Why we vote the way we vote

In my last post I tried to understand why people vote, suggesting that even if a sense of civic duty or a desire to express oneself can explain why we turn out to vote, these can’t really tell us much about why we vote the way we vote. In this post I'll try to explain why I'm convinced that, for voters, ideas matter. There are two basic views among political scientists about this: people vote to maximise their own wellbeing (“pocketbook” voters) or people vote to maximise the wellbeing of their society (“sociotropic” voters). The literature here is enormous so this post will try to sketch out the argument broadly – it is not intended to be anywhere near comprehensive.

There is a clear correlation between declines in GDP per capita and declines in support for the political party in power ('economic voting'). But this could be because people who are worse off are changing their votes to improve their own welfare, or because people in general are trying to improve their society in general.

In ‘Sociotropic voting: The American case’, Donald Kinder and D. Roderick Kiewiet look at how voters behave when their personal circumstances differ from those of society in general – if you are unemployed, but total unemployment is low, are you more likely to want a change of government?

Looking at Congressional elections during the 1970s, they find strong evidence that people are more concerned with society and the economy as a whole than for their own circumstances.

‘A person’s private economic experience had very little impact on his choice of candidate in the congressional elections whereas his sociotropic judgements were of the utmost importance … American voters resemble the sociotropic ideal, responding to changes in general economic conditions.’

Kiewiet’s conclusion in a later book is that people blame factors other than the government for their own circumstances, but blame the government for the overall state of the economy. Is this a uniquely American phenomenon, though?

Leif Lewin’s review of the evidence in his excellent Self-interest and public interest in Western politics suggests that it is not – Western European voters, including British voters, also seem to be much more inclined to vote sociotropically than with regard to their own circumstances.

We know that voters are mostly very ignorant of the facts of politics, which may make it very hard for them to form accurate judgements about the best policies to achieve the end-goals they have in mind. But it also means that the media that they do pay attention to has an enormous influence over their perceptions, and that people’s political awareness may affect how ‘benevolent’ they really are.

In light of this, Gomez and Wilson (2001) adapt the pocketbook thesis to argue that more sophisticated, politically aware voters are more likely to be affected by pocketbook factors than others.

They are the ones who can think in terms of specific policies, make connections between particular policies and their own incomes, and do not blame incumbents for everything that goes wrong with the economy.

Other, less sophisticated voters simply assume that the President is responsible for what goes wrong with the economy. That might explain why electoral ‘giveaways’ (pensioner bonds, opposition to new home builds) seem to be concentrated on quite small groups of well-heeled voters – nobody else would notice.

The last word on voter behaviour must go to Philip Converse, whose 1956 survey data showed that most voters make their decisions based on extremely broad judgements of the ‘sign of the times’ (22%), or based on which group – posh people? workers? – a party or politician seems to speak for (45%), or even evaluations that had no shred of policy significance whatever, like which candidate was the funniest (17.5%).

Only around 15% of voters used ideology or ideology-like rules-of-thumb to decide who to vote for, and those were the most rigid in their decisions about how to vote.

To sum up, people seem to mostly vote for the candidates that they think will be best for society as a whole, though they may make very poorly considered judgements of that. If there is a ‘pocketbook’ effect, it is probably limited to the most well-informed voters.

All this suggests that the public choice view of democracy as just a way to divide the spoils of government between interest groups may well be wrong. Yes, voters are amazingly ignorant of basic facts, let alone economic theory, but we do have a chance of persuading them and changing the world for the better. To those of us who would like to believe in the power of ideas, that’s something to celebrate.

The perils of fake Fairtrade products

It's just so difficult to be a properly concerned middle class social justice warrior these days, isn't it?

Well-meaning shoppers may be wasting money on groceries bearing fake Fairtrade or organic logos, after police in Europe identified counterfeit food labels as one of the fastest growing frauds.

Fairtrade or organic bananas, vegetables, tea and other items are bought by millions of people concerned about the provenance of the food on their plates.

But the certification logos on packaging can be “easily replicated and affixed” by experienced counterfeiters, the Europol law enforcement agency said.

Its experts warn that organised crime groups have “joined forces” to run counterfeiting operations inside the EU.

They are forging quality labels on “everyday products” that can then be sold at a premium, as opposed to the traditional fake handbags and medicines.

As it happens we don't think this is a particular problem. Fairtrade makes virtually no difference at all to those poor, third world, producers. It has a marginal value as a form of indoor relief for the dimmer scions of the upper middle class. But the real value gained from it is the near holy righteousness that a certain type of shopper feels as they proudly display their status by showing off the correct, socially approved, labels of "organic", "Fairtrade" and so on. Given that this, the main effect of the system, still applies to fake labels it seems to be a most efficient way of achieving that main effect.

Greenpeace should be allowed to say it even if they're wrong

We find ourselves a little bit conflicted here. That Greenpeace has been spouting lies making incorrect statements does not surprise. But we are rather absolutist on this free speech thing. Absent incitement to violence and libel we're pretty sure that anyone should be allowed to say whatever they wish. And we're most certainly not happy with some organ of the State deciding what it is that people may or may not say. Thus the conflict:

A Greenpeace advert opposing fracking has been banned for claiming experts agreed that the process would not cut energy bills.

The national press ad said: "Fracking threatens our climate, our countryside and our water. Yet experts agree - it won't cut our energy bills."

The Labour peer Lord Lipsey, who said he understood there was a range of views on the subject, complained that the ad was misleading for claiming experts were in agreement.

Greenpeace said the claim was made in the context of a public debate on Government policy, and cited quotes from David Cameron, who has repeatedly backed fracking and claimed that it could bring down energy bills.

The organisation provided quotes from 22 people, groups or organisations supporting the view that fracking would not reduce energy prices.

That Greenpeace are wrong is something we've proven here and elsewhere before. However, there is that free speech issue. And as we say, we don't think that such speech should be banned.

Quite apart from anything else if people are banned from spouting obvious lies then how can we spot them when they're being a bit more disingenuous and spouting non-obvious lies?

Whoda thunk it? A free market in banking means more competition!

Some economists, especially economic historians, have really consistently interesting CVs. You'll look at their publication list because you're interested in their work on the US experience of free banking, and you'll end up finding interesting papers on genetic and cultural diversity on economic growth. Prof. Philipp Ager at the University of Southern Denmark turns out to be one of these types. I came across Prof. Ager November 2013 working paper with Fabrizio Spargoli: "Bank Deregulation, Competition and Economic Growth: The US Free Banking Experience" (pdf) which has a very interesting finding that although US free banking led to more bank failures it also led to more competition and probably higher growth.

We exploit the introduction of free banking laws in US states during the 1837-1863 period to examine the impact of removing barriers to bank entry on bank competition and economic growth. As governments were not concerned about systemic stability in this period, we are able to isolate the effects of bank competition from those of state implicit guarantees.

We find that the introduction of free banking laws stimulated the creation of new banks and led to more bank failures. Our empirical evidence indicates that states adopting free banking laws experienced an increase in output per capita compared to the states that retained state bank chartering policies.

We argue that the fiercer bank competition following the introduction of free banking laws might have spurred economic growth by (1) increasing the money stock and the availability of credit; (2) leading to efficiency gains in the banking market. Our findings suggest that the more frequent bank failures occurring in a competitive banking market do not harm long-run economic growth in a system without public safety nets.

This is particularly interesting, because it suggests that even in a free banking system with fairly important regulations, free banking may outperform the alternative.

As Larry White details on the new blog alt-m most histories of US free banking miss out that many of the major distortions and problems in the US experience stemmed from regulatory interventions—especially restrictions on what kinds of collateral banks could accept and tight restrictions on branching, making banks much more vulnerable to idiosyncratic local risks.

My real issue here is not deciding what side is correct. Basically all of the thoughtful work concludes that free banking is better than the tightly restricted banking we have had outside of a few historical experiences. The 'evidence' I see against consists of stuff like this Philly Fed paper, i.e. nonsense.

My real issue is why this evidence isn't breaking through? Why are so many smart, knowledgeable people opposed to free banking? Why is the ruling tendency now towards practically outlawing bank/debt finance altogether in favour of steps toward equity financing everything? I don't have a good answer.

What just about everyone is getting wrong about climate change

The Telegraph has an interesting report today on the costs of decarbonising Britain's electricity generation system over the next 15 years. It's vast and it's not a sensible thing to do. But in their discussion there's this, which shows just how badly everyone is approaching this question:

All political parties (apart from Ukip) support the 2008 Climate Change Act which commits Britain to reduce emissions by at least 80pc from 1990 levels by 2050. Analysis by the Department of Energy and Climate Change has shown that, to hit those targets, there must be significant decarbonisation of the power sector by 2030. The Committee on Climate Change has set a target of reducing carbon intensity from 450g of carbon dioxide per kilowatt hour to 50g by 2030.

This is entirely the wrong way around.

Let's not get into the science of this, that's always a boring and unproductive shouting match. Instead, let's just say the IPCC is correct and then look at the economics of it. And there we find that this approach is *still* wrong. Because it is not correct to announce a target for emissions: it is correct to announce a cost that we're willing to pay to reduce them.

This is the Stern Review argument. There's some future damage to come from emissions. How much should we be willing to spend now to reduce such damages? We reach our answer (which translates into that $80 per tonne carbon tax) and that's it. We should not spend more than that to reduce emissions. We should not have a target for emissions: we should be targeting only those emissions that we can reduce below that cost.

And yet every political party except Ukip is targeting the emissions number. This is simply wrong, it's an entire misreading of what the settled science on this issue is. The settled economic science as laid out in that Stern Review and backed up by every other economist who looks at it (Nordhaus, Tol and so on). We set the price of the actions we're prepared to undertake and go and do those things that cost less than that to do.

The reason for this is that the actual logic that says we should be doing anything rests upon that estimation of the cost of future damages. Spending more than that cost makes the future poorer than it could or should be. It is quite literally impoverishing our grandchildren.

It's not the first time this has happened of course. When the political classes have entirely misunderstood the entirely reasonable (please note, economists might differ on what the price of emissions should be but not on the logical approach itself) result of economic research and so garbled the implementation as to end up doing the opposite of what they should be doing. But it's impressive to see them doing so all the same.

Charter schools and the aspiring classes

There is significant research concluding that the ever-spreading charter schools in the U.S. are markedly improving pupils’ performance. Charter schools are free to attend, open to all children and publicly funded but independently run – the most similar comparison close to home being the Free Schools Programme in England. Since the first charter school law passed in Minnesota in 1991, almost seven thousand have opened with two and a half million children now being educated in a charter school. Previous studies have looked at lottery estimates. These compare how charter applicants perform when admitted to a charter school with how they would have performed had they attended a state school as the randomness ensures there are no systematic differences between those selected and not selected. But these studies do not account for pupils who never applied to a charter school and ended up attending one. Or for pupils attending charter schools for which demand is weak.

A new discussion paper (pdf) by Atila Abdulkadiroglu, Joshua D. Angrist, Peter D. Hull, and Parag A. Pathak does just this by testing the treatment effects of charter school attendance on middle-schoolers that are part of the new takeovers in New Orleans and Boston.

Takeovers see traditional state schools closed and then re-opened as charter schools. Students enrolled in schools designated for closure are eligible to be ‘grandfathered’ into the newly-opened charter schools. This means that they are guaranteed a place.

What this new paper finds is that highly disadvantaged students have experienced substantial gains in their achievement after enrolling in takeovers passively. It was previously believed that urban charter lottery applicants enjoy an unrepresentatively large benefit from charter attendance because they are either highly motivated or uniquely primed to benefit from the education these schools offer. Now we have both estimates from grandfathering and lottery-based research that weigh against this view.

These successes have also prompted similar approaches to be explored in Michigan, Pennsylvania, and Tennessee despite the controversy caused by the proliferation of charter takeovers in New Orleans, Boston and elsewhere.

Charters Without Lotteries: Testing Takeovers in New Orleans and Boston is one report of what is becoming a substantial compilation of literature on why charter schools are working. They are some of the top-performing schools in the country with a higher percentage of charter school students accepted into a college or university. They are raising the bar of what is possible and should be expected in public education.

Teachers in charter schools are given the freedom to innovate and have more powers to explore the best practices. The schools can adopt themes and focus on specific fields like STEM subjects, performing arts or meeting the special needs, for example, of autistic children.

How charter schools are quickly extending choice to the poorest is exciting. And crucial. It is not widely recognised that choice already exists – but for the wealthiest. The most privileged can not only afford private schools but through the state school catchment system the housing market is the market for schools. An accepted way of boosting real estate is by improving schools as families want to buy houses in areas with good schools. School choice gives the poor a way to access the already existing market.

The disadvantaged are on the rise and benefiting more than ever from state education as a result of what is the best prominent educational movement in the U.S right now.

Debating the death of capitalism

I took part last Friday in a debate at Durham University Union on the motion that "This house welcomes the death of capitalism." I opposed it, of course, arguing that capitalism has not died, is not dying, and probably will not die. I argued that two of its central elements went with the grain of human nature: investment and exchange. I suggested humorously that the first caveman who fashioned a bone hook invested time he could have spent happily hunting mastodons in order to gain greater rewards in future. This is like the child who chooses two chocolates tomorrow rather than a single chocolate today, or the investor who forgoes the pleasures that spending £100 might bring in order to have £105 to spend next year. Investment is one way in which people better their lot. Another, I said, was exchange. When the caveman swaps one of his bone hooks for a fur offered by a hunter, both gain something they value more in exchange for something they value less. Each gains value and wealth is created. It was these two elements, I remarked, that had enabled capitalism to generate unparalleled wealth for humanity, the wealth that has lifted billions out of starvation and subsistence, and has paid for medicine and sanitation, the arts and education. It has doubled life expectancy within a century, and has meant that far fewer children die in infancy, or mothers in childbirth. Capitalism survives because of what it enables us to achieve.

I dealt with two things that capitalism is not. The first is cronyism, where big business gets into bed with government to secure special measures that enable it to exploit the public instead of competing fairly for their custom. The second is fraud, where bankers illegally fiddle interest rates, where Enron swindles its shareholders out of billions, or where Bernie Maddoff steals from his clients. This is not capitalism; it is criminality, and both of these practices need vigilance to thwart them.

People have asked "What will come after capitalism?" I replied, "Capitalism," pointing out that after each crisis it is modified so the same mistakes are not repeated. It evolves and learns, as humans themselves do. We should not applaud its death, I said, but celebrate its continued life.

The students came down on the side of capitalism by defeating the motion.

There is no such thing as pensions tax relief

Once again we've the sight of a politician not grasping reality when planning a raid on other peoples' money:

Ms Reeves said: “It cannot be right that those on high incomes paying 40 per cent tax only have to save £600 to generate £1,000-worth of pension savings, while those on middle and low incomes have to save £800 to generate the same amount.”

“Replacing tax relief with matched contributions, or a system that was even more progressive, offering higher relief to those on lower incomes than those on higher incomes, should be explored.

“At present, the pensions tax relief rewards those who already have the highest savings and can most afford to save.

“This seems to be a very inefficient use of the £20bn spent on pensions tax relief and is in urgent need of attention.”

There is no such thing as pensions tax relief. There is however something that is pensions tax deferral.

Tax relief would be that you do not pay tax on money put into a pension and also do not pay tax on the pension when it is received. You are relieved from taxes that is. This is not what happens. Instead, you do not pay tax on the money put into a pension: but you do pay the normal income tax on the pension once it arrives. This is not tax relief: this is tax deferral.

Two points flow from this. The first is that we've actually got to call this what it is: it's delaying what tax is paid, not abolishing it. The second is that the costs of this are nothing like what the claim is. Because we do indeed collect income tax upon pensions. And whatever that amount is must be offset against whatever amount anyone wants to claim is deferred. The net amount could go either way, we simply don't know.

Incomes in retirement are usually lower than during a working life and so the tax collected might be less than that deferred as a result of lower tax rates. Or, perhaps, the investment pot has grown so that the income tax collected in the, say, 20 years of retirement is greater than the tax deferral granted in the 40 years of working. We simply do not know the answer there (maybe someone does, but we do not). But until we do know that we cannot have any clue at all about whether tax deferral actually leads to a loss of Treasury revenue or not. It will affect the timing, obviously, but the amount?

What is being done here is to look only at the cost of the deferral upon revenue and to ignore the income that results from said deferral. And if this is the way that we're going to discuss public policy then God Help Us All.

Are benefits a subsidy to workers or employers? Yes

There's an interesting claim out there that benefits are just a subsidy to low wage employers. They can get away with paying low wages because we taxpayers then top that up. Alternatively, we might think of benefits as being subsidies to those people who, for whatever reason, have incomes lower than we think they ought to be. There's an answer to which of these is true, that answer being: yes. Jeremy Warner is one this subject here:

Much the same process is evident today in the growth of Britain’s low-wage, low-productivity economy. There is little incentive for employers to improve their productivity, and therefore their wage levels, when labour is subsidised to the degree it now is from general taxation.

By the by, the tax credit system – enormously expanded and enhanced under Gordon Brown – has created a kind of client state of those partially or entirely dependent on the government for their way of life. It has locked in votes as well as disrupted the normal market process by which the general standard of living is raised.

We would make a slightly different point. Whether benefits subsidises the employer or the employee depends upon which benefit. More specifically, a benefit that is paid because of low income, regardless of whether someone is in or out of work, is a subsidy to the recipient. And it's also an anti-subsidy to the potential employer. It raises the reservation wage (the amount that must be offered to get someone to come into work). However, a benefit that is paid conditional upon being in work will end up as being a subsidy to that employer: for it lowers again that reservation wage.

Here in the UK we really only have one major work conditional benefit, working tax credits. Those really are a subsidy to low wage employers. The impact of the rest of the benefit system is to raise wages.

The interesting out come of this is that if you want wages for the low paid to rise then you should almost certainly be arguing for the abolition of working tax credits. Not that this would increase the incomes of the poor but it would stop that subsidy of low wage employers.

America's only socialist opposes Americans trading with socialists

Bernie Sanders running for President was always going to provide some amusement. But we didn't think it was going to come quite so soon after America's only declared socialist in Congress made his announcement. Sanders is against eh idea that America should sign the trade deals that Obama is urging that America does. And as Tyler Cowen has pointed out the country most likely to benefit from said trade deals is the at least nominally (and very poor, there's a connection there) socialist country of Vietnam. It's thus possible to note that:

Note his position the the US needs to “fundamentally change our trade policies, so that corporations don’t shut down in this country and move to China or Vietnam or other low-wage countries.”

Yes, the socialist candidate for US president is talking about keeping American jobs from migrating to the “socialist” countries of China and Vietnam.

Politics: it's a rum manner of trying to run the world, isn't it?

We would also like to note that this blog post was created on International Workers Day, May 1.