Sunday, May 13, 2007

Special Interest Groups and Democracy: A lack of knowledge

The key question at hand: So many people think special interest groups have a strangle-hold on us, yet, in many, many cases, people support their economically ridiculous claims, such as support for tariffs or subsidies for farmers. Why in the world do they do that?

The important thing to realize from the comments in the above blogs is that the people aren't being irrational per se. Rather, they're simply ignorant. Most people really don't understand that by allowing comparative advantage to work we are really increasing our living standards. Most people do not understand that a trade deficit with China and India is not inherently bad. Most people do not understand that regulations and unions carry hefty drawbacks with them.

The reasons are for this are numerous, but I believe most of it comes from a basic misunderstanding of macroeconomics. Once upon a time, Y=C+I+G+NX was revolutionary. For many people, the idea would still be revolutionary. Hell, I never even heard of "IS-LM" until 6 months ago, and I'm a second year college student.
Most people do not have more than a vague understanding of how the economy actually operates. As such, it's not surprising when people come to erroneous conclusions.

What TYPE of erroneous conclusions do they arrive at that, though? Well, generally, people will fall back on credible social institutions to guide them, in the same way I fall back on my econ textbook. Social institutions about political issues (like the economy is treated, as opposed to a matter of science), rely, of course, on political history and the basic cultural values of the American people. This includes freedom but also , since the advent of Big Government, a respect for government can accomoplish and an expectation that government get something done. The institutions are often just as confused about economics as the people (how many Fox News anchors actually understand economics?), but, since they are in positions of respect, people do listen. And their models tend to rely on government intervention in some way or another.

Another factor to consider is "idea mutation." A social institution may give the idea, but people naturally process that idea into context, and then form policy propositions. The context part is important; I know a LOT of economics, but I can't relay the ideas to people, because they do NOT understand economics, and do not have the will to learn it. It's tough; my ideas may be better than General Motors, but General Motors has a better marketing campaign because it can easily be processed.
The processing part is important as well, especially for school-children. What happens in our history classes, when children are given only a brief paragraph about the Bay of Pigs, when scholars have written entire BOOKS about it? Children get insufficient details and make wild generalizations from them. Naturally, poor policy decisions are the result.

The context vs. processing distinction is fine that even I don't understand it. As a working definition at the moment, I'll define the context part as the ability to understand the argument in relation to what you already know. Processing involves the strategy people use to integrate the new knowledge into their knowledge-pool.

I think processing should be our primary target. Context doesn't matter so much; even if economists "dumb themselves down" so ordinary people understand them, it won't change the fact that people have incomplete understanding. We still treat people as intellectually inferior, we just have the more effective marketing strategy and happen to produce good results.
Instead, we should be given people MORE knowledge, particularly THEORY. People are not stupid; they have vague notions of how supply and demand operate. What they need are models that integrate knowledge, which will them to integrate past information and new information MUCH more easily. And they need empirical examples to back up said theory.

In essence, what we need is better basic education that serves as a foundation for people, instead of giving people more knowledge and allowing them to build on an already incorrect foundation.

No comments: