states that if people knew what was good for them, 100% of them would vote for zero protectionism. This statement seems absurd. For example, I have an uncle who was a cabinet-maker. This job was long ago sent overseas. He spent more than three years on various types of public assistance while he was being "re-trained." He’s working again, but his job isn’t as good as his old one. Should he really have voted for zero protectionism?
Professor Caplan is also wildly pro-foreigner. Statistics like these would seem to not register:
New York: 265
Sydney (2006): 159
New York: 254
Sydney (2006): 1008
New York: 10.6
Sydney (2006): 51.4
London’s lack of "anti-foreign bias" means that it has cheaper street food than Tokyo, unfortunately it also means that it has more than 15 times the number of rapes than Tokyo has. Of course, if you notice this, you’re "anti-foreign."
The second flaw in the book is that Caplan assumes we are in fact living in a democracy.
If you read all of the survey results that I discussed earlier, you’ll notice something interesting. First, the masses don’t seem to get their way on most of the issues (Professor Caplan notes this, "The main caveat is that if the public got exactly what it asked for, policy would be a lot worse."). People would like more protectionism, yet we get more free trade. We don’t have as much as economists would like, but if we live in a democracy, why don’t we follow the policies of the demos?
This other group, "the enlightened public," is always somewhere between the economists and the masses . . . and so are our policies. Might one conclude that the enlightened public is actually in charge?
The voters are clearly not in charge when it comes to setting policy. Professor Caplan briefly considers other explanations but concludes that voters are still in charge. He also considers my favorite alternative explanation:
The real power, supposedly, is the "faceless bureaucracy." The economics of principal-agent relations cuts against this inversion. When a principal delegates a task to a subordinate, his tacit instruction is, "Do what I myself would have done if I had the time," not, "Do as you please." The former does not have to evolve into the latter. Common sense tells a principal to occasionally audit his subordinates to see how well they mimic the decisions he would have made himself."
It makes little difference if there is one principal and one agent, or one principal at the top of a tall bureaucratic pyramid. The preferences of the apex trickle down to the base. Imagine the pyramid has 26 layers, from A at the top to Z at the bottom. If the Z’s ask, "What is expected of me?" the answer is, "To do what the Y above you would have done." If the Y’s in turn ask, "What is expected of me?" the answer is, "To do what the X above you would have done." For any given Z, serving the wishes of the Y above him is equivalent to serving the wishes of the X two levels up. This principle lets us ascend the entire pyramid. . .
This argument remains relevant for tenured professors, Supreme Court justices, and others who cannot be fired. When you cannot punish insubordination, rely on reputation instead. Choose candidates with a long history of support for your approach. If a justice undercuts the president who appointed him, a rational electorate can and should blame the president for being a poor judge of character.
I’ve a lot about how the bureaucracy works. It does not work like Professor Caplan believes it does, but I won’t re-hash all those arguments here.
Unfortunately, the earlier part of Professor Caplan’s book undercuts his own argument. If voters aren’t good at holding a President responsible, then the system breaks down. You can’t get back from Z to A.
How does relying on reputation work in order to punish the "faceless bureaucracy?" You can’t ruin the reputation of a faceless mass.
Finally, Professor Caplan also assume that the principal wants to lead. This may be the case in the private sector, but it is simply untrue in the public sector. Leadership means taking responsibility and the whole purpose of the modern bureaucratic system is to ensure that no one ever has to take any responsibility.