The World Is Run by Folk Theories

I noticed my thoughts on democracy, or the lack thereof, were echoed very closely in a recent column in The Guardian by George Monbiot. Monbiot asks a trenchant question:

What if democracy doesn’t work? What if it never has and never will? What if government of the people, by the people, for the people is a fairytale? What if it functions as a justifying myth for liars and charlatans?

You’ve gotta hand it to the guy, he’s willing to go where other journalists aren’t. He is riffing off a book called Democracy for Realists by Christopher Achen and Larry Bartels. That book refers to something that they term “The folk theory of democracy,” which is something I was also trying to get at in my post. The folk theory of democracy that we learn in our civics textbooks bears little resemblance to the reality we all live with:

[T]he “folk theory of democracy” – the idea that citizens make coherent and intelligible policy decisions, on which governments then act – bears no relationship to how it really works. Or could ever work…

In the real world, however, instead of rational people coming together to consider the best course of action on various important issues, people form antagonistic tribes and vote based on emotion, rationalizing their decisions after the fact based on their preconceived notions or social group affiliation. I find it endlessly amusing to see all the “Trump/Pence” signs in the white separatist enclaves and rural exurbs outside of the city given that four years ago those same signs were for Mitt Romney, someone who believed the 180-degree opposite than what Mr. Trump currently espouses on any number of issues. Heck, Mr. Romney’s very business was carving up American companies and offshoring jobs! But, of course, we’re told that we vote for candidates based on “issues.” Yeah, right. Anyone who has ever tried to have a “rational” discussion about the issues with an American voter has had a rude awakening.

Voters, [Achen and Bartels] contend, can’t possibly live up to these expectations. Most are too busy with jobs and families and troubles of their own. When we do have time off, not many of us choose to spend it sifting competing claims about the fiscal implications of quantitative easing. Even when we do, we don’t behave as the theory suggests.

Our folk theory of democracy is grounded in an Enlightenment notion of rational choice. This proposes that we make political decisions by seeking information, weighing the evidence and using it to choose good policies, then attempt to elect a government that will champion those policies. In doing so, we compete with other rational voters, and seek to reach the unpersuaded through reasoned debate.

In reality, the research summarised by Achen and Bartels suggests, most people possess almost no useful information about policies and their implications, have little desire to improve their state of knowledge, and have a deep aversion to political disagreement. We base our political decisions on who we are, rather than what we think.

In other words, we act politically not as individual, rational beings, but as members of social groups, expressing a social identity. We seek out the political parties that seem to correspond best to our culture, with little regard to whether their policies support our interests. We remain loyal to political parties long after they have ceased to serve us.

The idea that parties are guided by the policy decisions made by voters also seems to be a myth; in reality, the parties make the policies and we fall into line. To minimise cognitive dissonance – the gulf between what we perceive and what we believe – we either adjust our views to those of our favoured party or avoid discovering what the party really stands for. This is how people end up voting against their interests.

Lies, fearmongering and fables: that’s our democracy (Guardian)

My argument was a little different. I argued that it doesn’t matter anyway, since the government is run by technocrats. As I pointed out earlier this year, since the rise of Market Liberalism the economy has been “disembedded” from society by design, and operates within its own strict set of rules and limits, walled off from any political “interference.” So what can politicians do anyway? It is the Market which determines whether people can or can’t find work, or afford to rent an apartment, or whether they have to live on the street and go without necessary health care. What can the government—any government— do under these circumstances? The answer is usually some sort of “program,” but we’re constantly told over and over again that programs don’t work, that they distort the Market and cause “inefficiencies,’ and that there simply is not enough money around to fund them, anyway.

There’s another different, but related, argument. Reader Apneaman points out this article: The right to vote should be restricted to those with knowledge (Aeon).

The idea here is not that knowledgeable people deserve to rule – of course they don’t – but that the rest of us deserve not to be subjected to incompetently made political decisions. Political decisions are high stakes, and democracies entrust some of these high-stakes decisions to the ignorant and incompetent. Democracies tend to pass laws and policies that appeal to the median voter, yet the median voter would fail Econ, History, Sociology, and Poli Sci 101. Empirical work generally shows that voters would support different policies if they were better informed.

Voters tend to mean well, but voting well takes more than a kind heart. It requires tremendous social scientific knowledge: knowledge that most citizens lack. Most voters know nothing, but some know a great deal, and some know less than nothing. The goal of liberal republican epistocracy is to protect against democracy’s downsides, by reducing the power of the least-informed voters, or increasing the power of better-informed ones.

The author of this article also wrote a book, called Against Democracy. In it, he champions the idea of epistocracy–voting would be restricted to those with a basic level of competence. In this case, voting would still determine the leadership of the nation, and be done in some sort of regular time period, but there would need to be qualifications to vote. Not just anyone, no matter how ignorant, would be allowed to cast a ballot:

…most of of us still believe that the voters have a right to rule, no matter how ignorant and biased they might be. As political scientists Christopher Achen and Larry Bartels put it in another important new book on political ignorance, “the ideal of popular sovereignty plays the same role in contemporary democratic ideology that the divine right of kings played in the monarchical era.” Much like the kings and emperors of an earlier age, the people are seen as having an inherent right to wield political power, whether or not they do it well. Unlike Achen and Bartels, Brennan is willing to knock our multiheaded king off his pedestal.

In most situations, he points out, we readily assume that people should not be allowed to make important decisions for others unless they have at least a reasonable degree of competence to do so. Brennan calls this idea the “Competence Principle.” We don’t allow quacks to make medical decisions, for example. This is especially true when the medical decisions in question are extremely important, and the “patients” have no choice but to obey the doctor’s orders.

Voting, of course, often literally involves matters of life and death, and the politicians who get elected rule over the entire society, including those who voted against them or chose to abstain. Ignorant or illogical decisions by voters can easily lead to ill-advised wars, economic recessions, abusive law enforcement, environmental disasters, and other catastrophes that imperil the lives, freedom, and welfare of large numbers of people. If we refuse to tolerate ignorant medical practice or ignorant plumbing, we should take an equally dim view of ignorant voting.

Democracy vs. Epistocracy? (Washington Post)

The technocracy idea I was proposing is somewhat similar, but it eliminates the idea of voters. The idea that we could find enough average voters to weigh in on, say, atmospheric science, or nuclear regulation, is slim to nil. What exactly are even these “knowledgeable” voters going to vote on, then? And furthermore, I contended that voting doesn’t change much anyway, since most departments are bureaucracies staffed with professionals that run themselves regardless of who is elected into office.

The “Folk Theory of Democracy” reminds me of the “Folk Theory of the Market” that I always like to bring up. It’s just as much of a fairy tale. The folk theory of the market usually describes some sort of idealized farmer’s market-type situation where relatively equal sellers are competing against one another with simple products, and rational consumers have enough time and knowledge to pick and choose among them, so that everyone ends up better by “mutually agreeable” trades in perfectly “free and open” markets. Much of economics (practically all of it, actually), is attempting to describe this idealized situation using advanced mathematics. However, the above situation bears no resemblance whatsoever to the anything that has ever existed in reality. In economists’ conception of the Market, there is no coercion, no monopolies, no externalities, no advertising, no marketing, perfectly rational omniscient consumers, buyers sellers on an equal footing, etc.

In reality, the market is plagued with constant bubbles, manias, booms, busts, panics and crashes, always swinging from overproduction to underproduction and threatening to tear the whole fabric of society apart. Markets do not lead to “rational allocation of goods and services,” but are fueled by “animal spirits” and driven by things like the cognitive biases, the herd mentality, Ponzi dynamics, and the Greater Fool Theory. This is what history shows outside of economic textbooks and academic papers. The other thing that economists spend a lot of time doing is trying to get markets to work the way the textbooks say they should, while simultaneously extolling “private enterprise” and berating government “distortion.”

This article pointed out something relevant – we’re almost a decade into slow/stagnant growth that’s causing the world to progressively deteriorate poltically and socially, and economists have no answers. Instead they award the “Nobel prize” to economists who study contract theory. Really, that’s all the relevance the mighty economics discipline has anymore? It’s like the economic discipline has become so far removed from actual reality that it just can’t provide any real answers to our mounting problems.

This is predictable, and, I submit, is the most predictable phenomenon within the ambit of the discipline. Economics is in disrepute, and its current elite are determined to keep it there. The latest ersatz Nobel prize went to a couple of guys who theorize a lot about contracts. This is the kind of work that now dominates much of economics. Tinkering with mathematics, incentives, and other aspects of minutiae whilst steadfastly turning away from the rapidly approaching storms that threaten the lives of real people outside the tenured redoubts professors hide within.

The Market and Nobels (Real World Economics Review)

The whole article is an excellent summary of the history of economics – where it came from, and why it is inherently hostile to the state from its inception:

All mainstream economics begins with the proposition that there exist markets endowed with utopian qualities. These magical places are populated with people who behave in only one way: they exercise rational choice. Indeed, so rational are they that they exhibit no choice in any real world sense of the word choice. When presented with an array from which to choose these people will make only one choice. They are, thus, perfectly predictable. They can be accorded incentives to induce predictable behavior. They will never err. They will never fail prey to human weaknesses. Nor will they alter. They are, in sum, the perfect grist for the mathematical modeling mill. Which is why they were invented.

With this nirvana thus established, economists systematically explore various forms of relaxation of their utopian rules. This, they argue, allows them to home in on sundry “inefficiencies”. For it can only be that a fall from the sublime grace of utopia is to decline into a less than sublime underworld. That underworld inevitably includes the state.

So, from its very inception, economics was designed to “prove” that state intervention into markets was inherently to disrupt this utopian order.

One example of market irrationality I always like to point out is the farmers who poured milk down the drain during the Great Depression while many people were unemployed, starving and hungry. I used to have to refer to the 1933 Wisconsin Milk strike. But now I can use a much more relevant example, as milk is currently being poured down the drains thanks to a massive dairy glut:

Dairy farmers in the United States have dumped more than 43 million gallons of milk between January and August of 2016. This milk has been poured into fields, manure lagoons, and animal feed, or down the drain at processing plants. According to the Wall Street Journal, this amount of milk is enough to fill 66 Olympic-sized swimming pools and is the most wasted in at last 16 years.

The problem is that the United States is in the midst of a massive dairy glut. Farmers responded to a shortage two years ago that is now catching up with a nation unable to absorb the quantity of dairy being produced. Prices are so low – down 36 percent from in 2014 – that “many can’t even afford to transport raw milk to market at current prices.” Two years ago, U.S. dairy farmers were exporting tons of milk, but it has all crashed…

43 million gallons of milk have been dumped so far this year (Treehugger)

Traditionally, the solution has been for the government to buy up excess, and then release it to the market when the price is high. This has “smoothed over” the repeated boom-and-bust cycles and prevented wild price swings. In truth, the “cheap abundance” we enjoy today is as much due to government intervention as free market capitalism, yet our indoctination will not allow us to accept this fact (another example of irrationality related to the above). As economist William Mitchell has often argued, this same system could be theoretically used to keep the price of labor high and eliminate the wasted excess, but the powers that be will not allow it.

And continuing on the idea of the Folk Theory of the Market, while looking for something else I came across this excellent blog with several posts pointing out how many parts of standard economic theory make no sense. For example, No One Has Time For A Completely Free Market:

The free market often sounds quite simple and straight forward. Consumers simply decide whether product A or B benefits them more and then choose accordingly. If the same or similar product is sold by shop A or B consumers simply choose whichever is cheaper, better quality or otherwise benefits them. It is easy and doesn’t require any complicated plan or someone telling consumers what is best for them, people simply decide themselves. This is the market as described by economists, politicians and writers, especially when they are trying to make a political point. After all, if the market is so simple and straight forward, why do we need the government interfering? All these rules and regulations only get in the way, surely it is better for everyone if we just leave the consumers to decide for themselves.

The road to Hell is paved with good intentions and although this sounds like a completely reasonable idea, it is completely unworkable in reality. As tempting as it is to simply remove regulations and let people figure it out for themselves, the free market is not simple and straight forward. It is an extremely complex mechanism that none of us fully understand. The biggest reason we shouldn’t remove regulations is because simply do not have the time.

Let me use an example. I once went to the shops to buy some bacon. In my economics classes this was always presented as a simple affair. I would just compare two types of bacon see which was better (in terms of price or quality) and choose whichever gave me the most utility. However, when I came to the aisle, to my surprise, I saw that there were 40 different types of bacon. There were different sizes, different brands, different parts of the pig etc. How was I supposed to know which was best? Perhaps I could give each one a taste test and rate them accordingly and devise a system that combines taste and price to calculate the most efficient option. But I would have to cook each piece identically with similar food in order to give a fair test and perform it more than once, to avoid the risk of getting an unusually good or bad piece. Needless to say this would be an enormously time consuming task that would take weeks (by which time need bacon products would probably be released) and no one has the time for.

Yet this is only one product. Supermarkets contain thousands of products that all must be considered, compared and a decision made on them. I am a skinny lad with incredibly unimaginative tastes in food (I’ve never cooked myself a meal with more than three ingredients) who only shops for myself, yet a full shopping involves buying 30-40 goods. More imaginative people and those with families have even more decisions to make. Plus there is also all the other goods you decided not to buy, meaning that doing the shopping involves over a hundred decisions and hundreds of comparisons. All of this occurs in one supermarket but there are also a dozen others that you could go to instead (also containing hundreds or thousands of products) further multiplying the calculations that could be made. No human has the time or willingness to do a full and comprehensive comparison of all the economic costs and benefits.

So what do people do instead? Sometimes they just choose randomly. As an economics student it always struck me as odd that I was spend all day learning complex equations that supposedly related as to how consumers made their decisions and then randomly choose what to eat for dinner. Most times, people just buy the same product they did before. Or they’ll choose one with nice packaging or that they recently saw an ad for. I usually buy the cheapest.

No One Has Time For A Completely Free Market (Whistling In The Wind)

Remember, economic “science” assumes that we all have “perfect information” about literally everything we do. No, I am not making that up. The author then points out what would happen if we repealed all consumer protection, environment, anti-discrimination, worker protection, and other laws, and let the unregulated market decide as libertarians demand that we do:

So without regulations the already complicated decision of picking which bacon to buy, becomes exponentially more difficult. Now I have to compare the 40 or so brands based on their relative price, taste, quality, risk of disease, treatment of animals, environmental impact, working conditions, sanitary conditions, attitudes towards minorities and women, both in terms of willingness to hire, pay an equal wage and promote, nutrition, origin (people like to support local businesses), honesty (is this actually bacon?) and a dozen other factors I have probably forgotten. Needless to say your brain would melt if you tried to calculate all these factors (assuming you had all the information you needed), so instead people pick one or two that matter and ignore the others. This means that I’ll buy the cheapest, even if the workers aren’t treated well or the quality is shoddy. So contrary to what some would have you believe, consumers don’t have the power to compel businesses to act as they wish and the threat of switching brands merely means switching some disfavourable factors for others.

This is why regulation is actually helpful to consumers and simplifies life. This might sound odd and contrary to what you’ve always heard about regulations, so I’ll repeat it. Regulations simplify decisions. When I go to the supermarket, I know that the products have to meet some basic standards such as health & safety, environmental impact and working conditions. This means I don’t have to worry as much about it and reduces the number of factors by which I judge products. By standardising other factors, I am freed to focus mainly on price and quality, which makes comparison and competition much easier to determine. It also means this is where businesses have to compete instead of undercutting each other where consumers don’t see.

So contrary to what most people think, removing regulations would actually complicate, not simplify our life. No one has the time to make the endless calculations that are necessary for a completely free market to function.

Another good post is this one, skewing the idea that markets exist on some sort of platonic, frictionless universe and somehow reach equilibrium.

Even on its own grounds, the argument for equilibrium to naturally occur is flawed. The market forces that are supposed to push the price towards equilibrium and hold it there are either too weak or non-existent. But won’t a business that charges too much have too few customers? Won’t a business that sells too cheaply not be able to pay its costs? True, but this does not mean it will reach equilibrium. You see, not all costs are equal, rather they all run on separate time frames. Repaying your mortgage on the building is a fixed cost not related to production. Not all employees are directly productive (managers and security guards provide benefit but are not directly related to the production of goods). Therefore it is not as easy as simply equating supply and demand when it is such a variable cost. It is quite possible for a business to run a loss for quite some time and still remain in business.

Do we ever reach equilibrium (Whistling In The Wind)

So, we’re told that choosing in the market as consumers is the only kind of choice that matters. Yet we clearly see in both markets AND democracy that it really amounts to no choice at all. Instead we cling to outdated folk theories as the world goes to hell around us. So much for “rational choice.”

2 thoughts on “The World Is Run by Folk Theories

  1. Nice! So as we move from ‘one man one vote’ to ‘one dollar one vote’ we should bear in mind that we’re not even getting that! 😀 A good way of putting it all in perspective.

    I like Monbiot, he’s one of the few mainstream journalists I can read regularly. Started as something of a loony leftie but has mellowed into quite the sage.

    As for milk, the EU (EEC as was) went through all that regularly when I was a kid. We used to hear about the ‘EEC butter mountain’ – and we knew it was true because this magical ‘EEC butter’ would occasionally turn up in school! 😀 Monbiot rightly points out that one of the good things about Brexit will be – hopefully – an end to the insanity of EU farm subsidies.

  2. I discovered you a couple years ago. But this post reminds me I need to read you more often. Thank you.

    This article makes me wonder, because you seemed to argue that regulations can actually be beneficial economically (time, money, health), if regulations can actually be part of the invisible hand. That seems like a paradox. A free market that produces its own regulations naturally. That would make sense. And this happens not just in the market place, but in our sociological and political lives as well, which you seem to also have addressed here. Thank you.

Leave a Reply to speedbird Cancel reply

Your email address will not be published.