Why we shouldn’t hold referendums

25th May, 2023

Citizens of democracies can be ill-informed and inconsistent, and this often feels like a tragedy or even a crisis. Occasionally, however, one reads something so absurd that it would take a heart of stone not to laugh. Consider a recent survey conducted by the Associated Press-NORC Center for Public Affairs Research (AP-NORC), which finds that 60 per cent of Americans think the government is spending too much.

But, the survey also asks, what exactly is the government spending too much on? Not social security: 62 per cent think the government spends too little on that, versus 7 per cent who think it spends too much. Not Medicare (58 per cent want more spending, 10 per cent want less). Not healthcare (63 per cent want more spending). Not education (65 per cent want more). Not assistance to the poor (59 per cent want more). Military spending is more controversial, but more Americans favour an expansion than a contraction. Add in debt interest, and these areas together cover 91 per cent of US federal government spending last year.

In short, a solid majority of Americans wish their government would spend less money overall, while also spending more on almost everything in its budget.

“That survey is a real classic of the genre,” says Ben Zaranko, an economist at the UK’s Institute for Fiscal Studies. Then he adds, “but it is how governments in the UK behave at spending reviews”.

Spending reviews in the UK usually happen every three years, although we had them in 2019, 2020 and 2021. At these reviews, the government first decides how much it wants to spend overall, then allocates that sum between competing public services, before realising that the overall spending cap implies unpalatable cuts to specific areas. Eventually, the government backtracks and finds extra cash. This has happened in each of the past four spending reviews — most recently, to the tune of £30bn of extra funding, or nearly £500 per person.

What is happening here? The most intuitive explanation is that people see specified parts very differently from the way they see a generic whole. Another example is that people tend to worry about crime, the state of the economy or the quality of politicians when pondered in abstract, while feeling more upbeat about their local area or indeed their local representative.

This tendency has been found in other contexts. For example, when asking forecasters to ponder the future, the probability of a broad scenario such as “Vladimir Putin ceases to be president of the Russian Federation before 2030” is usually estimated to be lower than the total probability of more specific narrow scenarios added together. (For example, Putin dies in office; Putin is ousted in a coup; Putin is persuaded to resign; Putin retires, citing ill health.) Many forecasters make the mistake of treating the sum of the parts as much greater than the whole.

These are all examples of what Daniel Kahneman and Amos Tversky labelled the “availability bias”. We often reason on the basis of the first examples that leap into our minds — and different examples will come to mind depending on whether a question is framed broadly or narrowly. Are we thinking of schools and hospitals, or of penpushers and red tape?

Lucy Barnes, associate professor in comparative politics at University College London, argues that people tend to see generic “government spending” as a category full of waste and inefficiency, but apparently we don’t feel that way about specific policy areas such as health or education. She also reminds me that “people who don’t categorise government budgets for a living see these categories differently” from the official definitions.

Foreign aid is one of few specific categories of government spending which is unpopular, but many Americans would include the cost of sending armies to Afghanistan and Iraq as (wasteful) foreign aid. Who is to say they are mistaken? Or perhaps voters simply do not know what governments spend money on. Foreign aid is only about 1 per cent of the US federal budget, yet the average voter believes the US government spends almost a third of its budget on foreign aid.

That resolves the apparent contradiction in the AP-NORC survey: a voter who wants to shrink the state by eliminating half of foreign aid spending and redistributing the rest to social security, education and health, is not making any logical error. That voter is simply mistaken about what foreign aid truly costs.

It’s unclear if all this is a serious issue. If there is a problem to be fixed, politicians might address it by hypothecating taxes — make this tax a “healthcare levy” and that tax an “education charge”, and pretty soon voters will have a real sense of where their money is going. Tax purists hate this idea, for the very good reason that individual tax revenues tend to wobble around, while spending is best stabilised. One could simply lie to the voters and pretend to hypothecate taxes without really doing so, but that is asking for trouble.

One clear conclusion is that voters must be kept away from expressing direct preferences in referendums, because we don’t have enough information to make complex decisions. (Perhaps we have learnt that lesson already.)

In the UK, at least, voters seem happy enough to leave the details to the boffins: recent data from the World Values Survey suggests that an unprecedentedly high 61 per cent of Brits now think that policymaking should be left to the experts. I wonder why?

Written for and first published in the Financial Times on 28 April 2023.

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