Rationally Ignorant or Rationally Informed?

Published June 10, 2015

A little more than a year ago, it was Jonathan Gruber of MIT disparaging the American voter. Now, it’s Paul Krugman formerly of Princeton. In a recent interview, trying to explain why Republicans won the elections of 2014, he said “people have impressions that are often not right and they can be gamed.” Presumably, all would be right in the world if Democrats just talked more slowly. “Vote … for … me … and … I … will … give …. you … more … free … stuff.”

There is a certain validity to Krugman’s argument. In fact, it’s not particularly partisan. Among academics, both pro-government types in economics and political science, and pro-freedom types endorse the basic idea. We say that one of the “imperfections” of democracy is that voters are less than fully informed. This is generally characterized as the “rational ignorance” of voters; however, I would prefer to say voters are rationally informed.

Before talking about voters, I’d like to talk about how consumers are rationally informed. In the marketplace, consumers face a wide and ever expanding array of products and services. The days of haggling at the marketplace over the price of a particular chicken are mostly gone. Today, you buy cuts of chicken already prepared for cooking wrapped in cellophane. The cuts have been turned into so many commodities and are, therefore, priced by the pound. Relying on social institutions (such as the reputation of the store), backstopped by government policing (to suppress fraud), we can buy chicken with no particular knowledge about chickens.

Most of the things we buy in the marketplace are not commodities, but are differentiated goods and services. This includes beautician services, restaurant meals, automobiles, digital computers, and tickets to live performances. It is simply impossible for anybody to be knowledgable about all these wonderful goods and services. Even the workers who make them only know a small part – their part – of the process of making them. As workers and as consumers, we are engaged in an enormously intricate worldwide web of cooperation. Like ants, we go about our business mostly without a master or overseer, rising in the morning to go to work and then buying from each other in the marketplace. It is beyond amazing, it is awesome. And, we do this mostly with knowledge only of our small part in the process of production and our expectations of how the things we buy will make us more happy relying on social institutions such as reputation backstopped by government policing and the rule of law.

Yet, were you to look in the economics textbooks, they describe markets in differentiated goods and services as “imperfect” because of limited knowledge. There is what is called the “lemons problems.” That is, the risk of fraud defined as the sale of goods of low quality as known to the seller, which knowledge is withheld from the market. Yet, for how long could a seller maintain a business when many customers are disappointed? Businessmen know they should strive for win-win relationships. For the most part but not completely, the marketplace solves the lemons problem.

So it is with politics. For the most part but not completely, reputation of individual politicians and of political parties, and government policing in the case of outright corruption, enables voters to make reasonable choices. Furthermore, voters don’t need to know how the things that government produces are produced. They only have to have some knowledge of the end result. Krugman said so much himself. Many voters, he said, say “things are not right with the world and, so, I’m going to vote against the President.”

It’s not a coincidence that Presidents claim credit when things are going well, as Ronald Reagan did in 1984 when he was re-elected in a landslide. It’s not a coincidence that, when things are going badly, such as in 1980, 2004 and 2012, the President is either defeated or narrowly wins re-election. Of course, when things are going badly, Presidential apologists will say it’s not their guy’s fault. Abraham Lincoln put the rational ignorance of voters this way: You can fool some of the people all of the time and all of the people some of the time. But you can’t fool all of the people all of the time.