Robert FarleyScott Lemieux, I see that noted economist Megan McArdle is arguing that the fact that Virginians haven’t voluntarily contributed to a fund increasing government revenues implies that people don’t want higher taxes.
This is what economists call “revealed preference”. What most of us are really in favor of is higher taxes on other people. If we wanted higher taxes on ourselves, we’d give the money to charity.
This is really very silly. In general, revealed preference arguments which don’t refer to some external set of motivations rely on circular argument and other forms of shoddy logic (see further Amartya Sen’s Choice, Welfare and Measurement on this). More specifically, as Robert says, vulgar revealed preferences claims, like the one that Megan is making here, completely ignore how strategic considerations impact choice. If the choices that individuals make are interdependent, as they self-evidently are here, then observed behaviour tells us diddly-squat about the preferences individuals would have if they didn’t have to take account of others’ behaviour. The best non-technical treatment I know of this why arguments like this are so bad is Tom Slee’s No-one Makes You Shop at Walmart (Powells, Amazon ), which I have recommended before as a really wonderful and first rate book, that should be required reading for all pundits inclined to opine on matters economic. Slee uses simple game theory to explore in detail precisely why bad preference revelations claims don’t work. As Alex Tabarrok, who is nobody’s idea of an anti-market lefty, says (I blockquote him in extenso ):
Slee’s book is the best of the anti-market books: it is well written, serious, and knowledgeable about economics. In fact, I regard Slee’s book as an excellent primer on asymmetric information, free riding, externalities, herding, coordination problems and identity – Economics 301 for all those budding young Ezra Klein’s of the world who think that Economics 101 isn’t quite right.
Early on Slee makes a good point about preferences and outcomes:The prisoner’s dilemma shows how, as soon as one person’s choice alters the outcome for another person…choices do not reveal preferences…instead of thinking about choices as revealing preferences, it pays to think of choices as ‘replies’ to the actions or likely actions of others. The best choice you can make is the best reply to the likely actions of others.
Later, he drives the point home with a nice example:Faced with the observation that few children walk to school anymore, we commonly hear that this tendency represents our preferences: that “people won’t walk” anymore. But this is oversimplified. What we are seeing is one equilibrium among many, and perhaps not the best one. There is an equilibrium in which no one wants their children to walk along empty streets, and so no children walk, but there is another equilibrium in which many children enjoy walking with groups of other children, and parents feel safe about their children because there is safety in numbers on the busy sidewalks.…Too many cities have concluded that empty sidewalks are a result of our preferences…but once a city takes it as a given that most children will be driven to school, there is no need for the city to even build sidewalks in new subdivisions, and there is more temptation to build fewer, bigger schools rather than more, smaller, easily accessible schools. With these decisions, the empty-sidewalks equilibrium becomes even more entrenched: we are trapped in an outcome that was the result of individual choices, but that may not represent our true preferences.
In the spirit of contributing irrationally to a collective good (the better education of aforementioned punditocracy) I have just paid for a copy of Slee’s book to be shipped to Megan at the Atlantic head offices. I warmly encourage people to buy other copies of the book for other pundits (left and right) of their choice – it really provides both a nice antidote to the unfortunately widespread habit of glib commentary based on bad economic reasoning, and good ammunition for commenters who might like to correct the sins of others . If this post actually inspires anyone to engage in this kind of irrational behaviour, I encourage them to report it (and the targetted pundit) in comments.