Econ 101: It Pays to Be Ignorant

     Each day in Darfur, 80 children younger than the age of five die because of malnutrition, disease and poor living conditions caused by the war in the Sudan. North Korea has tested nuclear weapons, and violence among ethnic and religious groups is disrupting Iraq. Social Security and Medicare have unfunded liabilities that reach into the tens of trillions of dollars.

     Yet if one watches television, listens to the radio or reads, it would appear that the greatest issue facing Congress is the e-mails Rep. Mark Foley (R-Fla.) sent to pages and who knew about them when.

     Is it likely that finding out if Foley's chief of staff told Speaker Hastert's chief of staff about Foley's contacting ex-pages is important in deciding whom to vote for in your congressional district? Wouldn't it be more important to know how candidates intend to deal with the huge deficits in Medicare, or how the war in Iraq is to be prosecuted?

     Yet it is highly unlikely that anyone reading this column knows how the candidates they will be voting for in November would address these issues. Why is this, and what lessons are to be learned from it?

     Voters are what economists call rationally ignorant. The general economic principle for deciding to do something is to do it if the added benefit from doing so is greater than the added cost. We buy another shirt if the benefit we get from that shirt is greater than the cost to us. A business makes another hat if the price it gets for the hat is greater than the cost of making it. Likewise, you will gather more information about a candidate if the benefit from getting that information is greater than its cost. So economic analysis should help us figure out how informed voters will be.

     Take two hypothetical candidates for Congress – Elizabeth and Wyatt. Let's think about how much it would cost you to figure out which has the better position on Social Security reform.

     First you would have to find out the details of the candidates’ proposals. Next, you would have to decide which proposal would fix the problem. This itself would take some time. You’d have to find out exactly how Social Security works, what its problems are and how different proposals would affect the current and future situation. The cost of finding this information and analyzing it would certainly be several days of research.

     Now what are the benefits? The most obvious benefit is that you might elect the person with the better proposal for fixing the Social Security problem. But what is the chance that this would happen? For your particular vote to affect the outcome, Elizabeth and Wyatt would have to end up with the same amount of votes, excluding your vote. Then your vote would break the tie. When you consider that there will typically be 275,000 votes cast in a congressional race, the odds of this happening are near zero.

     But suppose your vote did affect the outcome. You have looked only at one issue. It is possible that Elizabeth has a better position on Social Security, but Wyatt has a better position on the war in Iraq. To know this, you would have to undertake all the costs that we just went through with the Social Security issue for the war in Iraq. Now how would you decide between the two candidates? You would really need to know the best positions on all the major issues and choose the candidate that is better overall.

     By now, the cost of being informed is outweighing the benefits. Candidates know this, and their advertising reflects it. This is why political advertising attacks opponents and makes misleading statements about candidates’ positions. Neither Elizabeth nor Wyatt would spend money running an ad that required the audience to be well-informed on the issues.

     This is also why the focus of the media is e-mails from a Florida Congressman to ex-pages and whom he had sex with, rather than the slaughter going on in Darfur or the impending collapse of the Medicare Trust Fund. Sex is a topic that is interesting to the public and can be understood by everyone. So the political news shows, newspapers and magazines are dominated by the "Foley scandal," and Congress spends its time holding hearings and investigations on who knew what when rather than how to reform Medicare.

     What is to be learned from this? When we decide that "government" should do something about an issue, we should realize those who create the laws are elected by voters who are rationally ignorant about what laws are passed or what laws should or shouldn't be passed, or even what the positions of the candidates are on these laws. This sounds disturbing, and it should be. The answer to this is not to chide voters for being uninformed – they’re actually being rational. Rational voters will not be informed because the costs outweigh the benefits. The answer is to limit what government can do.

     When government can tax 40 percent of your income or keep your competitors from selling their product or require you to provide health insurance for all your employees, then it will be important which candidate wins or loses. And yet, the decisions we make on who wins and loses will be based not on knowledge, but on rational ignorance.

     If government were to focus on protecting life, liberty and property, then the range of issues would be much smaller and the fact that voters are ill-informed would not cause many problems. It may have been for this reason that Madison assured us the powers granted by the Constitution to the federal government are few and enumerated. It is in everyone's best interest to ensure that this is so. 

Dr. Gary L. Wolfram is the George Munson Professor of political economy at Hillsdale College in Hillsdale, Mich. He also serves as an adviser to the Business & Media Institute.