Published in The Tennessean, Sunday, August 7, 2011
by Richard J. Grant
Economists call it “rational ignorance.” We all do it; we economize on information. Not only that, we economize on knowledge and education. All these things cost us something and at some point we deem increasing them not to be worth the extra expenditure of time, effort, or money.
Things that are important or interesting to us get more of our attention. If we have a goal, whether it's earning income or helping a friend, we have a strong incentive to learn what is needed to succeed. But if the decision is unlikely to have any effect on our income or on our friend's welfare, then we have little incentive to put more effort into learning about it or even taking any action.
We are helped by anyone who can save us time and energy in learning what we need to know. Often we'll even pay these information-providers, just as we pay the producers of the technology that helps to deliver that information.
In life we can't master everything, so we seek out specialists and those we perceive to be offering useful services. The more complex the product we want to buy or the more complex the organization that we are trying to run, the more willing we are to purchase from, or to hire, those who supply a product or service that relieves us of some of that complexity.
This is easy to see in our private lives and in the private marketplace. But when we step into the realm of government and collective decision-making, our information problems and the corporate governance problem multiply drastically.
It is hard enough to figure out how big a mortgage, and what terms, you can afford. But at least you get to control one side of that transaction. When it comes to the national debt, few people have the ability or the time to understand it. Their vote gives them but a fly speck of influence over it. So, political decisions get less attention from individuals than would private decisions.
At the store, we get the product that we pay for. But when we go to the ballot box, we do not necessarily get the representative that we vote for. The payoff is less certain, the information we acquire is of less direct value than that acquired in our private affairs.
Grover Norquist, president of Americans for Tax Reform, has been both praised and vilified for providing a service that gives voters useful information about the future actions of their elected representatives. He has given these representatives the opportunity to sign a well-publicized “Taxpayer Protection Pledge” that reads as follows:
“I ... pledge to the taxpayers of [my state], and to the American people that I will: ONE, oppose any and all efforts to increase the marginal income tax rates for individuals and/or businesses; and TWO, oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.”
This simple statement is a promise to taxpayers and voters. A breach would be publicized. It is information that helps us to monitor the important actions of our representatives.
In the recent negotiations to increase the debt ceiling, representatives on both sides of the argument knew that voters were watching to see who would keep their word. Good information makes a difference.
Richard J. Grant is a professor of finance and economics at Lipscomb University and a senior fellow at the Tennessee Center for Policy Research. His column appears on Sundays. E-mail: email@example.com
Copyright © Richard J Grant 2011