Subscriber Benefit
As a subscriber you can listen to articles at work, in the car, or while you work out. Subscribe Now
When it is costless to hold an opinion, people say all kinds of crazy things. Just earlier today, our friend claimed to be “100% sure” the Colts will defeat the Texans on Sunday. Then a funny thing happened. We bet him $100 the Colts would lose, and suddenly he wasn’t so sure. Talk is cheap, but an incentive imposes objectivity.
A big flaw with the democratic process is that voters do not directly bear the full costs of voting on the basis of incorrect beliefs. As a result, voters display what economist Bryan Caplan aptly dubs “rational irrationality”—the tendency to hold inherently appealing but incorrect views. Voters indulge and act upon their biases because the personal cost of doing so is low.
Economic research finds numerous biases that systematically affect the voting public and lead to bad policies. Chief among these is an anti-foreign bias, or a tendency to underestimate the benefits of interacting with foreigners. In theory, appealing to anti-foreign bias should be a vote-gaining strategy for politicians. The Donald Trump presidency put this theory to practice.
Consider Trump’s approach to international trade, under which the United States withdrew from international trade agreements, and new tariffs were placed on steel, aluminum and Chinese goods. These protectionist policies reduced the overall wealth of our nation, raised prices and provoked retaliatory tariffs on American exports.
Also consider Trump’s stance toward immigration. The sharp reduction in legal immigration has lowered economic growth and made it harder for businesses to hire suitable workers. The average voter would be better off having received less protectionism and more immigration than he or she voted for. But democracy gives voters what they request, not necessarily what is in their economic interests.
The great unknown is how international trade and immigration policies will change under the Biden administration. Biden is committed to increasing immigration but is unlikely to reverse all the restrictions implemented under Trump. Regarding international trade, Biden has only hinted at taking a softer approach.
We note that organized labor, an important part of Biden’s coalition, has a reason to favor more open immigration (new dues-paying members) but to keep higher tariffs on imported goods to protect union jobs. But the really interesting question is, where will the GOP go? Will it revert to its more international open stance a la Ronald Reagan? Or will the rhetoric of Trump capture its soul? Anyone want to give some odds?•
__________
Bohanon and Curott are professors of economics at Ball State University. Send comments to ibjedit@ibj.com.
Please enable JavaScript to view this content.
I support open trade but the assertion that the “average voter” benefits from freer trade disguises the fact that there are winners and losers to trade, even if the “average” is a win. If we did a better job of supporting those who are harmed by trade (often middle class manufacturing workers) we might create a more unambiguous win for the country.
Yes, we could (and should) help the middle class more. But that would require one of two possible scenarios…
1) Consumers and companies would have to be OK with paying more for things to be made in the USA, and we’d have to be OK with paying people to do things that machines could do more cheaply and/or better.
2) Someone (likely the government) would need to effectively support workers with better unemployment & re-training benefits (it’s pretty hard to go back to school when you’ve got bills to pay NOW) and job creation programs.
“Let the free market decide” doesn’t appear to work in this case.