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Friday, November 10, 2006

Mixed Day at the Polls

Americans went to the polls on Tuesday not just to pick legislators and governors but also to vote directly on policies. The results were mixed. By and large people voted thumbs up on the minimum wage and thumbs down on eminent domain for private use.

About half the states in the country have initiative-and-referendum procedures that enable policy questions to be put on the ballot. Constitutional amendments approved earlier by state legislatures were also on the ballot in some states.

These procedures of course can be used both to expand liberty and contract it. On Tuesday voters did both.

On the contraction side, majorities in six states voted to raise the minimum wage — a clean sweep: Arizona, Colorado, Missouri, Montana, Ohio and Nevada. In Missouri and Montana the increase was approved by 75 percent of voters. In the other states majorities ranged from 52 to over 68 percent. The Missouri question not only raised the minimum wage to $6.50 an hour, it also mandated an annual cost-of-living adjustment based on the Consumer Price Index.

On the liberty-expansion side, voters in ten states approved propositions that would to varying extents restrict cities in their use of eminent domain for private economic development or forbid it entirely. The states are Arizona, Florida, Georgia, Louisiana, Michigan, Nevada, New Hampshire, North Dakota, Oregon, South Carolina. Winning margins ranged from 63 to over 85 percent. Six of the questions voted on were constitutional amendments, which is regarded as stronger protection than mere legislation. (In Nevada the amendment process is just beginning. The proposed amendment will have to be voted again in the 2008 general election.)

The ten states joined the 25 others that have already passed eminent-domain limits. Those limits are a response to the shocking 2005 Kelo v. New London ruling in which the U.S. Supreme Court said the Constitution permits government to take property for private development that will benefit the public. (See Steven Greenhut’s Freeman article “Protecting Property in a Post-Kelo World” [pdf].)

Not everyone likes the idea of limiting eminent domain. Voters in California and Idaho voted down weak propositions to restrict redevelopment takings and to mandate compensation for so-called regulatory takings, that is, the loss of property value because of land-use controls such as zoning and environmental rules. In California almost 53 percent of those voting rejected these restrictions on state power, while in Idaho 75 percent said no.

The approved Arizona and North Dakota propositions also contained the compensation requirement for regulatory takings. This could be the beginning of a trend to limit land-use control. A similar measure passed in Oregon two years ago. Critics complain that the state can’t afford to pay all the compensation the law requires. The point of course is to restrain land-use regulation by linking it to budget constraints.

A summary of Tuesday’s results and the texts of the propositions are online at the Castle Coalition website.

In other ballot initiatives of interest, voters in three states defeated propositions to contain state spending: Maine, Nebraska, and Oregon.

What’s It All Mean?

The success of minimum-wage proposals shows that most people understand nothing about economics. Lacking knowledge of the inexorable nature of market forces, people have no reality check when their heartstrings are tugged by appeals to help low-income unskilled workers. Would they have voted for a minimum-wage increase had they known that the workers they most want to help could lose their jobs as a result? But most people have no inkling that market forces operate independent of our wishes, hopes, and intentions. They never learned about the market process, and virtually everything they see and hear in the news media keeps them blissfully ignorant about it. Thus they see no harm in creating a wage floor and decreeing that no one may fall below it. (For analysis of the minimum wage, see last week’s TGIF column, “Economists Against Economics.”)

Their understanding is not improved when President Bush says he is willing to compromise with the new Democratic congressional majority on raising the minimum wage, which has been set at $5.15 an hour since 1997. Even if he insists on compensation for small businesses that can’t afford the increase, his statement embraces the premise that government should have a role in setting wages. Once that is conceded, a principled defense against government intervention in the economy is abandoned.

Most people would admit they know little about economics. So why do they vote to increase the minimum wage? George Mason University economist Bryan Caplan believes it’s due to irrationality. In politics as in religion, some beliefs are more emotionally appealing than others. For example, it feels a lot better to blame sneaky foreigners for our economic problems than it does to blame ourselves. This creates a temptation to relax normal intellectual standards and insulate cherished beliefs from criticism — in short, to be irrational, he writes in The Myth of the Rational Voter.

Similarly, it feels better to vote to increase the minimum wage than to risk feelings or accusations of stinginess.

Caplan wonders why irrationality is so much more common in political-economic matters than in other areas of life.

My answer is that irrationality, like ignorance, is sensitive to price, and false beliefs about politics . . . are cheap. If you underestimate the costs of excessive drinking, you can ruin your life. In contrast, if you underestimate the benefits of immigration, . . . what happens to you? In all probability, the same thing that would have happened to you if you knew the whole truth.

In a sense, then, there is a method to the average voter’s madness. Even when his views are completely wrong, he gets the psychological benefit of emotionally appealing political beliefs at a bargain price. No wonder he buys in bulk.

Since economic irrationality is often translated into votes on ballot questions, it’s important to combat it. But how? Caplan has several suggestions, my favorite of which is this:

When experts and those who heed them address a broader audience — in the media, in their writings, or in a classroom — they need to focus on the questions where experts and the public disagree, and clearly explain why the experts are right and the public is wrong. Thus, when economists get the public’s ear, they should not bore them with the details of national income statistics, or quibble with each other about marginal issues. They should challenge the public’s misconceptions about markets, foreigners, saving labor, and progress.

But if the public is as irrational as I say, will this work? It might. Irrationality does not rule out persuasion, but it does change what people find persuasive. If people accept beliefs, in part, because they feel good, it is important to wrap your message in the right emotional packaging. I’m right, you’re wrong, change, falls flat. But in my experience, I’m right, the people outside this classroom are wrong, and you don’t want to be like them, do you? is fairly persuasive. Frederic Bastiat, arguably the greatest economic educator in history, should be our role model. Who else could make a critique of popular economic prejudices not just charming, but funny?

Rational on Property Rights

Fortunately, voters are usually (but not always) rational when it comes to protecting their own homes from eminent domain. Some 35 states now have takings restrictions that didn’t exist a year and a half ago. These aren’t perfect restrictions; in some cases a subjective labeling of blight can legally justify the seizure of property for private development. (For a current example see this.)

Moreover, the limits passed by voters don’t address eminent domain per se. While the seizing property for private development is often called eminent-domain abuse, in truth eminent domain for any purpose is an abuse because it involves the sale of property against the owner’s wishes.

Still, no advocate of the freedom philosophy can help but be encouraged by so many people telling their land-grabbing politicians: Enough!

  • Sheldon Richman is the former editor of The Freeman and a contributor to The Concise Encyclopedia of Economics. He is the author of Separating School and State: How to Liberate America's Families and thousands of articles.