In theory, democracy is a bulwark againstsocially harmful policies. In practice, however,democracies frequently adopt and maintain poli-cies that are damaging. How can this paradox beexplained?

The influence of special interests and voterignorance are two leading explanations. I offeran alternative story of how and why democracyfails. The central idea is that voters are worsethan ignorant; they are, in a word, irrational—andthey vote accordingly. Despite their lack ofknowledge, voters are not humble agnostics;instead, they confidently embrace a long list ofmisconceptions.

Economic policy is the primary activity of themodern state. And if there is one thing that thepublic deeply misunderstands, it is economics.People do not grasp the “invisible hand” of themarket, with its ability to harmonize private

greed and the public interest. I call this anti-mar-ket bias. They underestimate the benefits ofinteraction with foreigners. I call this anti-foreignbias. They equate prosperity not with produc-tion, but with employment. I call this make-workbias. Finally, they are overly prone to think thateconomic conditions are bad and getting worse.I call this pessimistic bias.

In the minds of many, Winston Churchill’sfamous aphorism cuts the conversation short:“Democracy is the worst form of government,except all those other forms that have been triedfrom time to time.” But this saying overlooks thefact that governments vary in scope as well asform. In democracies the main alternative tomajority rule is not dictatorship, but markets. Abetter understanding of voter irrationality advis-es us to rely less on democracy and more on themarket.

The Myth of the Rational VoterWhy Democracies Choose Bad Policies

by Bryan Caplan

_____________________________________________________________________________________________________

Bryan Caplan is an associate professor of economics at George Mason University and an adjunct scholar at the CatoInstitute. This study is an excerpt from Caplan’s book, The Myth of the Rational Voter: Why DemocraciesChoose Bad Policies (Princeton University Press, 2007).

Executive Summary

No. 594 May 29, 2007

Introduction: The Paradoxof Democracy

In a dictatorship, government policy is oftenappalling but rarely baffling. The building ofthe Berlin Wall sparked worldwide outcry, butfew wondered, “what are the leaders of EastGermany thinking?” That was obvious: theywanted to continue ruling over their subjects,who were inconsiderately fleeing en masse.

No wonder democracy is such a popularpolitical panacea. The history of dictator-ships creates a strong impression that badpolicies exist because the interests of rulersand ruled diverge. A simple solution is makethe rulers and the ruled identical by giving“power to the people.” If the people decide todelegate decisions to full-time politicians, sowhat? Those who pay the piper—or vote topay the piper—call the tune.

This optimistic story is, however, often atodds with the facts. Democracies frequentlyadopt and maintain policies harmful for mostpeople.1 Protectionism is a classic example.Economists across the political spectrum havepointed out its folly for centuries, but almostevery democracy restricts imports. Admittedly,this is less appalling than the Berlin Wall, yet itis more baffling. In theory, democracy is a bul-wark against socially harmful policies, but inpractice it gives them a safe harbor.

How can this paradox be explained? Oneanswer is that the people’s “representatives”have turned the tables on them.2 Electionsmight be a weaker deterrent to misconductthan they seem on the surface, making it moreimportant to please special interests than thegeneral public. A second answer, which com-plements the first, is that voters are deeplyignorant about politics.3 They do not knowwho their representatives are, much less whatthey do. This tempts politicians to pursue per-sonal agendas and sell themselves to donors.

I offer an alternative story of how democ-racy fails. The central idea is that voters areworse than ignorant; they are, in a word, irra-tional—and vote accordingly. Despite theirlack of knowledge, voters are not humble

agnostics; instead, they confidently embracea long list of misconceptions.

When cataloging the failures of democra-cy, one must keep things in perspective. Theshortcomings of democracy pale in compari-son with those of totalitarian regimes.Democracies do not murder millions of theirown citizens. Fair enough, but such compar-isons set the bar too low. Now that democra-cy is the most common form of government,there is little reason to dwell on the truismthat it is “better than communism.” It is nowmore worthwhile to figure out how and whydemocracy falls short.

In the minds of many, one of WinstonChurchill’s most famous aphorisms cuts theconversation short: “Democracy is the worstform of government, except all those otherforms that have been tried from time totime.”4 But this saying overlooks the fact thatgovernments vary in scope as well as form. Indemocracies the main alternative to majorityrule is not dictatorship, but markets.

Economists have an undeserved reputa-tion for “religious faith” in markets. No onehas done more than economists to dissectthe innumerable ways that markets can fail.After all their investigations, though, econo-mists typically conclude that the man in thestreet—and the intellectual without econom-ic training—underestimates how well mar-kets work. I maintain that something quitedifferent holds for democracy: it is widelyoverrated not only by the public but by mosteconomists, too. Thus, while the general pub-lic underestimates how well markets work,even economists underestimate markets’virtues relative to the democratic alternative.

Is the “Miracle of Aggregation” Just Wishful

Thinking?What voters don’t know would fill a uni-

versity library. In the last few decades, econo-mists who study politics have thrown fuel onthe fire by pointing out that—selfishly speak-ing—voters are not making a mistake. One

2

Voters are worsethan ignorant; they

are, in a word, irrational—and

vote accordingly.

vote has so small a probability of affectingelectoral outcomes that a realistic egoist paysno attention to politics; he chooses to be, ineconomic jargon, rationally ignorant.

The vast empirical literature on voterknowledge bears this out.5 Almost all econo-mists and political scientists now accept thatthe average citizen’s level of political knowl-edge is extraordinarily low. At the same time,however, scholars have also largely come tobelieve that this doesn’t really matter, becausedemocracy can function well under almostany magnitude of voter ignorance.6

How is this possible? Assume that votersdo not make systematic errors. Though theyerr constantly, their errors are random.7 Ifvoters face a blind choice between X and Y,knowing nothing about them, they are equal-ly likely to choose either.

With 100 percent voter ignorance, mattersare predictably grim. One candidate could bethe Unabomber, plotting to shut down civiliza-tion. If voters choose randomly, the Unabomberwins half the time. True, the assumption of zerovoter knowledge is overly pessimistic; informedvoters are rare, but they do exist. But this seemsa small consolation. One hundred percent igno-rance leads to disaster. Can 99 percent ignorancebe significantly better?

Yes. Democracy with 99 percent ignorancelooks a lot more like democracy with fullinformation than democracy with total igno-rance. Why? First, imagine an electoratewhere 100 percent of all voters are well-informed. Who wins the election? Trivially,whoever has the support of a majority of the well-informed. Next, switch to the case where only1 percent of voters are well-informed. Theother 99 percent are so thick that they vote atrandom. Quiz a person waiting to vote, andyou are almost sure to conclude, with alarm,that he has no idea what he is doing.Nevertheless, it is basic statistics that—in alarge electorate—each candidate gets abouthalf of the random votes. Both candidatescan bank on roughly a 49.5 percent share. Yetthat is not enough to win. For that, theymust focus all their energies on the one well-informed person in a hundred. Who takes

the prize? Whoever has the support of a majority ofthe well-informed.

This result has been aptly named the “mira-cle of aggregation.”8 It reads like an alchemist’srecipe: mix 99 parts folly with 1 part wisdom toget a compound as good as unadulterated wis-dom. An almost completely ignorant electoratemakes the same decision as a fully informedelectorate—lead into gold, indeed!

It is tempting to call this “voodoo poli-tics,” or quip, as H. L. Mencken did, that“democracy is a pathetic belief in the collec-tive wisdom of individual ignorance.” Butthere is nothing magical or pathetic about it.James Surowiecki documents many instanceswhere the miracle of aggregation—or some-thing akin to it—works as advertised.9 In acontest to guess the weight of an ox, the averageof 787 guesses was off by a single pound. OnWho Wants to Be a Millionaire, the answer mostpopular with studio audiences was correct 91percent of the time. Financial markets—which aggregate the guesses of large num-bers of people—often predict events betterthan leading experts. Betting odds are excel-lent predictors of the outcomes of everythingfrom sporting events to elections. In eachcase, the logic enunciated by political scien-tists Benjamin Page and Robert Shapiroapplies:

This is just an example of the law oflarge numbers. Under the right condi-tions, individual measurement errorswill be independently random and willtend to cancel each other out. Errors inone direction will tend to offset errorsin the opposite direction.10

Judging from research in recent decades,most economists find this logic compelling.Almost all “respectable” modern economictheories of politics begin by assuming thatthe typical citizen understands economicsand votes accordingly—at least on average.11

Nor is this view limited to apologists for thestatus quo. Some of the sternest critics ofgovernment regulation nevertheless scoff atthe assumption of systematic voter bias.

3

Almost all“respectable”modern economictheories of politicsbegin by assumingthat the typicalcitizen understands economics andvotes accordingly.

Legendary Chicago economist George Stigleris a case in point:

The assumption that public policy hasoften been inefficient because it wasbased on mistaken views has little tocommend it. To believe, year after year,decade after decade, that the protectivetariffs or usury laws to be found inmost lands are due to confusion ratherthan purposeful action is singularlyobfuscatory.12

The bottom line is that if the miracle of aggre-gation is true, then democracy can work, evenwith a morbidly ignorant electorate. Demo-cracy gives equal say to the wise and the not-so-wise, but the wise determine policy.Belaboring the electorate’s lack of knowledgewith study after study is beside the point.

But there is another kind of empirical evi-dence that can discredit the miracle of aggre-gation. The “miracle” only works if voters donot make systematic errors. This suggests thatinstead of rehashing the whole topic of votererror, we concentrate our fire on the criticaland relatively unexplored question: Are votererrors systematic?13

There are good reasons to suspect so. Ouraverage guess about the weight of oxen isdead on. But cognitive psychology catalogs along list of other questions where our averageguess is systematically mistaken.14 That bodyof research ought to open our minds to thepossibility of systematic voter error.

By itself, though, the psychological litera-ture does not get us very far. The linkbetween general cognition and particularpolitical decisions is too loose. Voters mightbe bad statisticians but perceptive judges ofwise policy. Thus, we should refine our ques-tion: Are voter errors systematic on questions ofdirect political relevance?

My answer is an emphatic yes. Economicpolicy is the primary activity of the modernstate, making voter beliefs about economicsamong the most—if not the most—politicallyrelevant beliefs. And if there is one thing thatthe public deeply misunderstands, it is eco-

nomics.15 People do not grasp the “invisiblehand” of the market and its ability to harmo-nize private greed and the public interest. I callthis anti-market bias. They underestimate thebenefits of interaction with foreigners. I callthis anti-foreign bias. They equate prosperitynot with production, but with employment. Icall this make-work bias. Lastly, they are overlyprone to think that economic conditions arebad and getting worse. I call this pessimistic bias.

If voters base their policy preferences ondeeply mistaken models of the economy, gov-ernment is likely to perform its bread and but-ter function poorly. To see this, suppose thattwo candidates compete by taking positionson the degree of protectionism they favor.Random voter errors about the effect of protec-tion cause some voters who prefer the effect offree trade to vote for protection. But it is equal-ly common for voters who prefer the effect ofprotection to vote for free trade (see Figure1).16 Then the miracle of aggregation holds: inspite of voter ignorance, the winning platformis socially optimal.

For anyone who has taught internationaleconomics, though, this conclusion is under-whelming. It takes hours of patient instruc-tion to show students the light of compara-tive advantage. After the final exam, there is adistressing rate of recidivism. Suppose weadopt the more realistic assumption that vot-ers systematically overestimate the benefitsof protection. What happens? Lots of peoplevote for protection who prefer the effect offree trade, but only a few vote for free tradewho prefer the effect of protection (seeFigure 2). The political scales tilt out of bal-ance; the winning platform is too protection-ist. The median voter would be better off if hereceived less protection than he asked for. But com-petition impels politicians to heed what vot-ers ask for, not what is best for them.

Comparable biases plausibly underlie policyafter policy. For example, the law of supply anddemand says that above-market prices createunsaleable surpluses, but that has not stoppedmost of Europe from regulating labor marketsinto decades of depression-level unemploy-ment.17 The most credible explanation is that

4

Are voter errorssystematic on

questions ofdirect political

relevance?

the average voter sees no link between artificial-ly high wages and unemployment. Before Istudied economics, I failed to see it myself.

Systematically BiasedBeliefs about EconomicsEconomists have been complaining about

anti-market, anti-foreign, make-work, andpessimistic biases for centuries. But whatexactly have economists been criticizing?Where does the public go wrong? How preva-lent are these biases? And if experts and the

public deeply disagree, what reason is thereto side with the experts, anyway? Perhaps it isthe experts who are biased.

I draw on several different bodies of evidenceto answer those questions. To pin down whateconomists have been criticizing, I providesome historic examples. To explain where thepublic goes wrong, I summarize the main argu-ments that economists have made in the pastand that textbooks still make today. To esti-mate the prevalence of these biases, I rely on alarge body of surveys from recent decades.

But what about the hardest objection ofall? Isn’t it possible that the bias lies in the

5

Economists havebeen complainingabout anti-market,anti-foreign,make-work, andpessimistic biasesfor centuries.

Figure 1

The Median Voter Model: Random Error

Figure 2

The Median Voter Model: Systematic Error

experts, rather than the public? If one findsthe economists of the past and the textbooksof the present convincing, this questionbecomes less interesting. But the critics of theeconomics profession do make some disturb-ing accusations about the field’s objectivity.

The most common doubt about econo-mists stems from their apparent inability toagree, bestcaptured by George BernardShaw’s line that “if all economists were laidend to end, they would not reach a conclu-sion.”18 But economists’ hard-core detractorsrecognize the superficiality of this complaint.They know that economists regularly see eye-to-eye with one another. A quip from StevenKelman directly contradicts Shaw:

The near-unanimity of the answerseconomists give to public policy ques-tions, highly controversial among therun of intelligent observers, but whichshare the characteristic of being able tobe analyzed in terms of microeconomictheory, reminds one of the unanimitycharacterizing bodies such as the polit-buro of the Soviet Communist Party.19

It is not lack of consensus that incensesknowledgeable critics, but the way econo-mists unite behind unpalatable conclusions,such as doubts about the benefits of regula-tion. Kelman bemoans the fact that eveneconomists in the Carter administrationwere economists first and liberals second:

At the government agency where I haveworked and where agency lawyers andagency microeconomists interact witheach other . . . the lawyers are oftenexasperated, not only by the frequencywith which agency economists attacktheir proposals but also by the una-nimity among the agency economistsin their opposition. The lawyers tendto (incorrectly) attribute this opposi-tion to failure to hire “a broad enoughspectrum” of economists, and to begthe economists, if they can’t supportthe lawyers’ proposals, at least to give

them “the best economic arguments”in favor of them. . . . The economists’answer is typically something like,“There are no good economic argu-ments for your proposal.”20

Unsurprisingly, critics rarely change theirminds once they notice how regularly econo-mists agree. Instead, they typically shift to theargument that the experts are biased. Biasedhow? There are two prominent stories. Thefirst is that economists suffer from “self-serv-ing bias.” Economists are unusually affluent,tenured, white, and male, and supposedlyconfuse what is good for them with what isgood for the country. The second is thateconomists suffer from right-wing “ideologi-cal bias.” They use economics to give scientif-ic respectability to their political prejudices.

Fortunately, there is one excellent data setthat allows us to bring these accusations to trial:the Survey of Americans and Economists onthe Economy (henceforth SAEE).21 This uniquestudy, conducted by the Washington Post, KaiserFamily Foundation, and Harvard UniversitySurvey Project, asked 1,510 members of thegeneral public and 250 PhD economists thesame diverse set of questions about how theeconomy works. The SAEE strongly supportsthe view that economists and the public sharplydisagree in predictable ways. More importantly,though, the survey also collected detailed infor-mation about the respondents: income, jobsecurity, race, gender, party identification, ideol-ogy, and much more.

The upshot is that we can statistically testwhether the vast belief differences between econ-omists and the public are just a byproduct ofeconomists’ privileged circumstances, a right-wing orientation, or both. In other words, wecan use the data to run a thought experiment:What would a person with average income, aver-age job security, average party identification,average ideology, average everything, think if hehad a PhD in economics? I call such a person amember of the “enlightened public”—someonewho combines the circumstances of the laymanwith the knowledge of the expert.22

If the critics of the economics profession

6

It is not lack of consensus that incenses

knowledgeablecritics, but

the way economists

unite behind unpalatable

conclusions.

were completely right—if the sole reasons foreconomists’ unusual views were self-servingand/or ideological bias—then the enlightenedpublic and the actual public would see eye-to-eye. If the critics of the economics professionwere completely wrong—if self-serving andideological bias had nothing to do with econ-omists’ unusual views—then the enlightenedpublic and economists would see eye-to-eye.

The world turns out to be much closer tothe second extreme than the first. Self-serv-ing bias accounts for less than 20 percent ofthe belief gap between economists and lay-men. Controlling for ideological bias actual-ly seems to slightly increase the size of thebelief gap. How is this possible? Because con-trary to popular belief, economists tend to bemoderate Democrats, not conservative Repub-licans. Economists are unusually favorabletoward markets not because of their extremeright-wing perspective, but despite their mildlyleft-wing perspective.23

Shooting down the leading opponents ofthe “economists right, public wrong” posi-tion does not prove that it is true. But it sig-nificantly increases the probability. Think ofit this way: common sense advises us to trustthe experts. Critics challenge the experts’objectivity, and their complaints turn out tobe in error. The sensible response is to reaf-firm the common sense position. Indeed,after the strongest challengers fail, we shouldbecome more confident that economists areright and the public is wrong.

There is no reason, then, to deny econo-mists a normal level of deference in their fieldof expertise. But the profession also deservesan affirmative defense. Frankly, the strongestreason to accept its reliability is to flipthrough a basic economics text, then read theSAEE questions for yourself. You may not befully convinced of economists’ wisdom. I,too, doubt it on occasion. But it is hard toavert your gaze from the public’s folly. Timeand again, it gravitates toward answers thatare positively silly.

If that is too subjective for you, an impres-sive empirical regularity points in the samedirection: education makes people think like econo-

mists. Out of the SAEE’s 37 questions, there are19 where economic training and educationmove together and only two where they moveapart. It is not merely members of one inbreddiscipline who diverge from mainstream opin-ion. So do educated Americans in general,with the degree of divergence rising with thelevel of education. And the magnitude is sub-stantial. Moving from the bottom of the edu-cational ladder to the top has more than halfof the (enormous) effect of an econ PhD.24

This pattern is all the more compellingbecause it has parallels in other fields. Takepolitical knowledge. Education substantiallyimproves performance on objective tests aboutgovernment structure, leaders, and currentevents.25 Kraus, Malmfors, and Slovic similarlyfind that education makes members of the gen-eral public “think more like toxicologists.”26

Perhaps education just increases exposure tobrainwashing. But it is more likely that educat-ed people think more clearly and know more.

With the most fundamental doubts aboutthe economics profession out of the way, weare now ready to proceed. Economists havebeen complaining about laymen’s economicmisconceptions for centuries. What seems tobe the problem?

Anti-Market BiasI first learned about farm price supports

in the produce section of the grocery store. Iwas in kindergarten. My mother explainedthat price supports seemed to make fruits andvegetables more expensive, but assured methat this conclusion was simplistic. If thesupports went away, so many farms would goout of business that prices would soon behigher than ever. If I had been more preco-cious, I would have asked a few questions.Were there price support programs for theother groceries? Why not? As it happened,though, I accepted what she told me, and felta lingering sense that price competition isbad for buyer and seller alike.

This was one of my first memorableencounters with anti-market bias, a tendencyto underestimate the economic benefits of the marketmechanism.27 The public has severe doubts

7

Economists areunusually favorable towardmarkets despitetheir mildly left-wing perspective.

about how much it can count on profit-seek-ing business to produce socially beneficial out-comes. It focuses on the motives of business,and neglects the discipline imposed by com-petition. While economists admit that profit-maximization plus market imperfections canyield bad results, non-economists tend to viewsuccessful greed as socially harmful per se.

Near the end of his life, Joseph Schumpetereloquently captured the essence of anti-mar-ket bias:

Capitalism stands its trial beforejudges who have the sentence of deathin their pockets. They are going to passit, whatever the defense they may hear;the only success victorious defense canpossibly produce is a change in theindictment.28

Arguably the greatest historian of eco-nomic thought, Schumpeter elsewhere mat-ter-of-factly speaks of “the ineradicable preju-dice that every action intended to serve theprofit interest must be anti-social by this factalone.”29 Considering his encyclopedicknowledge, this remark speaks volumes.Anti-market bias is not a temporary, cultural-ly specific aberration. It is a deeply rootedpattern of human thinking which has frus-trated economists for generations.

Liberal Democratic economists echo andamplify Schumpeter’s theme. CharlesSchultze, head of President Carter’s Councilof Economic Advisers, proclaims that “har-nessing the ‘base’ motive of material self-inter-est to promote the common good is perhapsthe most important social invention mankindhas yet achieved.”30 But politicians and votersfail to appreciate this invention. “The virtuallyuniversal characteristic of [environmental]policy . . . is to start from the conclusion thatregulation is the obvious answer; the pricingalternative is never considered.”31

There are too many variations on anti-mar-ket bias to list them all. Probably the mostcommon is to equate market payments with trans-fers, ignoring their incentive properties. (A“transfer,” in economic jargon, is a no-strings-

attached movement of wealth from one per-son to another). All that matters, then, is howmuch you empathize with the transfer’s recip-ient compared to the transfer’s provider. Totake the classic case: People tend to see profitsas a gift to rich. So unless you perversely pitythe rich more than the poor, limiting profitsseems like common sense.

Economists across the ideological spec-trum find it hard to respond to this outlookwith anything but derision. Profits are not ahandout, but a quid pro quo: “If you want toget rich, then you have to do something peo-ple will pay for.” Profits give incentives toreduce production costs, move resourcesfrom less-valued to more-valued industries,and dream up new products. This is the cen-tral lesson of The Wealth of Nations: the “invisi-ble hand” quietly persuades selfish business-men to serve the public good:

Every individual is continually exertinghimself to find out the most advanta-geous employment for whatever capi-tal he can command. It is his ownadvantage, indeed, and not that of thesociety, which he has in view. But thestudy of his own advantage naturally,or rather necessarily leads him to pre-fer that employment which is mostadvantageous to the society.32

For modern economists, these are tru-isms, but they usually miss the deeper lesson.If Adam Smith’s observations are only tru-isms, why did he bother to write them? Whydo teachers of economics keep quoting andre-quoting this passage? Because Smith’s thesiswas counterintuitive to his contemporaries, andremains counterintuitive today. A truism for thefew is heresy for the many. Smith, being wellaware of this fact, tried to shock readers outof their dogmatic slumber: “By pursuing hisown interest he frequently promotes that ofthe society more effectually than when hereally intends to promote it. I have neverknown much good done by those who affect-ed to trade for the publick good.”33 Businessprofit appears to be a transfer but benefits

8

Anti-market biashas frustrated

economists forgenerations.

society; business philanthropy appears tobenefit society but is at best a transfer.

To get an idea of how counterintuitiveSmith’s thesis remains, we can turn to a tellingquestion from the SAEE. Respondents wereasked to evaluate various explanations for whythe economy is not “doing better than it is.”One of the candidates was “business profitsare too high.” Figure 3 shows the results.

Economists scoff at the idea that excessiveprofits are hurting the economy. The public,in contrast, takes the problem seriously. Andwhile critics of the economics professionmight like to attribute the pattern to self-serving bias, the results for the enlightenedpublic support a curt rejoinder. Anyone with aPh.D. in economics, rich or poor, left or right,would basically tell you the same.

Part of the public’s error is quantitative. Itwildly overestimates the rate of profit enjoyedby the typical business, with an average guessnear 50 percent.34 But the disagreement is deep-er. Through the prism of anti-market bias, thepublic perceives profit as a lump-sum transferto business. Economists, in contrast, recognizeit as the motor of progress as well as flexibility.

The second most prominent avatar ofanti-market bias is monopoly theories of price.Economists obviously acknowledge thatmonopolies exist. But the public habituallymakes “monopoly” a scapegoat for scarcity.

The idea that supply and demand usuallycontrol prices is hard to accept. Even inindustries with many firms, noneconomiststreat prices as a function of their CEOs’ inten-tions and conspiracies. Economists under-stand, however, that collusion is a “prisoner’sdilemma.” If an industry has more than ahandful of firms, industrywide conspiraciesare unlikely to succeed.

The SAEE has a nice question to illustratethis point. Back in 1996, it asked, “Which doyou think is more responsible for the recentincrease in gasoline prices?” Respondentschose between “the normal law of supply anddemand” and “oil companies trying toincrease their profits.” As Figure 4 shows,where economists see prices governed bymarket forces, the public sees monopoly orcollusion. The numbers for the enlightenedpublic confirm that economists do not dis-sent just because they are too rich to worryabout how much it costs to fill their gas tank.

The real problem is not that economistsare out of touch, but that the public’s storymakes no sense. If gas prices rise because “oilcompanies are trying to increase their prof-its,” why do gas prices ever fall? Do oil com-panies feel generous and decide to cut theirprofits? Basic economics, in contrast, has anelegant explanation: if the cost of inputs falls,so does the profit-maximizing price.

9

The public perceives profitas a lump-sumtransfer to business.

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Enlightened Public

Economists

Public

Figure 3

“Business profits are too high.”

0= “not a reason at all” 1= “minor reason” 2= “major reason”

Collusion aside, the public’s implicitmodel of price determination is that busi-nesses are monopolists of variable altruism.If a CEO feels greedy when he wakes up, heraises his price—or puts low-quality merchan-dise on the shelves. Nice guys charge fairprices for good products; greedy scoundrelsgouge with impunity for junk. It is only ashort step for market skeptics to add “andnice guys finish last.” As John Muelleremphasizes, the public links greed withalmost everything bad: capitalism is “com-monly maligned for the deceit, unfairness,dishonesty, and discourtesy that are widelytaken to be the inevitable consequences of itsapparent celebration of greed.”35

Where does the public go wrong? For onething, asking for more can get you less. Givingyour boss the ultimatum “double my pay or Iquit” usually ends badly. The same holds inbusiness: raising price and cutting qualityoften lead to lower profits, not higher.Mueller makes the deeper point that manystrategies that work as a one-shot scam back-fire as routine policies. It is hard to make aprofit if no one sets foot in your store twice.Intelligent greed militates against “deceit,unfairness, dishonesty, and discourtesy”because they damage the seller’s reputation.

An outsider who eavesdrops on econo-mists’ discussions might get the impression

that the benefits of markets remain controver-sial. To understand their conversation, youhave to notice what economists are not debat-ing. They are not debating whether prices giveincentives, or if a vast business conspiracy runsthe world. Almost all economists recognizethe core benefits of the market mechanism;they disagree only at the margin.

Anti-Foreign BiasA shrewd businessman I know has long

thought that everything wrong in theAmerican economy could be solved with twoexpedients:

1. A naval blockade of Japan.2. A Berlin Wall at the Mexican border.

This is only a mild caricature of his posi-tion, which is all the more puzzling because heusually gets the mutual benefits of trade. Hedoes well on eBay. But like most nonecono-mists, he suffers from anti-foreign bias, a ten-dency to underestimate the economic benefits ofinteraction with foreigners.36 When outsidersemerge on the economic scene, they do a men-tal double take: “Foreigners? Could it really bemutually beneficial for us to trade with them?”

Popular metaphors equate foreign tradewith racing and warfare, so you might say thatanti-foreign views are embedded in our lan-

10

It is hard to makea profit if no onesets foot in your

store twice.

0.00 0.20 0.40 0.60 0.80 1.00

Enlightened Public

Economists

Public

Figure 4

“Which do you think is more responsible for the recent increase in gasoline prices?”

0=“oil companies trying to increase their profits” 1=“the normal law ofsupply and demand”

guage. Perhaps foreigners are sneakier, craftier,or greedier. Whatever the reason, they suppos-edly have a special power to exploit us. As the19th century mathematician and economistSimon Newcomb explained:

It has been assumed as an axiom whichneeds no proof, because none would beso hardy as to deny it, that foreign nationscannot honestly be in favor of any tradewith us that is not to our disadvantage;that the very fact that they want to tradewith us is a good reason for receiving theirovertures with suspicion and obstructingtheir wishes by restrictive legislation.37

Alan Blinder echoes Newcomb’s lament acentury later. People around the world scape-goat foreigners:

When jobs are scarce, the instinct forself-preservation is strong, and thetemptation to blame foreign competi-tors is all but irresistible. It was notonly in the United States that thebunker mentality took hold. Thatmost economists branded the effort tosave jobs by protectionism shortsight-ed and self-defeating was beside thepoint. Legislators are out to win votes,not intellectual kudos.38

The SAEE amply confirms Blinder’spoint. Respondents rated the severity of theeconomic harm caused by the fact that “com-panies are sending jobs overseas.” Figure 5shows the results.

Economists are especially critical of theanti-foreign outlook because it does not justhappen to be wrong; it conflicts with elemen-tary economics. Textbooks teach that totaloutput increases if producers specialize andtrade. On an individual level, who could denyit? Imagine how much time it would take togrow your own food, when a few hours’ wagesspent at the grocery store feed you for weeks.Analogies between individual and socialbehavior are at times misleading, but this isnot one of those times. International trade is,as Steven Landsburg explains, a technology:

There are two technologies for produc-ing automobiles in America. One is tomanufacture them in Detroit, and theother is to grow them in Iowa.Everybody knows about the first tech-nology; let me tell you about the second.First you plant seeds, which are the rawmaterials from which automobiles areconstructed. You wait a few monthsuntil wheat appears. Then you harvestthe wheat, load it onto ships, and sailthe ships westward into the Pacific

11

The anti-foreignoutlook does notjust happen to bewrong; it conflictswith elementaryeconomics.

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Enlightened Public

Economists

Public

Figure 5

“Companies are sending jobs overseas.”

0=“not a reason at all” 1=“minor reason” 2=“major reason”

Ocean. After a few months, the shipsreappear with Toyotas on them.39

And this is one amazing technology. Thelaw of comparative advantage, one of themost fascinating theorems in economics,shows that mutually beneficial internationaltrade is possible even if one nation is less pro-ductive in every way.40 Suppose an Americancan make 10 cars or 5 bushels of wheat, anda Mexican can make 1 car or 2 bushels ofwheat. Though the Americans are better atboth tasks, specialization and trade increaseproduction. If one American switches fromwheat to cars, and three Mexicans switchfrom cars to wheat, world output goes up bytwo cars plus one bushel of wheat.

How can anyone overlook trade’s remark-able benefits? Adam Smith, along with many18th- and 19th-century economists, identifiesthe root error as misidentification of moneyand wealth: “A rich country, in the same man-ner as a rich man, is supposed to be a countryabounding in money; and to heap up gold andsilver in any country is supposed to be the bestway to enrich it.”41 It follows that trade is zero-sum, since the only way for a country to makeits balance more favorable is to make anothercountry’s balance less favorable.

Even in Smith’s day, however, his story wasprobably too clever by half. The root error behind18th-century mercantilism was an unreasonabledistrust of foreigners. Otherwise, why wouldpeople focus on money draining out of “thenation,” but not “the region,” “the city,” “the vil-lage,” or “the family”? In practice, human beingsthen and now commit the balance of trade falla-cy only when other countries enter the picture. Noone loses sleep about the trade balance betweenCalifornia and Nevada, or me and my grocer.The fallacy is not treating all purchases as a cost,but treating foreign purchases as a cost.

Modern conditions do make anti-foreignbias easier to spot. To take one prominentexample, immigration is far more of an issuenow than it was in Smith’s time. In theory,trade in labor is roughly the same as trade ingoods. Specialization and exchange raise out-put—for instance, by letting skilled American

moms return to work by hiring Mexican nan-nies. The SAEE confirms that the public isquick to see great dangers in this process—and economists and the enlightened publicto minimize them (see Figure 6).

In terms of the balance of payments, immi-gration is a nonissue. If an immigrant movesfrom Mexico City to New York and spends allhis earnings in his new homeland, the balanceof trade does not change. Yet the public stilllooks on immigration as a bald misfortune:jobs lost, wages reduced, public services con-sumed. Many see a larger trade deficit as a fairprice to pay for reduced immigration. Onepeculiar pro-NAFTA argument is that if weadmit more Mexican goods, we will have fewerMexicans.42 It should be evident, then, that thegeneral public sees immigration as a distinctdanger—independent of, and more frighten-ing than, an unfavorable balance of trade.People feel all the more vulnerable when theyreflect that these foreigners are not just sellingus their products. They live among us.

Calm reflection on the internationaleconomy reveals much to be thankful for,and little to fear. On this point, economistspast and present agree. But an importantproviso lurks beneath the surface. Yes, thereis little to fear about the international econo-my itself. But modern researchers—unlikeeconomists of the past and teachers of thepresent—rarely mention that attitudes aboutthe international economy are another story.Paul Krugman hits the nail on the head: “Theconflict among nations that so many policyintellectuals imagine prevails is an illusion;but it is an illusion that can destroy the reali-ty of mutual gains from trade.”43

Make-Work BiasI was an undergraduate when the Cold

War ended, and I can still remember talkingabout military spending cuts with a conserva-tive student. The whole idea made her ner-vous. Why? Because she had no idea how amarket economy would absorb the dis-charged soldiers. She did not even distinguishbetween short-term and long-term conse-quences of the cuts; in her mind, to lay off

12

No one losessleep about the

trade balancebetween

California andNevada, or meand my grocer.

100,000 government employees was virtuallyequivalent to disemploying 100,000 peoplefor life. Her position is particularly striking ifyou realize that her objection would applyequally to spending on government programsthat—as a conservative—she opposed.

If a well-educated individual ideologicallyopposed to wasteful government spendingthinks like this, it is hardly surprising that sheis not alone. The public often literally believesthat labor is better to use than conserve.Saving labor, producing more goods withfewer man-hours, is widely perceived not asprogress, but as a danger. I call this make-work bias, a tendency to underestimate the eco-nomic benefits of conserving labor.44 Where non-economists see the destruction of jobs, econ-omists see the essence of economic growth—the production of more with less. AlanBlinder explains:

If you put the question directly, “Is high-er productivity better than lower produc-tivity?” few people will answer in the neg-ative. Yet policy changes are often sold asways to “create jobs.” . . . Jobs can be cre-ated in two ways. The socially beneficialway is to enlarge GNP, so that there willbe more useful work to be done. But wecan also create jobs by seeing to it that

each worker is less productive. Thenmore labor will be required to producethe same bill of goods. The latter form ofjob creation does raise employment; butit is the path to rags, not riches.45

For an individual to prosper, he onlyneeds to have a job. But society can prosperonly if individuals do a job, if they creategoods and services that someone else wants.

Economists have been at war with the make-work bias for centuries. Bastiat ridicules theequation of prosperity with jobs as “Sisyphism,”after the mythological fully employed Greekwho was eternally condemned to roll a boulderup a hill. In the eyes of the public:

Effort itself constitutes and measureswealth. To progress is to increase theratio of effort to result. Its ideal may berepresented by the toil of Sisyphus, atonce barren and eternal.46

In contrast, for the economist:

[W]ealth . . . increases proportionatelyto the increase in the ratio of result toeffort. Absolute perfection, whosearchetype is God, consists in the widestpossible distance between these two

13

Saving labor,producing moregoods with fewerman-hours, iswidely perceivednot as progress,but as a danger.

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Enlightened Public

Economists

Public

Figure 6

“There are too many immigrants.”

0=“not a reason at all” 1=“minor reason” 2=“major reason”

terms, that is, a situation in which noeffort at all yields infinite results.47

The crudest form of make-work bias isLuddite fear of the machine. Common senseproclaims that machines make life easier forhuman beings. The public qualifies this “naive”position by noting that machines also makepeople’s lives harder by throwing them out ofwork. Economists, in contrast, doubt that thepro-technology position needs to be qualified.Technology often creates new jobs; without thecomputer, there would be no jobs in computerprogramming or software development. Butthe fundamental defense of labor-saving tech-nology is that employing more workers thanyou need wastes valuable labor.

Thus, when the SAEE asks respondents toevaluate the economic effects of “increaseduse of technology in the workplace,” bothlaymen and experts lean in a favorable direc-tion. But economists are virtually unani-mous, and the public clearly has reservationsinspired by make-work bias (see Figure 7).

Economists often observe that if you pay aworker to twiddle his thumbs, you could havepaid him to do something socially usefulinstead. Their deeper point, though, is that mar-ket forces readily convert this potential social ben-efit into an actual one. After technology throwspeople out of work, they have an incentive to

find a new use for their talents. Michael Cox andRichard Alm aptly describe this process as“churn”: “Through relentless turmoil, the econ-omy re-creates itself, shifting labor resources towhere they’re needed, replacing old jobs withnew ones.”48 They illustrate this process withhistory’s most striking example: the drasticdecline in agricultural employment:

In 1800, it took nearly 95 of every 100Americans to feed the country. In 1900,it took 40. Today, it takes just 3. . . . Theworkers no longer needed on farmshave been put to use providing newhomes, furniture, clothing, computers,pharmaceuticals, appliances, medicalassistance, movies, financial advice,video games, gourmet meals, and analmost dizzying array of other goodsand services. . . . What we have in placeof long hours in the fields is the wealthof goods and services that comes fromallowing the churn to work, whereverand whenever it might occur.49

Exasperating as the Luddite mentality is,countries rarely move beyond rhetoric and turnback the clock of technology. But you cannotsay the same about another controversy infusedwith make-work bias: hostility to downsizing.What could possibly be good about downsizing?

14

The fundamentaldefense of

labor-saving technology is that

employing moreworkers than you

need wastes valuable labor.

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Enlightened Public

Economists

Public

Figure 7

“Increased use of technology in the workplace.”

0=“bad” 1=“doesn’t make much difference” 2=“good”

Every time we figure out how to accomplish agoal using fewer workers, it enriches society,because labor is a valuable resource.

We have a tremendous stake in allow-ing the churn to grind forward,putting our labor resources to workraising living standards, to give usmore for less. We can’t get around it:The churn’s promise of higher livingstandards can’t be reaped without joblosses. . . . Downsizing companies willbe vilified for making what appear tobe hardhearted decisions. When pas-sions cool, however, there ought to betime to recognize that, in most cases,the dirty work had to be done.50

See how this issue plays out in the SAEE(see Figure 8). Respondents were asked toassess the economic harm resulting from thefact that “companies are downsizing.”

The popular stance rests on the illusionthat employment, not production, is the mea-sure of prosperity. In contrast, for economistsand the enlightened public, downsizingproves the rule that private greed and thepublic interest point in the same direction.Downsizing superfluous workers leads themto search for more socially productive ways to

apply their abilities. Imagine what would havehappened if the farms of the 19th centurynever “downsized.” Greed drove thesechanges, but they remained changes for thebetter.

Pessimistic BiasI first encountered anti-drug propaganda

in the second grade. It was called “drug educa-tion,” but it was mostly scary stories. I was toldthat kids around me were using drugs, andthat a pusher would soon offer me some, too.Teachers warned that more and more kidswould become addicts, and by the time I wasin junior high I would be surrounded by them.Authority figures would occasionally specu-late about our adulthood, and wonder how acountry could function with such a degener-ate workforce. Yet another reason, they mused,that this country is going downhill.

The junior high dystopia never material-ized. I am still waiting to be offered drugs. Bythe time I reached adulthood, it was apparentthat most people were not going to their jobshigh on PCP. Generation X used its share ofillegal narcotics, but its entry into the work-force accompanied the marvels of theInternet age, not a stupor-induced decline inproductivity and innovation.

My teachers’ predictions about America’s

15

The popularstance rests onthe illusion thatemployment, notproduction, isthe measure of

prosperity.

0.00 0.20 0.40 0.60 0.80 1.00 1.20 1.40 1.60 1.80 2.00

Enlightened Public

Economists

Public

Figure 8

“Companies are downsizing.”

0=“not a reason at all” 1=“minor reason” 2=“major reason”

economic future turned out to be laughable.But they fit nicely into a larger pattern. As ageneral rule, the public believes economicconditions are not as good as they really are.It sees a world going from bad to worse; theeconomy faces a long list of grim challenges,leaving little room for hope. I refer to thepublic’s leanings as pessimistic bias, a ten-dency to overestimate the severity of economic prob-lems and underestimate the (recent) past, present,and future performance of the economy.51

Suppose a congenitally pessimistic doctorexamines a patient. There are two kinds oferrors to watch out for. For one thing, hewould exaggerate the severity of the patient’ssymptoms. After finding a body temperatureof 100 degrees, the doctor might exclaim thatthe patient has a “dangerous fever.” But thedoctor might also err in his overall judgment,giving the patient two weeks to live.

Pessimism about the economy exhibits thesame characteristics. You may be pessimisticabout symptoms, overblowing the severity ofeverything from the deficit to affirmative action.But you can also be pessimistic overall, seeingnegative trends in living standards, wages, andinequality. Public opinion is marked by pes-simism in both forms. Economists constantlyadvise the public not to lose sleep over the latesteconomic threat in the news. But they also makea habit of explaining how far mankind has comein the last hundred years, pointing out massivegains we take for granted.52

Adam Smith famously ridiculed pes-simism with a one-liner: “There is a great dealof ruin in a nation.”53 His point, which econ-omists often echo, is that the public lacksperspective. A large economy can and usuallydoes progress despite interminable setbacks.While economists debate about how muchgrowth to expect, public discourse is framedin terms of stagnation versus decline.

Consider expectations about the living stan-dard of the next generation. The SAEE asksrespondents: “Do you expect your children’sgeneration to enjoy a higher or lower standardof living than your generation, or do you thinkit will be about the same?” (see Figure 9). Onaverage, the public expects stagnation, econo-

mists are more optimistic, and the enlightenedpublic is most optimistic of all.

How can the enlightened public be moreextreme than actual economists? The answeris that high-income males are actuallyunusually pessimistic about the future ofprosperity. Since economists tend to be high-income males, their demographics dilutetheir optimism.

A staple of pessimistic rhetoric is to idealizeconditions in the more distant past in order toput recent conditions in a negative light.Arthur Herman’s The Idea of Decline in WesternHistory asserts that “virtually every culture pastor present has believed that men and womenare not up to the standards of their parentsand forebears” and asks “why is this sense ofdecline common to all cultures?”54

Pessimistic bias is less well known than anti-market, anti-foreign, or make-work bias.Famous economists of the past frequently over-looked it; teachers of economics spend relativelylittle time rooting it out. But although the voiceof oral tradition is softer than usual, it is notsilent. Though he did not live to see the fullfruits of the Industrial Revolution, Adam Smithdeclared progress to be the normal course ofevents:

The uniform, constant, and uninter-rupted effort of every man to better hiscondition . . . is frequently powerfulenough to maintain the natural progress ofthings toward improvement, in spite both ofthe extravagance of government, and ofthe greatest errors of administration.Like the unknown principle of animallife, it frequently restores health andvigour to the constitution, in spite, notonly of the disease, but of the absurdprescriptions of the doctor.55

However, progress is so gradual that a fewpockets of decay hide it from the public view:

To form a right judgment of it, indeed,we must compare the state of the coun-try at periods somewhat distant fromone another. The progress is frequently

16

As a general rule,the public

believes economicconditions arenot as good asthey really are.

so gradual that, at near periods, theimprovement is not only not sensible,but from the declension either of cer-tain branches of industry, or of certaindistricts of the country, things whichsometimes happen though the countryin general be in great prosperity, therefrequently arises a suspicion that the richesand industry of the whole are decaying.56

David Hume—economist, philosopher,and Adam Smith’s best friend—blames popu-lar pessimism on our psychology, not theslow and uneven nature of progress: “Thehumour of blaming the present, and admir-ing the past, is strongly rooted in humannature, and has an influence even on personsendued with the profoundest judgment andmost extensive learning.”57

Despite those promising beginnings, 19th-century economists did little to develop thetheme of pessimistic bias. Bastiat and Newcombsay little about it. In recent decades, however,economists have been making up for lost time.Cox and Alm appeal to fundamental humanpsychology to explain our pessimism: “The pre-sent almost always pales when measured against‘the good old days.’”58 Mild forms of this biassustain lingering economic malcontent:“Nostalgists often ignore improvements in

goods and services, yet remember fondly theprices they paid long ago for the cheapest ver-sions of products.”59 Strong forms make us“open-minded” to paranoid fantasies:

Some part of human nature connectswith the apocalyptic. Time and again,the pessimists among us have envisionedthe world going straight to hell. Nevermind that it hasn’t: A lot of us braced forthe worst. Whether the source is the Bibleor Nostradamus, Thomas Malthus, orthe Club of Rome, predictions of calami-ties yet to come aren’t easily ignored, nomatter how many times we wake up themorning after the world was supposed toend.60

How can high levels of pessimism coexistwith constantly rising standards of living? It isarguable that the gap between objective condi-tions and subjective perceptions is now greaterthan ever.61 The SAEE finds, for example, thatthe public is overwhelmingly convinced thatnew jobs are low-paying, while economistsand the enlightened public take a roughly bal-anced position (see Figure 10).

In part, economists simply think that thenumbers contradict the public’s extreme pes-simism.62 But the belief gap runs deeper than

17

How can highlevels of pessimism coexist with constantly risingstandards of living?

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Enlightened Public

Economists

Public

Figure 9

“Do you expect your children’s generation to enjoy a higher or lower standard of living

than your generation, or do you think it will be about the same?”

0=“lower” 1=“about the same” 2=“higher”

the latest data set. The progress of recent cen-turies implies that it is abnormal for new jobs tobe low paying. A temporary setback is possible,but it merits an intellectual double-take.

There is an ongoing debate about the slow-down of growth. This is what relatively pes-simistic economists like Paul Krugman meanwhen they say that “the U.S. economy isdoing badly.”63 Other economists counterthat standard numbers inadequately adjustfor the rising quality and variety of the con-sumption basket and the changing composi-tion of the workforce. The rapid growth ofthe ’90s raised more doubts. Either way, theworst-case scenario GDP statistics permit—alower speed of progress—is no disaster. In theface of popular economic pessimism,Krugman, too, exclaims: “I have seen the pre-sent, and it works!”64

Rethinking SystematicError

Economists have a love-hate relationshipwith systematic bias. As theorists, they deny itsexistence. As empiricists, they increasinglyimport it from other fields. But when theyteach, address the public, or wonder what iswrong with the world, they dip into their own

“private stash.” On some level, economists notonly recognize that systematically biasedbeliefs exist. They think they have discoveredvirulent strains in their own backyard—sys-tematically biased beliefs about economics.

Anti-market bias, anti-foreign bias, make-work bias, and pessimistic bias are the mostprominent specimens. Indeed, they are soprominent that one can hardly teach econom-ics without bumping into them. Students ofeconomics are not a blank slate for their teach-ers to write on. They arrive with strong preju-dices. They underestimate the benefits of mar-kets. They underestimate the benefits of dealingwith foreigners. They underestimate the bene-fits of conserving labor. They underestimatethe performance of the economy and overesti-mate its problems.

The SAEE is hardly the only empirical evi-dence for these propositions. There arenumerous studies of economic beliefs.65 Theadvantage of the SAEE is its craftsmanship. Ithas been constructed to deflect the mainobjections that skeptics could levy against ear-lier empirics. Now that the SAEE has clearedthese hurdles, it is fair to look back and recog-nize that the earlier literature—including bothstatistical work and economists’ centuries ofobservation and reflection—is basically sound.

The upshot is that economists’ reliance on

18

Economists havea love-hate

relationship with systematic bias.

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Enlightened Public

Economists

Public

Figure 10

“Do you think most of the new jobs being created in the country today pay well, or are

they mostly low-paying jobs?”

0=“low-paying jobs” 1=“neither” 2=“pay well”

the miracle of aggregation is deeply misguid-ed. Indeed, this blind spot is particularly hardto excuse because they stand at the end of along tradition with a lot to say about bias.Many of the most famous economists of thepast, like Adam Smith and Frédéric Bastiat,obsessed over the public’s wrong-headedbeliefs about economics, its stubborn resis-tance to basic principles like opportunity costand comparative advantage. Today’s econo-mists have not merely failed to follow relevantempirical work in a related discipline. Theyhave also turned their backs on what econo-mists used to know.

At least this is what economists have doneas researchers. As teachers, curiously, mosteconomists honor the wisdom of their fore-bears. Paul Samuelson famously remarked, “Idon’t care who writes a nation’s laws—orcrafts its advanced treaties—if I can write itseconomics textbooks.”66 This assumes, asteachers of economics usually do, that stu-dents arrive with systematic errors.

This peculiar disconnect between researchand teaching has an important upside. Theproblem is not that economists have nothingto say about bias. On the contrary, the prob-lem is that economists have a lot to say butare reluctant to go public, to put their scien-tific credibility on the line. If this reluctancecould be overcome, however, the oral tradi-tion of the teachers of economics offers theresearchers of economics a rich mine of sci-entific hypotheses.

At the same time, however, the oral tradi-tion has been subject to so little analyticalscrutiny that it is not hard to refine.Samuelson’s is a story of hope; we can sleepsoundly as long as he keeps writing textbooks.But pondering two more facts might keep uslying awake at night. Fact one: The economicsthe average introductory student absorbs isdisappointingly small. If students had severebiases at the beginning, most still have largebiases at the end. Fact two: below-average stu-dents are above-average citizens. Most voters nevertake a single course in economics. If it is dis-turbing to imagine the bottom half of theclass voting on economic policy, it is frighten-

ing to realize that the general populationalready does. The typical voter, to whose opin-ions politicians cater, is probably unable toearn a passing grade in basic economics. Nowonder protectionism, price controls, andother foolish policies so often prevail.

“Market Fundamentalism”versus the Religion of

DemocracyEconomists perennially debate each other

about how well the free market works. Theyhave to step outside their profession toremember how much—underneath it all—theyagree. For economists, greedy intentionsestablish no presumption of social harm.Indeed, their rule of thumb is to figure outwho could get rich by solving a problem—andstart worrying if no one comes to mind. Mostnoneconomists find this whole approach dis-tasteful, even offensive. Disputes betweeneconomists are quibbles by comparison.

Out of all of their contrarian views, noth-ing about economists aggravates other intel-lectuals more than their sympathy for mar-kets. As Melvin Reder aptly states, compre-hension of mainstream economics “tends togenerate appreciation of the merits of laissez-faire even when that appreciation does notextend to acceptance.”67 Left to their owndevices, “normal” intellectuals could spendtheir careers cataloging human greed and theevils that flow from it. But economists standin their midst, a fifth column, using theirmental gifts to defend the enemy.

“Market fundamentalism” is probably themost popular insult against economics thesedays. The world listened when billionaireGeorge Soros declared that “market funda-mentalism . . . has rendered the global capital-ist system unsound and unsustainable.”68

Robert Kuttner has a handy summary of whatmarket fundamentalism amounts to:

There is at the core of the celebrationof markets a relentless tautology. If webegin, by assumption, with the premise

19

Below-averagestudents areabove-average citizens.

that nearly everything can be under-stood as a market and that marketsoptimize outcomes, then everythingcomes back to the same conclusion—marketize! If, in the event, a particularmarket doesn’t optimize, there is onlyone possible inference: it must beinsufficiently marketlike.69

He insists, moreover, that this fault is notlimited to a right-wing fringe: “Today, theonly difference between the utopian versionand the mainstream version is degree.”70

Indeed, “as economics has become more fun-damentalist, the most extreme version of the mar-ket model has carried the greatest political, intellec-tual, and professional weight.”71 Even worse,economists’ fundamentalism overflows intothe policy arena:

American liberals and European socialdemocrats often seem unable to offermore than a milder version of the con-servative program—deregulation, pri-vatization, globalization, fiscal disci-pline, but at a less zealous extreme. Fewhave been willing to challenge the premisethat nearly everything should revert to amarket.72

Joseph Stiglitz joins the chorus againstmarket fundamentalism, happily discardingthe guarded professorial prose of his Nobelprize-winning research:

The discontent with globalization arisesnot just from economics seeming to bepushed over everything else, but becausea particular view of economics—marketfundamentalism—is pushed over allother views. Opposition to globalizationin many parts of the world is not to glob-alization per se . . . but to the particularset of doctrines, the WashingtonConsensus policies that the internation-al financial instituions have imposed.73

Market fundamentalism is a harsh accu-sation. Christian fundamentalists are notori-

ous for their strict Biblical literalism, theirunlimited willingness to ignore or twist thefacts of geology and biology to match theirprejudices. For the analogy to be apt, the typ-ical economist would have to believe in thesuperiority of markets virtually withoutexception, regardless of the evidence, and dis-senters would have to fear excommunication.

From this standpoint, the charge of “mar-ket fundamentalism” is silly, failing even as acaricature. If you ask the typical economist toname areas where markets work poorly, hegives you a list on the spot: Public goods, exter-nalities, monopoly, imperfect information,and so on. More importantly, almost every-thing on the list can be traced back to othereconomists. Market failure is not a conceptthat has been forced upon a reluctant eco-nomics profession from the outside. It is aninternal outgrowth of economists’ self-criti-cism. After stating that markets usually workwell, economists feel an urge to think upcounterexamples. Far from facing excommu-nication for sin against the sanctity of themarket, discoverers of novel market failuresreap professional rewards. Flip through theleading journals. A high fraction of their arti-cles present theoretical or empirical evidenceof market failure.

True market fundamentalists in the eco-nomics profession are few and far between.Not only are they absent from the center ofthe profession; they are rare at the “right-wing” extreme. Milton Friedman, a legendarylibertarian, made numerous exceptions, oneverything from money to welfare toantitrust:

Our principles offer no hard and fastline how far it is appropriate to use gov-ernment to accomplish jointly what isdifficult or impossible for us to accom-plish separately through strictly volun-tary exchange. In any particular case ofproposed intervention, we must makeup a balance sheet, listing separately theadvantages and disadvantages.74

When Friedman preferred laissez-faire, he

20

The charge of “market

fundamentalism”is silly, failing

even as a caricature.

often openly acknowledged its defects. He hadno quasi-religious need to defend the impec-cability of the free market. For example, hisdiscussion of natural monopoly stated:

There are only three alternatives thatseem available: private monopoly, pub-lic monopoly, or public regulation. Allthree are bad so we must chooseamong evils. . . . I reluctantly concludethat, if tolerable, private monopolymay be the least of the evils.75

Friedman was far more market-friendlythan the average economist. But a “marketfundamentalist”? Hardly. He recognizednumerous cases where market performanceis poor, and he did not excommunicate lesspro-market colleagues for heresy.

Popular accusations of market funda-mentalism are plain wrong. Yes, economiststhink that the market works better thanother people do. But they acknowledgeexceptions to the rule. The range of theseexceptions changes as new evidence comes in.And it is usually economists themselves whodiscover the exceptions in the first place.

DemocraticFundamentalism

The disparity between economists’ open-mindedness and the charge of market funda-mentalism is so vast that it is hard not tospeculate about the motives behind it. I sensea strong element of projection: accusing oth-ers of the cognitive misdeeds one commitsoneself. Take, for example, “creation scien-tists.” Faculty and researchers of the Institutefor Creation Research follow a party line:“The scriptures, both Old and NewTestaments, are inerrant in relation to anysubject with which they deal, and are to beaccepted in their normal and intendedsense.”76 You can hardly get less scientific. Yeta standard debating tactic of creation scien-tists is to insist that “evolutionary theory,along with its bedfellow, secular humanism,

is really a religion.”77 Creationists’ attacks onthe objectivity of mainstream evolutionistsseem to stem from their sense of scientificinferiority to their opponents.

Similarly, the most vocal opponents of“market fundamentalism” are themselvesoften believers in what can accurately becalled “democratic fundamentalism.” Itspurest expression is the cliche, attributed tofailed 1928 presidential candidate Al Smith,that “all the ills of democracy can be cured bymore democracy.”78 In other words, no matterwhat happens, the case for democracy remainsuntouched.

A person who said “All the ills of marketscan be cured by more markets” would be lam-pooned as the worst sort of market funda-mentalist. Why the double standard? Becauseunlike market fundamentalism, democraticfundamentalism is widespread. In polite com-pany, you can make fun of the worshippers ofZeus, but not Christians or Jews. Similarly, it issocially acceptable to make fun of market fun-damentalism, but not democratic fundamen-talism, because market fundamentalists arescarce, and democratic fundamentalists are allaround us.

In the end, apologists for democracy oftenfall back on Winston Churchill’s slogan that“democracy is the worst form of government,except all those other forms that have beentried from time to time.”79 On the surface,this sounds like mature realism, not democ-ratic fundamentalism. But Churchill’smaxim is an all-or-nothing rhetorical trick.Imagine if an economist dismissed com-plaints about the free market by snapping:“The free market is the worst form of eco-nomic organization, except all the others.”This is a fine objection to communism, butonly a market fundamentalist would buy itas an argument against moderate govern-ment intervention. Churchill’s slogan is everybit as weak. Just because dictatorship is dis-astrous, it hardly follows that democracymust have free rein. Like markets, democracycan be limited, regulated, or overruled.Contramajoritarian procedures like judicialreview can operate alongside democratic

21

The most vocalopponents of “market fundamentalism”are themselvesoften believers in what can accurately becalled “democraticfundamentalism.”

ones. Supermajority rules allow minorities tothwart the will of the majority. Twisting amarginal tradeoff into a binary choice is fun-damentalism trying to sound reasonable.

Private Choice as anAlternative to Democracy

and DictatorshipUndemocratic politics is not the only

alternative to democratic politics. Many areasof life stand outside the realm of politics, of“collective choice.” When the law is silent,decisions are “up to the individual” or “left tothe market.” If the term were not preempted,private choice could be called “the ThirdWay,” the alternative to both democracy anddictatorship.

For most of human history, religion was astate responsibility. The idea that govern-ment could have no established religion wasinconceivable. All that has changed; nowindividuals decide which religion, if any, topractice. Verbal gymnastics notwithstanding,this depoliticization is undemocratic. Themajority now has as little say about my reli-gion as it would under a dictatorship; in bothcases, the law ignores public opinion. Beforethe 1930s, similarly, many areas of U.S. eco-nomic life were undemocratically shieldedfrom federal and state regulation.80 The mar-ket periodically trumped democracy, oneverything from the minimum wage to theNational Recovery Administration. Andunless you are a democratic fundamentalist,you have to be open to the possibility thatthis was all for the good.

Fervent partisans of democracy oftengrant that democracy and the market aresubstitutes. As Kuttner puts it, “The democ-ratic state remains the prime counterweightto the market.”81 Their complaint is that thepublic has less and less say over its destinybecause corporations have more and moresay over theirs. To “save democracy,” the peo-ple must reassert its authority.

Fair enough. Though their opponentsgreatly overstate the extent of privatization

and deregulation, these policies take deci-sions out of the hands of majorities and intothe hands of business owners. But the criticsrarely wonder if this transfer might be desir-able. They treat less reliance on democracy asautomatically objectionable.

That is another symptom of democraticfundamentalism. If all that an economisthad to say against a government programwere, “That’s government intervention.Government is supplanting markets!” hewould be pigeonholed, then marginalized, asa market fundamentalist. But when an equal-ly simplistic cry goes up in the name ofdemocracy, there is a sympathetic audience.It is logically possible that clear-eyed businessgreed makes better decisions than confusedvoter altruism. Why not at least comparetheir performance, instead of prejudging?

The complaint that we are “losing democ-racy” is especially weak when we bear in mindthat this is not a binary choice betweenunlimited democracy and pure laissez-faire.Just because some democracy is beneficial ornecessary, it scarcely follows that we shouldnot have less. Consider deregulation of thetelevision and radio spectrum. Democraticfundamentalists find the idea offensivebecause it ends democratic oversight.82 But itis hard to see the value of democracy in theentertainment industry. Premium networkslike HBO demonstrate that the profitmotive, uninhibited by majority preferences,is a recipe for high-quality, creative program-ming. Democratic fundamentalism holdsback the rest of the industry.

While my analysis here has debunked themain efforts to undermine the objectivity ofthe economics profession, it adds little to thedebate on the virtues of markets. Rather, Ihave tried to put weight on the other side ofthe scale. The optimal mix between marketsand government depends not on theabsolute virtues of markets, but on theirvirtues compared to those of government. Nomatter how well you think markets work, itmakes sense to rely on markets more whenyou grow more pessimistic about democracy.If you use two car mechanics and discover

22

The complaintthat we

are “losing democracy” is

especially weakwhen we bear in mind that

this is not a choice between

unlimited democracy and

pure laissez-faire.

that mechanic A drinks on the job, the nat-ural response is to shift some of your busi-ness over to mechanic B, whatever your pre-existing complaints about B.

The striking implication is that even econ-omists, widely charged with market funda-mentalism, should be more pro-market thanthey already are. What economists currentlysee as the optimal balance between marketsand government rests upon an overestimate ofthe virtues of democracy. In many cases, econo-mists should embrace the free market in spiteof its defects, because it still outshines thedemocratic alternative.

Even among economists, market-orientedpolicy prescriptions are often seen as too dog-matic, too unwilling to take the flaws of thefree market into account. Many prefer a more“sophisticated” position: Since we havealready belabored the advantages of markets,let us not forget to emphasize the benefits ofgovernment intervention. I claim that thequalification needs qualification: Before weemphasize the benefits of government inter-vention, let us distinguish interventiondesigned by a well-intentioned economistfrom intervention that appeals to nonecono-mists, and reflect that the latter predominate.You do not have to be dogmatic to take astaunchly pro-market position. You just haveto notice that the “sophisticated” emphasison the benefits of intervention mistakes theo-retical possibility for empirical likelihood.

Notes1. See, for example, Milton Friedman, Capitalism andFreedom (Chicago: University of Chicago Press,2002); Paul Krugman, The Accidental Theorist andOther Dispatches from the Dismal Science (New York:Norton, 1998); Mancur Olson Jr., “Big Bills Left onthe Sidewalk: Why Some Nations Are Rich andOthers Are Poor,” Journal of Economic Perspectives 10,no. 2 (1996): 3–24; and Alan S. Blinder, Hard Heads,Soft Hearts: Tough-Minded Economics for a Just Society(Reading, MA: Addison-Wesley, 1996).

2. See, e.g., Gene M. Grossman and Elhanan Help-man, Special Interest Politics (Cambridge: MIT Press,2001); Charles K. Rowley, Robert D. Tollison, andGordon Tullock, eds., The Political Economy of Rent-Seeking (Boston: Kluwer Academic Publishers,

1988); Gary S. Becker, “A Theory of Competitionamong Pressure Groups for Political Influence,”Quarterly Journal of Economics 98, no. 3 (1983):371–400; and Geoffrey Brennan and James M.Buchanan, The Power to Tax: Analytical Foundationsof a Fiscal Constitution (Cambridge, MA: CambridgeUniversity Press, 1980).

3. See, e.g., Ilya Somin, “Voter Ignorance and theDemocratic Ideal,” Critical Review 12, no. 4 (1998):99–111; Stephen P. Magee, William A. Brock, andLeslie Young, Black Hole Tariffs and EndogenousPolicy Theory: Political Economy in GeneralEquilibrium (Cambridge, MA: Cambridge Univer-sity Press, 1989); Barry R. Weingast, Kenneth A.Shepsle, and Christopher Johnsen, “The PoliticalEconomy of Benefits and Costs: A NeoclassicalApproach to Distributive Politics,” Journal ofPolitical Economy 89, no. 4 (1981): 642–64; andAnthony Downs, An Economic Theory of Democracy(NY: Harper and Row, 1957).

4. Quoted in Lewis D. Eigen and Jonathan P.Siegel, eds., The Macmillan Dictionary of PoliticalQuotations (New York: Macmillan, 1993), p. 109.

5. For an excellent survey, see Michael X. DelliCarpini and Scott Keeter, What Americans Knowabout Politics and Why It Matters (New Haven, CT:Yale University Press, 1996).

6. See, e.g., Donald Wittman, The Myth of Demo-cratic Failure: Why Political Institutions Are Efficient(Chicago: University of Chicago Press, 1995); andBenjamin I. Page and Robert Y. Shapiro, TheRational Public: Fifty Years of Trends in Americans’Policy Preferences (Chicago: University of ChicagoPress, 1992).

7. See, e.g., James Surowiecki, The Wisdom of Crowds:Why the Many Are Smarter Than the Few and HowCollective Wisdom Shapes Business, Economies, Societiesand Nations (New York: Doubleday, 2004); DavidAusten-Smith and Jeffrey S. Banks, “InformationAggregation, Rationality, and the Condorcet JuryTheorem,” American Political Science Review 90, no.1 (1996): 34–45; and Benjamin I. Page and RobertY. Shapiro, The Rational Public: Fifty Years of Trendsin Americans’ Policy Preferences (Chicago: Universityof Chicago Press, 1992).

8. Philip Converse, “Popular Representation andthe Distribution of Information,” in Informationand Democratic Processes, ed. John Ferejohn andJames H. Kuklinski (Champaign, IL: University ofIllinois Press, 1990), p. 383.

9. Surowiecki.

10. Page and Shapiro, p. 41.

23

11. See, e.g., Allan Drazen, Political Economy inMacroeconomics (Princeton, NJ: Princeton Univer-sity Press, 2000); and Torsten Persson and GuidoTabellini, Political Economics: Explaining EconomicPolicy (Cambridge, MA: MIT Press, 2000).

12. George J. Stigler, “Economics or Ethics?” inThe Essence of Stigler, ed. Kurt R. Leube andThomas Gale Moore (Stanford, CA: HooverInstitution Press, 1986), p. 309.

13. For important exceptions, see Scott L. Althaus,Collective Preferences in Democratic Politics: OpinionSurveys and the Will of the People (New York:Cambridge University Press, 2003); Larry M.Bartels, “Uninformed Votes: Information Effects inPresidential Elections,” American Journal of PoliticalScience 40, no. 1 (1996): 194–230; Justin Wolfers,“Are Voters Rational? Evidence from Gubernator-ial Elections,” Stanford University GraduateSchool of Business Working Paper no. 1730 (2002);and Carpini and Keeter.

14. Matthew Rabin, “Psychology and Econom-ics,” Journal of Economic Literature 36, no. 1(1998):11–46; Richard M. Thaler, The Winner’s Curse:Paradoxes and Anomalies of Economic Life (Princeton,NJ: Princeton University Press, 1992); DanielKahneman, Paul Slovic, and Amos Tversky, eds.,Judgment Under Uncertainty: Heuristics and Biases(Cambridge: Cambridge University Press, 1982);and Richard Nisbett and Lee Ross, HumanInference: Strategies and Shortcomings of Social Judgment(Englewood Cliffs, NJ: Prentice-Hall, 1980).

15. This does not imply that their beliefs aboutother topics are any sounder. In fact, I hope thatexperts in other fields will use my framework toexplain how biased beliefs about their area of spe-cialty distort policy.

16. For simplicity, assume symmetric voter prefer-ences so that the median preference is also themost efficient outcome. Robert D. Cooter, TheStrategic Constitution (Princeton, NJ: PrincetonUniversity Press, 2000), pp. 32–35.

17. See, e.g., Olaf Gersemann, Cowboy Capitalism:European Myths, American Reality (Washington:Cato Institute, 2004).

18. Quoted in Robert Andrews, ed., The ColumbiaDictionary of Quotations (New York: ColumbiaUniversity Press, 1993), p. 262.

19. Steven Kelman, What Price Incentives? Econom-ists and the Environment (Boston: Auburn House,1981), p. 7.

20. Ibid.

21. See Robert J. Blendon et al., “Bridging the Gapbetween the Public’s and Economists’ Views ofthe Economy,” Journal of Economic Perspectives 11,no. 3 (1997): 105–18; and Washington Post/ KaiserFamily Foundation/Harvard University, “Surveyof Americans and Economists on the Economy#1199,” October 16, 1996, http://www2. kff.org/content/archive/1199/econgen.html.

22. To estimate the beliefs of the enlightened public,I first regressed economic beliefs on respondents’characteristics, including income, job security,income growth, sex, race, party identification, ideolo-gy, education, and “econ” (a dummy variable equal to1 if the respondent is an economist, and 0 otherwise).Then, for each equation, I calculated the predictedbelief assuming a respondent had the general pub-lic’s average income, job security, income growth, sex,race, party identification, and ideology, combinedwith a PhD in economics. For more details, see BryanCaplan, The Myth of the Rational Voter: Why DemocraciesChoose Bad Policies (Princeton, NJ: PrincetonUniversity Press, 2007), pp. 84–93.

23. Bryan Caplan, “Systematically Biased Beliefsabout Economics: Robust Evidence of JudgmentalAnomalies from the Survey of Americans andEconomists on the Economy,” Economic Journal 112,no. 479 (2002): 433–58.

24. Bryan Caplan, “What Makes People ThinkLike Economists? Evidence on Economic Cogni-tion from the Survey of Americans and Econom-ists on the Economy,” Journal of Law and Economics44, no. 2 (2001): 417.

25. See Delli Carpini and Keeter.

26. Nancy Kraus, Torbjörn Malmfors, and PaulSlovic, “Intuitive Toxicology: Expert and LayJudgments of Chemical Risks,” Risk Analysis 12,no. 2 (1992): 215–32.

27. See, e.g., Thomas Sowell, Applied Economics:Thinking Beyond Stage One (New York: Basic Books,2004); John Mueller, Capitalism, Democracy, andRalph’s Pretty Good Grocery (Princeton, NJ: PrincetonUniversity Press, 1999); Daniel Klein, ed., What DoEconomists Contribute? (New York: NYU Press, 1999);Andrei Shleifer, “State versus Private Ownership,”Journal of Economic Perspectives 12, no. 4 (1998):133–50; Ludwig von Mises, Interventionism: AnEconomic Analysis (Irvington-on-Hudson, NY:Foundation for Economic Education, 1998); JeffreyD. Sachs and Andrew Warner, “Economic Reformand the Process of Global Integration,” BrookingsPapers on Economic Activity 1995, no. 1 (1995): 1–118;Blinder; Steven Rhoads, The Economist’s View of theWorld: Government, Markets, and Public Policy(Cambridge, MA: Cambridge University Press,1985); and Charles Schultze, The Public Use of Private

24

Interest (Washington: Brookings Institution, 1977).

28. Joseph A. Schumpeter, Capitalism, Socialism,and Democracy (New York: Harper and BrothersPublishers, 1950), p. 144.

29. Joseph A. Schumpeter, History of EconomicAnalysis (New York: Oxford University Press,1954), p. 234.

30 Schultze, p. 18.

31. Ibid., p. 47.

32. Adam Smith, An Inquiry into the Nature andCauses of the Wealth of Nations (Indianapolis:LibertyClassics, 1981), p. 454.

33. Ibid., p. 456.

34. Washington Post/Kaiser Family Foundation/Har-vard Univerity, p. 4; and William B. Walstad and MaxLarsen, A National Survey of American Economic Literacy(Lincoln, NE: The Gallup Organization, 1992), p. 48.

35. Mueller, p. 5.

36. See, e.g., William Poole, “Free Trade: Why AreEconomists and Noneconomists So Far Apart?”Federal Reserve Bank of St. Louis Review 6, no. 5(2004): 1–6; Jagdish Bhagwati, Free Trade Today(Princeton, NJ: Princeton University Press, 2002);Paul Krugman, Pop Internationalism (Cambridge,MA: MIT Press, 1996); and Douglas A. Irwin,Against the Tide: An Intellectual History of Free Trade(Princeton, NJ: Princeton University Press, 1996).

37. Simon Newcomb, “The Problem of EconomicEducation,” Quarterly Journal of Economics 7, no. 4(1893): 379.

38. Blinder, p. 111.

39. Steven F. Landsburg, The Armchair Economist:Economics and Everyday Life (New York: Free Press,1993), p. 197.

40. See Bhagwati; and Irwin.

41. Smith, p. 429.

42. William J. Clinton Foundation, “Facts Sheeton NAFTA Notes,” October 12, 1993, http://www.clintonfoundation.org/legacy/101293-fact-sheet-on-nafta-notes.htm.

43. Krugman, Pop Internationalism, p. 84.

44. See, e.g., W. Michael Cox and Richard Alm,Myths of Rich and Poor: Why We’re Better Off Than WeThink (New York: Basic Books, 1999); PaulKrugman, The Accidental Theorist; Steven Davis, John

C. Haltiwanger, and Scott Schuh, Job Creation andDestruction (Cambridge: MIT Press, 1996); DavidHenderson, Innocence and Design: The Influence ofEconomic Ideas on Policy (NY: Basil Blackwell Inc.,1986); Frédéric Bastiat, Economic Sophisms(Irvington-on-Hudson, NY: Foundation forEconomic Education, 1964); and Frédéric Bastiat,Selected Essays on Political Economy (Irvington-on-Hudson, NY: Foundation for Economic Education,1964).

45. Blinder, p. 17.

46. Bastiat, Economic Sophisms, p. 20.

47. Ibid.

48. Cox and Alm, p. 116.

49. Ibid., p. 128.

50. Ibid., p. 133.

51. See, e.g., Gregg Easterbrook, The ProgressParadox: How Life Gets Better While People FeelWorse (NY: Random House, 2003); Bjørn Lomborg,The Skeptical Environmentalist: Measuring the Real Stateof the World (Cambridge, MA: Cambridge UniversityPress, 2003); Cox and Alm; Mueller; DavidWhitman, The Optimism Gap: The I’m OK—They’re NotSyndrome and the Myth of the American Decline (NewYork: Walker and Company, 1998); and Julian L.Simon, The Ultimate Resource 2 (Princeton, NJ:Princeton University Press, 1996).

52. See, e.g., D. Gale Johnson, “Population, Food,and Knowledge,” American Economic Review 90, no. 2(2000): 1–14; Robert W. Fogel, “Catching Up withthe Economy,” American Economic Review 89, no. 1(1999): 1–21; and Robert E. Lucas Jr., “Making aMiracle,” Econometrica 61, no. 2 (1993): 251–72.

53. John Rae, Life of Adam Smith (New York:Augustus M. Kelley, 1965), p. 343.

54. Arthur Herman, The Idea of Decline in WesternHistory (New York: Free Press, 1997), p. 13.

55. Smith, p. 343; emphasis added.

56. Ibid., pp. 343–44; emphasis added.

57. David Hume, Essays: Moral, Political and Literary(Indianapolis: Liberty Fund, 1987), p. 464.

58. Cox and Alm, p. 200.

59. Ibid., p. 44.

60. Ibid., p. 197.

61. Pew Research Center, “The Optimism Gap

25

Grows,” January 17, 1997, http://people-press.org/reports/display.php3?ReportID=115.

62. See e.g., Cox and Alm, pp. 139–56.

63. Krugman, Pop Internationalism, p. 48.

64. Ibid., p. 214.

65. Leading empirical studies of the economicbeliefs of economics and the general public includeAlan S. Blinder and Alan B. Krueger, “What Does thePublic Know about Economic Policy, and How DoesIt Know It?” Brookings Papers on Economic Activity 1(2004): 327–87; The Chicago Council on ForeignRelations, “Global Views 2004,” September, 2004,http://thechicagocouncil.org/UserFiles/File/Global_Views_2004_ US. pdf; Dan Fuller and Doris Geide-Stevenson, “Consensus among Economists:Revisited,” Journal of Economic Education 34, no. 4(2003): 369–87; William B. Walstad and Ken Rebeck,“Assessing the Economic Knowledge and Eco-nomic Opinions of Adults,” Quarterly Review ofEconomics and Finance 42, no. 5 (2002): 921–34;Kenneth F. Scheve and Matthew J. Slaughter,Globalization and the Perceptions of American Workers(Washington: Institute for International Eco-nomics, 2001); Victor F. Fuchs, Alan Krueger, andJames Poterba, “Economists’ Views about Para-meters, Values, and Policies: Survey Results in Laborand Public Economics,” Journal of Economic Literature36, no. 3 (1998): 1387–425; Walstad and Larsen;Richard M. Alston, J. R. Kearl, and Michael B.Vaughan, “Is There a Consensus among Economistsin the 1990’s?” American Economic Review 82, no. 2(1992): 203–209; Herbert McClosky and John Zaller,The American Ethos: Public Attitudes Towards Capitalismand Democracy (Cambridge, MA: Harvard UniversityPress, 1984); and J. R. Kearl et al., “A Confusion ofEconomists?” American Economic Review 69, no. 2(1979): 28–37.

66. Quoted in Mark Skousen, “The Perseveranceof Paul Samuelson’s Economics,” Journal ofEconomic Perspectives 11, no. 2 (1997): 150.

67. Melvin W. Reder, Economics: The Culture of aControversial Science (Chicago: University ofChicago Press, 199), p. 236.

68. George Soros, The Crisis of Global Capitalism:Open Society Endangered (New York: Public Affairs,1998), p. 20.

69. Robert Kuttner, Everything for Sale: The Virtuesand Limits of Markets (New York: Alfred A. Knopf,1997), p. 6.

70. Ibid., p.6.

71. Ibid., p. 9; emphasis added.

72. Ibid., p. 7; emphasis added.

73. Joseph E. Stiglitz, Globalization and Its Discon-tents (New York: Norton, 2002), p. 221.

74. Friedman, p. 32.

75. Ibid., p. 26.

76. Michael Shermer, Why People Believe WeirdThings: Pseudoscience, Superstition, and Other Con-fusions of Our Time (New York: Holt, 2002), p. 142.

77. Ibid., p. 143.

78. Eigen and Siegel, p. 115.

79. Ibid., p. 109.

80. Howard Gillman, The Constitution Besieged: TheRise and Demise of Lochner Era Police PowersJurisprudence (Durham, NC: Duke UniversityPress, 1993).

81. Kuttner, p. 7.

82. Robert W. McChesney, Rich Media, PoorDemocracy: Communication Politics in Dubious Times(Urbana, IL: University of Illinois Press, 1999).

26

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