The average voter's beliefs about how the economy works are deeply misguided. That is the central conclusion of new research by Professor Bryan Caplan of George Mason University, published in the latest issue of the Economic Journal. His detailed statistical analysis of the economic beliefs of 1,510 average Americans and 250 PhD economists reveals that economists and non-economists systematically disagree, a phenomenon that can have highly damaging consequences for the quality of economic policy. What''s more, the evidence decisively rejects efforts to question economists'' objectivity, which claim that the economic ''world view'' derives from self-interest or ideological bias.
Caplan notes that people interested in economic policy frequently blame foolish economic policies on the voting public''s weak grasp of basic economics. A standard example is protectionism, the popularity of which is often blamed on a confused ''zerosum'' view of international trade. But this account of policy failure has strangely received almost no attention in academic research, which usually presumes that at least on average, voters correctly understand how the economy works.
Caplan''s work bridges this gulf between informal observation and academic inquiry. Analysing the Survey of Americans and Economists on the Economy, a 1996 data set, he shows that here are clear patterns of disagreement in predictable directions. Compared to economists, non-economists are:
- Much more pessimistic about the economic effects of free trade, immigration and other dealings with foreigners.
- Much more sceptical about both the short- and long-run economic benefits of flexible labour markets.
- Dramatically more likely to attribute price rises to business conspiracies and ''greed'' rather than market forces.
- Far less likely to think living standards rose over the past two decades or are going to rise in the future.
These basic facts might be taken as proof of the public''s econo mic confusion. But in fact, critics of the economics profession have often maintained that the supposed ''experts'' are wrong. Caplan''s most original contribution is to examine empirically the two main versions of the critics'' position: self-serving bias and ideological bias.
Economists'' incomes are well above average, and they normally have high levels of job security. Critics of the economics profession have often said that economists merely favour economic policies beneficial to financially well-off people like themselves; they think that ''whatever is good for economists is good for the country''. Caplan tests this hypothesis by statistically controlling for respondents'' income, job security and other measures of personal interest. He finds that economists'' income level has literally nothing to do with their distinctive beliefs about how the economy works. Millionaires without economic training reject the ''economic way of thinking''; they share the economic beliefs of the rest of the public, not economists.
Economists are often seen as conservative ideologues, and critics discount their policy recommendations as products of zealotry rather than insight. Caplan empirically tests this hypothesis as well, and finds no support whatever. In fact, in US political terms, the typical economist is a moderate Democrat.
The truth is that economists across the political spectrum agree on a diverse set of ''extreme'' right– and left-wing views. Liberal economists are more likely than conservative non-economists to take the ''right-wing'' view that downsizing is economically favourable. Conservative economists are more likely than liberal noneconomists to take the ''left-wing'' view that immigration is economically favourable.
Thus, Caplan tests and decisively rejects the two main attempts to question economists'' objectivity. It is reasonable to interpret the public''s array of systematic disagreement with economists as intellectual errors. These errors can be plausibly linked to a variety of inefficient economic policies, from protectionism and price controls to labour regulations and industrial policy.
In democracies, policy at least roughly follows public opinion. Because public opinion suffers from severe economic illiteracy, democracies tend to supply economic policies that leave much to be desired.
''Systematically Biased Beliefs About Economics'' by Bryan Caplan is published in the April 2002 issue of the Economic Journal. Caplan is Assistant Professor of Economics at George Mason University, Fairfax, Virginia.