RATIONAL CHOICE'S FATAL FLAW:

Economic Scene (ALAN B. KRUEGER, 4/01/04, NY Times)

If you are reading this column, it is clear that you are interested in economics and economic policy. But what about the rest of the population? How do people learn about the economy and economic policy? How much do they know? How does it affect their views?

These are questions that my Princeton colleague Alan S. Blinder and I ask in a study just completed for the Brookings Papers on Economic Activity. Last spring we surveyed a random sample of 1,002 people on their views about economic policy. As part of the survey, we administered a quiz on basic facts, like the size of the federal budget deficit, the level of the minimum wage, the share of income paid in taxes, and the percent of Americans without health insurance.

The good news is that three-quarters of people say it is either extremely important or very important to stay informed.

The bad news is that there is a great deal of confusion about basic facts relevant to policy. Almost half the public, and a quarter of those over age 55, thought Medicare already provided drug benefits for outpatients before legislation providing such coverage was enacted. More than half could not hazard a guess about the size of the budget deficit. The average person thinks 37 percent of Americans lack health insurance, more than twice the actual percentage. [...]

Another study, by Joel Slemrod of the University of Michigan, found that a majority of people mistakenly believed that middle-income families pay a higher percentage of their income in federal taxes than do high-income families. The truth is that the top 1 percent of households paid 24 percent of their income in federal income taxes in 2000, while the middle 20 percent paid 5 percent, according to the Congressional Budget Office. This misperception, Mr. Slemrod concluded, leads many people to favor a flat tax over the current system; they mistakenly think the rich will pay more with a flat tax.

This is why the support of conservatives for democracy represents such a profound form of idealism--even recognizing, as liberals can not, that the great mass of people are idiots and/or ignorant, we're still willing to place power in their hands and hope that by combining a sufficient number folks making ill-informed but free choices you can end up with a system that functions reasonably well. Also key to this faith, and again not shared with liberals, is the recognition that intellectuals and bureaucrats won't make any better choices if you let them govern instead of the hoi polloi. Ideally then we can do no more than create the superstructure within which morality and the law require that every person be treated with dignity, including by themself, but then people are allowed maximum freedom within this context.

Posted by Orrin Judd at April 6, 2004 7:29 AM