Thursday, April 4, 2013

The Failure Of Democracy

The title is sheer hyperbole and sensationalist, but this is really a book review and a rather appropriate one given the news yesterday.

Now that I’ve got your attention, let me begin first by saying that democracy and democratic institutions are far superior to other forms of social organisation. The principle of one person one vote, while honoured as much in the breach as in the observance, encapsulates the desire for all peoples for self-determination and the pursuit of life, liberty and happiness.

Democracy has flourished and has helped underpin the development of global trade, the advance of technology and the free working of markets, that has brought about an increase in human welfare that is both unique and unprecedented in human history.

That doesn’t mean it’s perfect however, but then, nothing is.

The point here is that democracies, embodying as they do the consent of the governed, also involve the desires of the governed. And from the perspective of economic growth and development, voters since time immemorial want the damnedest things.

Successfully growing economies have been derailed by popularly elected politicians with strong governing mandates –and these politicians continue to be popular even as their policies proved to be demonstrable failures. Voters sometimes espouse policies that make little to no economic sense, policies that while appearing to be personally beneficial yet reduce social welfare as a whole.

Most of Latin America fits this description – a century ago, living standards in Latin America were on par with the developed West but are now far below American or European income levels. Other examples also abound. Zimbabwe went from a promising middle income country to an economic basket case, by catering to populist sentiment.

While less harmful overall, some individual policies in democratic countries over the past half-century or so also certainly fit the bill, such as incomes and rent fixing policies, price controls, or fuel subsidies. None of these policies make much economic sense, yet they continue to attract widespread popular support. For that matter, the ideas of Karl Marx remain popular touchstones, even despite the manifest failure of communism.

One upshot of this observed behaviour is what’s called the Self-Interested Voter Hypothesis (or SIVH), where voters are thought to support candidates and political parties that support their own narrow interests. Under this hypothesis, politicians that implement policies that reward particular voting blocs would garner the votes of that bloc – hence the political popularity of giveaways.

Sound familiar?

SIVH fits in well with orthodox economic analytical frameworks – firms, households and even countries act in accordance with their own self-interest, to maximise their own welfare. Analysing voting patterns and public policy choices should be amenable to being treated the same way.

Yet…research into voting behaviour reveals something quite different. As a rule, despite “giveaways” and “goodies” and other indirect attempts at “vote-buying”, voters are actually quite altruistic. In other words, they will support those candidates who they think can best govern the country and bring about widespread prosperity, irrespective of inducements otherwise.

Yet we have the countervailing evidence that voters also support policies that work against that result, that cause slower economic growth and reduce their own welfare.

In short, while voters in a democracy live up to the social responsibility implied by the democratic system, they also appear to be quite maddeningly inconsistent with respect to their own welfare. Or to be more economically precise, they appear to be irrational.

So what gives?

Four years ago, in the last days of the US Bush Presidency, Bryan Caplan of George Mason University in the US published a book that looked into this very question. In “The Myth of the Rational Voter" (Princeton University Press, 2007), Caplan examines this “paradox of democracy”.  His conclusion? Voters are economic illiterates. They support sub-optimal policies because they don’t know any better.

More importantly, voters know that the marginal impact of any single vote is negligible, so they don’t feel constrained by self interest to support causes that will only benefit themselves. To be more technical, the expected private return from a vote is so negligible, that conventional utility maximisation doesn’t apply.

By the same token, they will support causes that they do care about, but don’t necessarily make any economic sense. They vote for policies that they feel good about, or for parties that they identify with, but not necessarily for that which would actually be socially beneficial to them personally.

So the average voter is rational, but that rationality is bounded by what they know of how economies work, which on average is not very much. This ignorance is compounded by highly resistant systematic biases in their beliefs about economics. In Caplan’s words, voters are therefore rationally irrational.

Homo economicus, the representative rational man who understands the “true” workings of the economy and takes in all presently available information to inform his actions in maximising his present and future utility, is an abstraction in academic economics that doesn’t exist in reality. People in the real world rely not on perfect information and complete knowledge, but on heuristics and “rules of thumb” – mental shortcuts, if I can use that phrase, or more popularly, “common sense”.

But common sense as it relates to economics is neither common nor sensible. If I can paraphrase Alan Greenspan, people too often look at economic policies in terms of single entry bookkeeping when what they really need to look at is double entry bookkeeping. Or more bluntly – for every action, there is an equal and opposite reaction.

One consequence of voter irrationality is that voter apathy, which civil society proponents wring their hands over, is actually a good thing – because the more citizens who come out to vote, the more likely the popular vote will be skewed towards bad economic policies. Good economic policies on the other hand get support when those who have the requisite knowledge are the predominant voting bloc or are in a position to influence the votes of others. Efforts to “bring out the vote” can thus be counter-productive for economic development.

Hence the mixed record of democracy in economic development compared to more autocratic regimes, especially in East Asia.

As you can imagine, this is an extremely elitist argument. It implies that the best outcomes would come from putting the “experts” in charge or letting only the “experts” vote, even if the level of knowledge of those experts is only slightly above that of the average man on the street. And it also doesn’t help when there remain fault lines and differences on even fundamental economic issues between individual economists.

But Caplan supports his line of thinking with persuasive data supported by clever theoretical insights. Better education is directly correlated with both better economic knowledge and likelihood of voting for example. It all makes an evil kind of sense.

Caplan doesn’t propose any solutions – the book is largely aimed at debunking conventional wisdom on political economy – but he does note that there’s some wiggle room for democracies to both survive and prosper.

In politics, a principal-agent problem might in fact be a solution, in that rational politicians can support populist measures while privately discouraging its implementation:

“When a master does not know his own best interests, a disobedient servant can be a blessing. The more misguided the electorate is , the less desirable it is for politicians to unquestioningly grant its wishes…The lesson is that agency “problems” temper majoritarian extremes. Good outcomes become less good, because corrupt politicians stand in the way of the public’s grand design. Bad outcomes become less bad, because politicians have the wiggle room to tone them down…If politicians have no choice but to carry out constituents wishes, democracy loses one of its main safety valves.”

Personally, I certainly don’t have any answers either. Better education is certainly called for, but given increasing specialisation of labour and knowledge, it’s probably tougher than it looks to spread economics knowledge around. Disagreement within the profession on some fundamental issues (*cough* fiscal policy *cough*) is another barrier – if even the “experts” disagree, what more the layman?

But the book is a rollicking good read, largely accessible to the layman, and highly thought provoking. I recommend it highly – particularly for politicians. It isn’t available locally, but Amazon carries it, as does The Book Depository.

Technical Notes:

Bryan Caplan, “The Myth of the Rational Voter”, Princeton University Press, 2007


  1. Pretty cheeky of you with that misleading yet ironically accurate title, eh dude? But having regained you “abnormal” bearings after that initial moment of insightful epiphany, you descend into a valley of fallacies regarding ‘democrazy” yep...democrazy.As this will be prelims for starters (as I am pressed for time plus I know, I owe you a couple of thoughts), here are some quickie observations:

    1. Now that I’ve got your attention, let me begin first by saying that democracy and democratic institutions are far superior to other forms of social organisation. The principle of one person one vote, while honoured as much in the breach as in the observance, encapsulates the desire for all peoples for self-determination and the pursuit of life, liberty and happiness.Democracy has flourished and has helped underpin the development of global trade, the advance of technology and the free working of markets, that has brought about an increase in human welfare that is both unique and unprecedented in human history.

    Response : wrong (sorry for that damn irrepressible w- word again!!!, please don't invoke the ban for stating the unpalatable...(ROFL). History, ancient, modern and contemporary amply demonstrate that to be not the case. In fact, there is ample evidence and data to suggest that benevolent autocracies were and are best suited to advance civilization

    2.As you can imagine, this is an extremely elitist argument. It implies that the best outcomes would come from putting the “experts” in charge or letting only the “experts” vote, even if the level of knowledge of those experts is only slightly above that of the average man on the street.

    Response: Caplan has got it, man something to which you are just cottoning on. You see in ancient Greece, the birthplace of democracy, voting was essentially elitist. Certain groups like slaves(by dint of their bondage); women (by dint of their inferior intellect or imbecility; obvious lack of it hahahaha) etc were barred from voting. And extending it further, the very apex of decison making then and now is elitist by default....... (more on that when infernal Father Time sheds some hair!!!!). Now if you manipulate Hooke’s Law and stretch the spring a tad further, don't you hear the echoes of autocracy in there elitist autocracy..........

    But what stumps me is that most people still don't get it that the fundamental demand of democracy is knowledge, the very essence needed to make informed decisions (and information plays a key role in that equation as well). It mirrors the equation in the marketplace; knowledge plus information symmetry yields optimal outcomes - fact, game set and match.

    By default, the implication is simple, if you have a riff raff of ignorant, brutish Yahoos ( be they from the upper, middle or lower classes) the net outcome to the unfortunate Houyhnhnm minority and Animal Country would be pretty obvious....

    Another point missed by many is the nature of a democracy: majoritarianism vs proportional rep is one issue beyond which many ignore terms such as consociational, collaborational, cooperational, vs confrontational, ‘conflictional’ (my coinage) when elucidating about workable or unworkable democracies. And yonder, I would personally add another dimension, the moral/ethical as in conscientional vs you see “democrazy” is indeed a crazy polydigited troglodyte whose personality is fraught with contending contradictions and philosophical consternation. It is a system that tries too hard to account for all shades of black and white without capturing the essence of either.or neither and that what makes autocracy, a simply seductive, unpretentious, an infinitesimally more efficient and irresistible Siren for the initiated, that some weed to smoke on that ; 0 D. ‘night, brother!

  2. Am not voting.

    Planning to spoil my ballot if I ever do feel like herd-mentality is taking over my decision making process

    At the heart of it all, I'm still a regular homo economicus and I think my preferences (basically, of economic policies) are not aligned to either of the main coalitions.

    Although I'm not terribly inclined to microeconomics but that first chapter of Freakonomics - but plenty of other examples here: - really bugs me as well as Ken Arrow's Impossibility theorem.

    That said, I'm not against democracy, I'm just against the policies that the representatives spout in this system (and this is how I reveal my preference).

  3. Thanks for the really interesting write-up! I haven't read Bryan Caplan, and will keep an eye out for him.

    Another theorist who thickens rational choice with data and intuitions is Timur Kuran. He's an economist by training, though the empirics in his excellent "Private Truths, Public Lies: The Social Consequences of Preference Falsification" are case studies rather than large-N analysis. Preference falsification diverges from conventional decision models in that (a) Kuran separates privately held preferences and publicly expressed preferences; and (b) works with three categories of utility, i.e. intrinsic (economic/material), reputational (social), and expressive (psychological). The result is a framework that avoids elitism and is malleable enough to model awkward situations at parties as much as the 1989-90 revolutions in Eastern Europe. It's a long book, but a really readable one.

    Tangentially, one thing I like about Kuran's model is the reminder that there are many kinds of utilities and many kinds of standards. Moving away from narrowly economistic valuations of people/outcomes/politics also deflates technocrats' claims to intrinsic superiority, and reinvigorates the persuasiveness of (meaningful rather than semi-authoritarian) democracy as a way of sharing equally the privilege of corporate decision-making, as well as the blame for its outcomes -- however inadequate the people and political mechanisms may be.

    Sorry for the yay-Kuran-and-democracy ramble, and thanks again for pointing out Caplan!

  4. Part 1
    1. While this post throws up sevral interesting claims about democracy being the crux of economic/technological advancement of nation states and civilisation, an equally interesting pathway of analysis would be to determine whether the notion of ‘universal suffrage’ was evident in the pathogenesis of democrazy in the western world during those periods of advancement. What is evident and probably unbeknownst to many was that, much of “democracy” in the Western world were in actual fact closed, elitist systems that disenfranchised vast swaths of society on the basis of economic wealth, landholdings,bondage or even sheer discrimination (against the natives).

    I take the case in point the evolution of democracy in the Americas which even in its advanced stages were exhibiting the classic symptoms of elitism:

    “But they remained comfortable supporting the exclusion of groups that were, in their view, obviously distinctive and unsuitable for participating in community decisions: blacks,
    women, children, Native Americans, the mentally incompetent, those with criminal records, and those (immigrants as well as native born) who had not long been resident in the county or state.25 When there were wealth-based restrictions, there had been no real need for provisions that dealt specifically with these classes, but as states eliminated or weakened the economic-based qualifications, there was increasing emphasis on
    introducing or tightening qualifications that would keep undesirable groups out of the electorate.”

    (and Blacks only gained their rights to vote much later!!!)

    The track of universal suffrage and by default, what we conceive to be the democracy we know of today, is historically a recent innovation, definitely much later that the economic, technological and educational advancement that preceded it. To put it simply, democracy is a laggard NOT a leader in facilitating civilizational advancement. And to extend the argument further, we may well have been every bit as comfortable in benevolent autocracy, enlightened theocracy or even progressive aristocracy as much as under elitist democracy. For under whichever aforementioned system, elitism has been the name of the game (And that is why since the dawn of time, socio-political leadership has been invariably organized around a strong leader advised by council of advisors...with differing names but essentially the same advisory/ideas function: council of elders, syura, panchayat etc etc and the notion of an omniscient individual dominating proceedings masks another fact, for behind every ruler stood the able vizier):

    2. “Qualifications based on wealth or income were very common throughout Latin America during the early 1800s, but over time the requirement of literacy came to be virtually universal in Latin America as well. These latter strictures, which were generally set forth as qualifications for being a citizen,effectively barred the great majority of wage-earners, whether urban or rural, and of Native Americans from voting. In such a legal environment, and with extremely low literacy rates (perpetuated by very limited support for public schools) and with unequal distributions of land and wealth, it is not surprising that the proportions of the populationsvoting were no higher than 1 or 2 percent until late in the 19th century.”

    The very fact, literacy constituted a means of quality control over the efficacious practice of democracy and the proper exercise of its mechanisms then is every bit redolent of the blogger’s contention of better education today.

    Warrior 231

  5. Part 2
    And the appeal to better education is by itself an indictment that mere literacy is an inadequate tool with which to critically evaluate issues, weigh their merits and determine their adoption at the ballot box. Hence, Caplan’s observation is spot on as much as it is a pretty obviously foregone conclusion: you cannot have ideal democracy without knowledge and optimal application of that knowledge is dependant on free accessibility to information. Rings true in the ideal market as well!!

    The question then should be how much different is democracy than from autocracy? Nothing much if one observes the modern workings of democracy closely. Notions of intellectual discourse, ideological exchange, policy formulation, decision making etc are very much the provenance of the knowledgeable elite corp. Tools that purportedly ground a free and vibrant democracy like the media are very much under the control of the intelligentsia, perception building,idea shaping etc are very much the prerogative of knowledgeable spinmeisters, clever opinion makers etc etc who collectively shape and mold attractive illusions to tempt the rabble with scant regard of subserviance to truth and facts knowing full well, that the rabble are hopelessly ill-equipped and outgunned to know better or to tear down the edifices of lies with knowledgeable insights about the contradictions or fallacies. (phew.....what a long sentence...boy am I making sense hahahahaha....but thats the idea, Warrior..more dollops of nonsense, please ..ROFL).

    It is a two way street actually for the rabble are equally pressed by the strictures of time and their obvious lack of knowledge, laziness or other frailties to bother......and therein lies democracy’s Achilles heel: the propensity for those in control to peddle illusions at will with no lil boy to call out that the emperor is naked.......hahahahaha. And so illusions get sold, the buy-in is high and “ peoples get the governments they deserve”. Call it populism or any other name, but the salient point of democracy is that it allows anyone eligible including riff raff to con millions at will provided they have that “social standing” edge.

    In short what is deemed the fault of common sense is in actuality the triumph of common nonsense,(due to the paucity of knowledge beneath the “sense) and no society, past or present have ever advanced on the wheels of common nonsense.

    Now i will quit pontificating (wink).....hahahahaaha..Sincere apologies for being obnoxious in a couple of posts...I was on some super duper weed(cheated by a lack of knowldege LOL) and wholly stoned to realizse what I wrote until after I awoke from my stupor and shrank at the horror of it a very Kurtzian moment of contrition.....

    I am sure Marlowe and by default, Conrad would have been aghast at my personal apocalypse....oh the horror...the horror....(ROFL)
    So I unreservedly take back those demeaning encomiums about “wrong”, “argonauts” “women lacking brains” etc...and that crass play on ‘argonauts’ , sorry Jason and my apologies to you too, Hisham, no hard or soft feelings, dude!. See the Warrior has a code of honour like all knights in shining armor filled with passionate ardor and valor for Truth to be the victor.......


    Warrior 231