On the Economic Rationality of Voters

On Economist's View, Mark Thoma asks "Why don't voters penalize politicians for poor economic decisions?" and quotes Paul Krugman:

Economics and Elections, by Paul Krugman, Commentary, NY Times: Britain’s economic performance since the financial crisis struck has been startlingly bad. ... Yet as Britain prepares to go to the polls, the leaders of the coalition government that has ruled the country since 2010 are posing as the guardians of prosperity, the people who really know how to run the economy. And they are, by and large, getting away with it.... This is ... a distressing result, because it says that there is little or no political reward for good policy.... In fact, the evidence suggests that the politically smart thing might well be to impose a pointless depression on your country for much of your time in office, solely to leave room for a roaring recovery just before voters go to the polls.

So how would you model how people might incorporate economic information into their voting?

First, and most fundamentally, even economically savvy voters are acting under uncertainty. It is very difficult for any voter to identify what the "correct" macroeconomic policy is for any particular circumstance. While not all people are Nobel-winning economists like Paul Krugman, there are well-regarded, non-political macroeconomic theorists on both sides of almost any issue. There are only a relatively small number of principles and policy responses that are widely agreed upon by Keynesians, Straussians, Market monetarists, and followers of other flavors of economic thought.

Even some apparently "fundamental" measurements can be changed - see the debate over microeconomic foundations for macro models or Scott Sumner's ongoing efforts to convince people to use NGDP targeting.

Assuming counterfactually that the proper policy response to a particular situation is universally acknowledged, there is the tendency of the world to not always act according the model - leading to further uncertainty on the part of the voter. Thus, for many issues it comes down to the quality of argumentation, and not necessarily which approach to governance is theoretically optimal.

Second, voters are presented with an asymmetric information problem related to politician's actions in office. While some aspects of governance are available for public scrutiny, many aspects are not. There is no guarantee that the public rhetoric matches the governance - and we know that many times, it does not. Therefore, a voter might rationally discount the rhetoric and focus instead on perceived "character" or "judgment" of the politician - which again devolves in most cases to the quality of argumentation.

Third, a voter might rationally weigh how much politicians and political parties really affect the economy. It is the nature of the political process to assign blame or to take credit, but it is an open question how much effect is directly driven by political leaders. Political leaders clearly have some effect on the economy, but the extent to which individual espoused policies drive macro changes is debatable at best.

Thus, an individually rational voter - well-informed or not - may reasonably decide to extrapolate from the current observed trajectory of the economy and vote for "more of the same," without debating too much as to which espoused policies may be implicated.