President Franklin D. Roosevelt?s closest adviser and architect of the New Deal, Harry Hopkins, advised, “Tax and tax, spend and spend, elect and elect, because the people are too damn dumb to know the difference.” Professor Bryan Caplan, my colleague at George Mason University, sheds some light on Hopkins? observation in his new book, “The Myth of the Rational Voter: Why Democracies Choose Bad Policies.”
Caplan is far more generous than Hopkins. Instead, he says people harbor economic biases, several of which he discusses. There?s the anti-market bias, the failure to believe that market forces determine prices. Many believe that prices are a function of a CEO?s intentions and conspiracies. If a CEO wakes up feeling greedy, he?ll raise prices. They also believe that profits are undeserving gifts. They fail to see that, at least in open markets, profits are incentives for firms to satisfy customers, find least-cost production methods and move resources from low-valued to high-valued uses.
