Moral Hazard in Democratic Voting

post by lsusr · 2025-02-12T23:17:39.355Z · LW · GW · 8 comments

Contents

  Tragedy of the Commons
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Economists have a tendency to name things unclearly. For example, cost disease describes the phenomenon when some jobs get higher wages due to increased productivity, the jobs that didn't see productivity growth get higher wages too. Good luck guessing that meaning from the names "cost disease" and "Baumol effect".

Another economic term that you can't guess the meaning of and must instead memorize the definition of is moral hazard. "Moral hazard" is a fancy academic way of describing "a situation that incentivises rational selfishness at the expense of other people". Rational selfishness is a good default assumption of how large masses of people will behave.

• If the price of a good decreases, then people will buy more of it.
• If the price of a good increases, then people will buy less of it.
• If the price a good sells for decreases, then businesses will produce less of it.
• If the price a good sells for increases, then businesses will produce more of it.

This is all Economics 101. Most people—and therefore most voters—do not know Economics 101. The typical left-wing voter doesn't consider that taxing billionaires has negative second-order effects on incentive structures. The typical person barely considers incentive structures at all, even in the domain of violent crime—nevermind economics.

The vast majority of voters are economically illiterate. Collectively, voters tend to advocate for economically backwards policies, such as free parking. Voters love government handouts of essential goods, and oppose policies that make the ultra-rich get even richer. Because of this mass ignorance, it is often possible to predict where public sentiment deviates from economically sound policy. In other words, voters advocate for harmful policies, and do so predictably.

You might think that the solution is "The government should educate the public on economics." But think about what happens when a democracy^[1] attempts this. Public school is a arm of government. When public schools touch upon a political topic, they teach a compromise moderate position somewhere amidst the reigning ideologies. And why do the current reigning ideologies reign? Because economically illiterate voters like them. Mass education is how you cement your ideological victory, not how you replace demagoguery with truth—except by accident. In my high school history class, I was taught about the benefits of consumer protection regulations. The negative second-order economic effects were never even mentioned. This is leftist indoctrination at its finest.

It's easy to attribute this whole problem to human stupidity. And human stupidity is certainly a factor. But socialist leaders tend to be very smart people. Communist dictators aren't idiots; it took Joseph Stalin an unusual level of intelligence to take over Russia. For this reason, I find it more productive to understand this Voters Advocate Economically Harmful Policies problem as an effect of moral hazard, rather than mere stupidity.

Tragedy of the Commons

A tragedy of the commons is what happens when lots of people can benefit personally by sacrificing a collective good. For example, consider oceanic fish^[2]. If we don't fish at all, then we don't get any fish. But if we fish too much, then fish populations collapse, and we get only a little fish, which is bad too. There is an optimal amount of fish that humanity should harvest from the oceans. If we harvest more than that, then there is less fish to go around, and humanity ends up at a net loss.

But that only works on a collective level. If you're an individual fishing company, and you fish more than your fair share, then the benefits of your extra fishing go to you whereas the harms are distributed mostly to other people. The rational selfish strategy is to fish as much as you can. If you don't fish as much as you can, then a competing company that does will outcompete you. The global result is a coordination failure, which is why global oceanic fish reserves are in a bad state right now.

Democratic voting is a tragedy of the commons.

Everyone benefits from good governance. If you want to vote well, then you need to understand why some policies are good and other policies are bad. If you want to understand why certain policies are good and bad, then you need to learn things like Economics 101, which most people find boring. Voting well is difficult. But if you, personally, put in lots of time and effort into voting well, then you will not personally benefit much from your vote because even if it does affect the government, the benefits are distributed across such a large population that your personal benefit will be negligible.

The Nash equilibrium is mass ignorance, virtue signalling, and a veneer of intellectual legitimacy. This problem isn't limited to voting. It applies to everything from protesting to Reddit comments. Everywhere that individual people aren't held individually accountable for their declared policy preferences i.e. everywhere except prediction markets, regular markets and…um…places you have a personal reputation to protect e.g. writing longform content under an established pseudonym here on Less Wrong.

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1. Autocracies suffer from the same problem, except the link from public sentiment to public policy is more opaque. ↩︎

2. For this example, I'm assuming that fish are non-sentient and that harvesting more fish is creating more value for humanity. ↩︎

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