A Tyler Cowen correspondent wants to know what would happen, politically, "if everyone knew as much about economics" as Tyler does. Questions abound! "Would libertarianism remain a defensible political position?" Even better, "Would a moderate left-leaning position such as Matt Yglesias's suddenly become much more tenable?" More tenable compared to what, I wonder?
My instinct is that enhanced voter knowledge of economics wouldn't actually change things very much. Political decisions aren't made throught the deliberations of benevolent actors aiming to achieve an agreed-upon conception of the common good. Normative questions are highly contestable and highly contested. People who "know economics" disagree about a great deal, including economics. Most of all, though, interests matter politically. Consider, say, the example of trade.
This is an issue whose basic shape is deeply, deeply controversial among the unwashed masses, but where economists very broadly agree about the overall shape of things. Lower barriers to trade enhance overall economic growth. The additional wealth generated by reduced trade barriers is, however, distributed unevenly. Indeed, many people will see their personal economic situation deteriorate as a result of trade agreements. On the whole, however, wealth increases. It should be possible, therefore, to take some of the surplus away from the "winners" in trade and give it to the "losers," thus generating a Pareto-optimal change vis-à-vis the status quo wherein nobody loses and many people win.
That's the economic theory and as best I can nobody who understands economics disagrees with it.
As anyone who understands politics knows, however, this isn't actually how things work out. The would-be winners from some new trade agreement are, naturally, willing to bargain away some of their winnings in order to secure legislative approval of a favorable deal. They're not, however, especially interested in fully compensated they would-be losers. Rather, they want to make as many concessions as are necessary but no more than that. Meanwhile, potential losers typically project that they have better odds of just blocking the unfavorable policy change than they do of successfully lobbying for compensating benefits that will exceed the value of stopping the change.
This outcome doesn't really come about because the political agents "don't know economics." Yes, they sometimes say economically ignorant things to try to win the political fight. But the leaders of all the relevant groups are acting in exactly the way someone in that position who understood the economics perfectly would act. It's not a deficit of knowledge that prevents us from reaching more optimal resolutions of these conflicts of interests, it's deficits of trust and benevolence with the latter (as an economist would tell you!) being in particularly short supply. When you think about it, this is why more-or-less democratic forms of government are a pretty good idea. Voting and legislatures aren't a very good mechanism for generating knowledge, but they at least serve as peaceful mechanisms for resolving coflicts of interest, which are simply endemic in the policy arena.
Yup. I'll add that there's a great concrete example--a case study of the Doha Round-- by Clive Crook in the October 2006 Atlantic. You might want to check it out.
Posted by James Gary | November 6, 2006 10:33 AM