Irrational beliefs matter

 

Section 8: Result and Beyond

Populism is surging across the western world. Lately the surge spiked due to the prevalence of Donald Trump in the US presidential election. Although he lost the popular vote marginally, he won the majority of the electoral college votes. He was backed by a coalition of traditional Republican supporters and white blue-collar, low- and middle- income voters without a college degree residing mainly in rural areas and smaller cities.

It seems that the economy shaped the election. The majority of the electorate (52%), according to the exit poll, prioritized the economy as the most important issue facing the country. In this context, despite the good condition of the American economy including positive growth rates, record low unemployment, rising wages and falling poverty; most voters considered otherwise. As the exit poll suggests, the public majority (62%) evaluated the condition of the national economy as ‘not good’ or ‘poor’. From this 62%, more than six out of ten voted for Trump. Furthermore, it seems that income inequality affected significantly the Trump vote. According to a post-election Bruegel analysis, Trump’s electoral performance was stronger in the states displaying the highest inequality gap. As a result, the majority of the public (49%), according to the exit poll, considered him, rather than Clinton (46%), as the most capable to handle the economy.

It should be noted that the President-elect has attributed the responsibility for US economic woes mainly to globalization, including global competition, free trade and immigration. Against this backdrop, Trump has suggested as a remedy an economic plan consisted of protectionist policies along with large tax-cuts for the rich and deregulation to boost growth, wages and manufacturing employment. 

However, his policy proposals have largely been criticized as unrealistic and damaging by the overwhelming majority of prominent economists including Nobel laureates. In particular, opposing voices point out that if Trump’s policy is actually implemented, it is expected to worsen the condition of the economy undermining growth prospects, increasing unemployment, lowering wages, leading to deteriorating public finances which will likely hurt the low and middle income classes most.

So the question that naturally emerges, given that the electorate has been informed about the implications of Trump’s economic policy, is why so many voters and especially those coming from the working class, accepted his narrative? Why did they vote against their own interests? In other words, why did they act irrationally? 

It is possible to argue that voters hold systematically erroneous and biased beliefs about economics which can, to a great extent, explain their irrational political decisions. Specifically, voters tend, among others, to appear pessimistic about the course of the economy believing that it is going from bad to worse as well as to undervalue the economic benefits of interaction with foreigners. In the case of the US election, there are already some indications highlighting such beliefs. For example, although the economy has exited recession and returned to rapid growth rates, seven in ten Trump voters consider, according to a Pew Research Center survey, that the economy has gotten worse since 2008. Moreover, most Trump voters believe that the free trade agreements have been a ‘bad thing’ for the US hurting families’ financial situation, while mean income and mean wealth have risen substantially since the 1980s. Furthermore, despite the fact the unemployment rate in the country has fallen below 5%, most Trump voters, according to the exit poll, share the view that international trade takes away US jobs rather than creates them.

Certainly public frustration with the inequality issue (and the falling manufacturing employment) is valid. Yet, the perception of most of Trump’s voters about the root causes of these negative developments and the respective policy remedies is mainly erroneous. Globalisation appears to affect only partially these issues, which are actually multi-causal and are attributed more to other factors such as technological advancement, declining productivity, weakened labour unions, an ageing population, low public investment and insufficient welfare state provisions to compensate those who ‘got left behind’.

Given the above, it could be said that irrational beliefs proved to be more powerful than reality, allowing Trump to capitalise on them, present ‘globalisation’ as the main enemy and himself and his program as the sole antidote for that.