Libertarianism Against Economism.

• Author: CAPLAN, BRYAN
• Position: Statistical Data Included

How Economists Misunderstand Voters, and Why Libertarians Should Care

It is not from the benevolence of the butcher, the brewer, or the baker, that we expect our dinner, but from their regard to their own self-interest.

--Adam Smith, The Wealth of Nations

[T]he ideas of economists and political philosophers ... are more powerful than is commonly understood. Indeed the world is ruled by little else.

--John Maynard Keynes, The General Theory of Employment, Interest, and Money

Adam Smith's frank remarks about human motivation paired with J. Keynes's affirmation of the power of ideas form the fundamental antinomy of social science. Self-interest--interpreted substantively, not as a mere tautology--appears to explain most of what people want and do. But at the same time, politics--with its ideologues, heartfelt appeals, and heated debates--seems to determine the "rules of the game" that self-interested individuals are playing.

Economists and libertarians alike lavish praise on Smith's insight, but there is considerable disagreement about Keynes's claim. It resonates strongly with economically literate libertarians. They usually put part of the blame for statist policies on rentseeking special interests, but more on the public's weak grasp of opportunity cost, incentives, the mutual benefits of exchange, the function of prices, and other basic economic insights. To professional economists, however, even those with strong libertarian leanings, Keynes's confidence in the power of ideas sounds naive. People will not habitually vote to impoverish themselves. If human beings are basically selfish, then they will be selfish at the polls as well as in the marketplace. In both settings, they will be deaf to philosophical exhortation.

Yet an impressive body of empirical research now exists showing that in spite of its ability to explain market behavior, the Smithian insight has remarkably little to say about the political life of the general public (Mansbridge 1990). In politics, Keynes's assertion is far from wishful thinking. In this article, I begin by surveying the main findings of the literature on the connection between voting, public opinion, and selfinterest. I then present in detail my own analysis of the economic beliefs of the public, showing that even people's beliefs about economics itself seem driven by ideas, not by self-interest. Finally, I discuss how economists can make sense of these findings, and how libertarians--and anyone else interested in social change--can learn from them.

Voters and Self-Interest

The Meaning of Self-Interest

The meaning of self-interest ranges over a continuum from the purely tautologous ("Even Mother Theresa was self-interested because she did what she wanted to do") to the immediately falsifiable ("No one would pay even a penny to save the life of a complete stranger"). In itself, this variation is harmless, but there is a disturbing tendency toward equivocation--oscillatation back and forth between the tautologous and the substantive definitions. Throughout this article, I use self-interest in the falsifiable, ordinary-language sense of directly valuing only one's own material well-being, health, safety, comfort, and so on.(1) However, I impose three key provisos on this definition of self-interest:

1. I interpret "people are self-interested" as "on average, people are at least 95 percent selfish," not "all people are 100 percent selfish."(2) Thus, the public voluntarily gives away roughly 2 percent of its annual income to charity, keeping 98 percent for themselves; this fact suggests, as Smith would surely have granted, that some genuine altruism exists, but that its magnitude is miniscule compared to that of self-love. In contrast, if people on average gave away 20 percent of their income, then the self-interest hypothesis as I define it would fail. It would likewise fail if one person in ten were a selfless Mother Theresa type, but one or two in a hundred would not be enough.

2. Drawing on evolutionary psychology, I interpret self-interest as "inclusive fitness"; altruism toward blood relatives in proportion to shared genetic inheritance I redefine as an expression of self-interest (Dawkins 1989).

3. There is a large psychological literature on "self-serving bias," showing that sometimes people who say (or even believe) that they are impartial twist their beliefs about the facts in a self-interested way. I classify such self-serving biases as a form of self-interest (Dahl and Ransom 1999; Babcock and Loewenstein 1997).

The self-interested-voter hypothesis (henceforth SIVH) can then be defined as the hypothesis that political beliefs and actions of ordinary citizens are self-interested in the sense outlined in this section. It takes more than a handful of anecdotes, but if the average level of voter selfishness clearly falls below 95 percent, the SIVH fails. Of course, ambiguous evidence makes it more difficult to draw a firm conclusion, but this difficulty cuts both ways: ideology might be a mask for unmeasured self-interest, but self-interest might be a mask for unmeasured ideology. Treating evidence of ideology as inherently more provisional begs the question.

Self-Interest in Politics: The Virtues of Micro-Level Studies

There is a long-running debate about the role of self-interest in politics. Participants usually split along disciplinary lines, with economists defending the SIVH and political scientists challenging it. In an argument so protracted, one is tempted to retreat to agnosticism. Both sides have some empirical evidence to put forward, and no one has yet devised a test that convinces people on both sides of the issue. But before we give in to the temptation of agnosticism, we are well advised to try to discover why disagreement persists. In particular, if the contending parties test their claims in very different ways, one might step back and consider the relative merits of their approaches.

In fact, there is a core difference between the typical economist's approach to this question and the typical political scientist's. Political scientists are much more likely to examine micro-level characteristics of ordinary citizens (Sears and Funk 1990; Citrin and Green 1990). Economists, in contrast, usually rely on aggregate data--for example, those pertaining to congressional districts.

When economists study markets, the self-interest assumption guides their interpretation of aggregate data. In effect, they ask, "What form of self-interested behavior by individuals would explain our aggregate observations?" This approach falters, however, when the self-interest assumption itself is in doubt.(3) The problem is that aggregate behavior can easily look selfish even though individual behavior is not. For example, blacks are markedly poorer and more Democratic than whites. It is easy to slide to a simple self-interested explanation: "Democrats' policies give more to people below some income threshold than Republicans' policies. People below that threshold therefore vote Democratic. Blacks are disproportionately below that threshold." But there are two other types of observationally equivalent explanation of this pattern (Mutz and Mondak 1997). One is that citizens vote ideologically, but ideas and interests are correlated: perhaps blacks of all income levels incline more to leftist ideology. The other is that citizens care about the interests of their group: blacks might vote for the party that will do more for blacks in general, regardless of their personal situations.

To distinguish the SIVH from the alternatives, one must turn from aggregate to micro-level data. For example, suppose we collect information about individuals' income levels, personal ideologies, and so on.(4) One can then look at the subsample of blacks and see if higher income makes them less likely to identify as Democrats. If black millionaires are as staunchly Democratic as black minimum-wage workers, the SIVH is undermined, not confirmed. If conservative blacks are much more likely to vote Republican, holding income constant, the natural interpretation is that ideology matters. If black voters respond to changes in average black income, holding their own income constant, that relationship suggests that they are concerned about group interest, not just about self-interest.(5)

Economists, it should be emphasized, have not overlooked the possibility that ideology matters, but they have tested for its effect using aggregate rather than micro-level data. The typical test tries to explain politicians' voting records based on their constituents' aggregate characteristics (Kalt and Zupan 1990; Kau and Rubin 1979; Levitt 1996; Peltzman 1985). Although much can be learned from such studies, they are unfortunately ambiguous on at least three levels. First, there is the recurring observational-equivalence problem. Even if income is an excellent predictor of a district's conservatism, that relationship cannot save the SIVH if high-income individuals in a given district are actually more liberal. Second, if ideology predicts politicians' behavior (controlling for voter interests), that relationship might reflect ideological voters, ideological politicians, or both. Even the most selfish politician would act "as if" he were an ideologue if it helped his career; and, no matter how selfish his constituents were, a sincerely ideological politician might enjoy some slack for ideological shirking. Third, although the measured effect of ideology declines considerably when the analyst controls for various measures of voter interests, there are typically no sign restrictions imposed on the control variables; an ad hoc self-interest account accompanies every statistically significant coefficient. Thus, even findings diametrically opposed to the SIVH can perversely be used to support it. For example, suppose that controlling for income reduces the apparent impact of ideology on preferences for redistribution...