All Commentary
Monday, November 17, 2014

Too Dumb for Democracy?

Global ignorance vs. local knowledge

Should Americans feel bad that we are the second-most-ignorant country in the world? (Italy is number one.)

Our penultimate status made the news recently, after research group Ipsos MORI announced the results of the first international study “to look at the gap between perception and reality” on questions of social policy. The issues included teenage pregnancy, immigration, and unemployment.

The result of the study, as one reporter summarized in the Huffington Post UK, is that “everyone is wrong about almost everything.”

In particular, those polled consistently overestimated the prevalence of all the groups they were asked about. Apparently, most of us believe there are far more unemployed immigrant pregnant teenage girls among us than is actually the case. 

“Such misconceptions are typical around the world,” according to the Guardian’s report on the study, “but they can have a significant impact as politicians aim to focus on voter perceptions, not on the actual data.”

Earlier studies, focused on American voters, reveal even more embarrassing results.

For example, according to political scientist Jeffrey Friedman, “at the height of the Cold War, 62 percent of the US public failed to realize that the USSR was not a member of NATO.” If you believe that a healthy democracy requires an informed public to watch over its elected officials, you may find it disheartening that “seventy percent of the public doesn’t know the names of either of their state’s senators, nor can most people name either congressional candidate in their district at the height of the campaign season,” according to a Cato policy report, “Public Ignorance and Democracy.”

But maybe particular statistics and specific names don’t matter as much as the principles being debated and voted on. If so, there’s still reason for concern: “sixty-nine percent of the public believe,” Friedman informs us, “that price increases are mainly caused by companies manipulating the market to raise their profits.”

If you’re reading this article, you probably already know better. As far as basic economic policy is concerned, I shouldn’t speak of us and our ignorance. We’re really talking about them and theirs.

If the vast majority of them — the putative decision makers in a democracy — don’t understand the most basic principles of cause and effect, what hope is there for our economy?

Should we be trying to educate them? Of course. But despite hundreds of years of understanding on the consequences of price fixing, and at least decades of effort to disseminate that understanding, voters in four states decided recently to raise the legal minimum wage within those states. They simply don’t believe that they are voting against the interests of the poorest workers; they think they’re helping them!

Ignorance, like knowledge, tends to be specialized. We all know highly educated people who haven’t a clue how prices and wages work — or what damage is done to the most vulnerable in the economy when someone tries to engineer the price system. The problem isn’t that Americans (and Italians, and voters in every country) are “wrong about almost everything.” The problem is that they’re being asked to make decisions outside those fields in which they have plenty of knowledge.

The next time you’re in the grocery store, look around. Would you rather everyone in the store vote to determine collectively what goes in everyone else’s shopping carts? Or should they stick with choosing what goes in their own carts?

We can’t know what everyone’s individual wants and needs are. Nor can we know the relevant theory and history — or the current facts and statistics — of every policy decision in an ever-expanding political realm. We have to work hard enough just to keep up in our own fields. Worse than that, we have no real incentive to divert effort from our lives and specialties to learn the ins and outs of other areas in which we have, individually, almost no chance of making an impact.

As Bryan Caplan points out in his work on “rational irrationality,” getting an issue like the minimum wage terribly wrong takes no work and has the immediate payoff of feeling like you’re on the side of the angels. It also solidifies your standing within your own ideological tribe. Bothering to understand supply and demand (or knowing the names of your senators, or the percentage of teenage girls who are pregnant) offers no practical reward after you pull the lever in the election booth.

“Irrationality, like ignorance, is sensitive to price,” Caplan notes, “and false beliefs about politics … are cheap.” Mistakes are more costly in private life: “If you underestimate the costs of excessive drinking,” to take one example, “you can ruin your life.”

Where either costs or benefits are high, people will be more responsible about what they know. In the game of majority rules, costs and benefits for individual voters are quite low. No amount of education can change the rules of that game.

The problem with democracy, then, isn’t the ignorant masses. It’s that the masses, as masses, have a great impact on those policies where they are most ignorant — and where they’re least likely to improve their understanding.

If you criticize democracy, many will think you’re suggesting a more authoritarian alternative. But would a dictator or a planning board of experts do any better than the voting majority?

In 1945, F.A. Hayek wrote “The Use of Knowledge in Society,” demonstrating that no central planner can ever manage an economy as well as the decentralized market of private property and free prices.

Planning boards (and research firms such as Ipsos MORI) focus on statistical aggregates, but the sort of information that needs to be coordinated in a complex system cannot be captured in a statistic. It can’t be captured in any form of centralized knowledge. What Hayek was reminding his fellow economists — or perhaps informing them about for the first time — is that most of the relevant data in a dynamic process involve “local knowledge,” an often temporary and sometimes seemingly trivial form of information that can only be held by the individuals who immediately benefit from it — or pay the price for getting it wrong.

“We need decentralization,” wrote Hayek, “because only thus can we insure that the knowledge of the particular circumstances of time and place will be promptly used.” In contrast to the kind of knowledge that Ipsos MORI and Caplan have studied, “The most significant fact about [the market] system is … how little the individual participants need to know in order to be able to take the right action.”

What is true for the complexity of an economy is necessarily true for the even more complex society of which the market is a part: “The problem which we meet here,” Hayek wrote, “is by no means peculiar to economics but arises in connection with nearly all truly social phenomena, with language and with most of our cultural inheritance.”

Spreading the decision out among millions of voters does not make the plan any less centralized.

If we care about the gap between voters’ perception and the realities relevant to so-called social policy, it is precisely because these social issues have been taken out of the spontaneous order of the social realm and turned over to the world of policy, where engineered solutions do as much damage to society as engineered prices do to an economy. Ignorance and bad theory can make the damage worse, but the truth is that the most enlightened planners with the most accurate data still can’t match the results of the invisible hand. Why? Because the “invisible hand” is really shorthand for real people acting on local knowledge.

If voluntary society already contains within it the means of directing specialized knowledge to the benefit of the general welfare while minimizing the consequences of our ignorance, then the solution to our irreparable ignorance is simple: we need less government policy and more voluntary interaction.