14 Jan 2011

Wenzel-Lira Cage Match

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This is too funny. Just skim these, in this order:

1) Lira explains his shocking new discovery, based on new philosophical developments: Apparently voters irrationally vote for high spending and low taxes, even though any individual should know that this is unsustainable. Lira actually claims that this is something economists cannot explain.

2) Wenzel says of course economists have been studying this type of thing for either decades or centuries, depending on how you classify it.

3) Lira explains why Wenzel and his merry band need extra-strength prescription on their eyeglasses. My favorite quote:

The discursive dilemma [the concept Lira borrowed from philosophy to explain fiscal deficits] has absolutely nothing to do with the Tragedy of the Commons [the concept from biology/economics that Wenzel said had anticipated Lira’s “discovery”]—the discursive dilemma is about group agency: The will of a group of people, and how it is not necessarily the same as the will of the individuals who make up the group—how indeed, the group agency can go directly counter to the agency of all of the individuals making up the group.

To repeat, Lira is saying that this type of analysis–how individual, rational preferences can lead to crazy outcomes in democratic elections–is something that economists have no clue about, and that he has finally explained, for the first time ever, on his blog yesterday.

UPDATE: I know it’s not funny if you have to explain it, but in case some readers don’t “get” it, try this, this, and this, for starters.

2 Responses to “Wenzel-Lira Cage Match”

  1. A. says:

    Is Lira known in blogging circles or something? From the fourth paragraph of his piece, it looks like he’s learned economics from reading op-eds. It’s not hard to convince yourself that you’re brilliant in that case.

  2. Ricardo Cruz says:

    Yeah, it sounds like Lira independently discovered Arrow’s Impossibility theorem. 😉 I guess it’s possible that Democrats want higher taxes and more spending, and Republicans want lower taxes and less spending, but we somehow end up with lower taxes and more spending. But that sounds too convoluted, and doesn’t sound empirically true either (Democrats had Congress support for a long time).

    I think ordinary voter rational ignorance is enough to explain what’s going on. People are too busy and too uninterested in following things like the budget allocation process. Poll after poll shows people’s estimate on the various components of the budget is beyond absurd. People judge politicians by current economics: how higher are my taxes? am I employed? It therefor pays politicians to be short sighted and defer problems to a couple of elections down the line, when they may no longer be in office, or will be running for something else.

    Anyhow, let me cook up some other theory for the phenomena here, one that doesn’t require voters being rational ignorant, or voting being a poor mechanism, or whatever. 🙂

    In America, the savings rate is negative: people are drowning in debt. The interest rate you can get as an individual (especially for credit cards) is much higher than the one the government can command: the risk of default for private debt is higher than that of public debt because people are naturally more punctual in paying taxes than in paying debts since they face jail time in one case and not the other. Therefor, if you’re a net borrower, what do you want: borrowing by yourself, or having the government borrowing for you (and deferring your tax bill)?