A recent Washington Post op-ed by Robert Samuelson argues that both Democrats and Republicans are hesitant to address some of the biggest problems affecting the federal budget. It’s a nice primer on the political economy of government spending (whether or not you agree with the policy recommendations). Money quote:
What frustrates constructive debate is muddled public opinion. Americans hate deficits but desire more spending and reject higher taxes. In a Pew Poll, 87 percent of respondents favored present or greater Social Security spending; only 10 percent backed cuts. Results were similar for 18 of 19 programs, foreign aid being the exception.
In short, the median voter’s desire for high spending currently trumps the desire for low (or no) deficits. This is James Buchanan and Richard Wagner’s argument in Democracy in Deficit: The Political Legacy of Lord Keynes (1977).
A neglected dimension of Buchanan and Wagner’s book is its in-depth treatment of voters being fooled by their own cognitive biases. From 1977 Buchanan and Wagner are already incorporating what are now called “behavioral” arguments into the macroeconomic consequences of fiscal and monetary policy. This, alongside their more traditional interest group argument, runs through almost every chapter of their book and forms the backbone of their analysis.
Fast forward three decades and we come to Bryan Caplan’s The Myth of the Rational Voter: Why Democracies Choose Bad Policies (2007). Caplan argues that voters may be “rationally irrational” — holding beliefs that are simply not true, but which cost them little to maintain. Failure to grasp certain economic realities, such as the benefits of free trade, likely will have no direct cost to a single voter. While the consumer who fails to do a little research before buying a car may end up with a lemon, the voter with economically incorrect ideas is not likely to change the course of an election. But the effects of cognitive biases can add up. When many voters think high tariffs will make them richer, they’re likely to get what they want (tariffs, not riches).
This brings us to the Samuelson op-ed and the concern for “muddled public opinion” that frustrates debate. As one of many examples, Caplan points out that most people overestimate the percentage of the federal budget that goes to foreign aid. No surprise, then, that “cutting foreign aid” would be seen as a meaningful attempt to address the budget crisis. In reality, a much broader conversation about entitlements will be required.
Samuelson criticizes President Obama for not engaging in this conversation. His argument: “Only the occupant of the bully pulpit can yank public opinion back to reality.”
But as Ed and I point out in Madmen, the president also faces the preferences (and cognitive biases) of the voting public at a given moment. The bully pulpit can do only so much to change those preferences.