Abstract If voters do not understand the programs of rival candidates or their likely consequences, they cannot rationally exercise control over government. An ignorant electorate cannot achieve true democratic control over public policy. The immense size and scope of modern government makes it virtually impossible for voters to acquire sufficient knowledge to exercise such control. The problem is exacerbated by voters? strong incentive to be ?rationally ignorant? of politics. This danger to democracy cannot readily be circumvented through ?shortcut? methods of (...) economizing on voter knowledge costs. A truly democratic government must, therefore, be strictly limited in scope. (shrink)

ABSTRACT Why did the popping of the housing bubble bring the financial system—rather than just the housing sector of the economy—to its knees? The answer lies in two methods by which banks had evaded regulatory capital requirements. First, they had temporarily placed assets—such as securitized mortgages—in off‐balance‐sheet entities, so that they did not have to hold significant capital buffers against them. Second, the capital regulations also allowed banks to reduce the amount of capital they held against assets that remained on (...) their balance sheets—if those assets took the form of AAA‐rated tranches of securitized mortgages. Thus, by repackaging mortgages into mortgage‐backed securities, whether held on or off their balance sheets, banks reduced the amount of capital required against their loans, increasing their ability to make loans many‐fold. The principal effect of this regulatory arbitrage, however, was to concentrate the risk of mortgage defaults in the banks and render them insolvent when the housing bubble popped. (shrink)

ABSTRACT The financial crisis was caused by the complex, constantly growing web of regulations designed to constrain and redirect modern capitalism. This complexity made investors, bankers, and perhaps regulators themselves ignorant of regulations promulgated across decades and in different “fields” of regulation. These regulations interacted with each other to foster the issuance and securitization of subprime mortgages; their rating as AA or AAA; and previously their concentration on the balance sheets (and off the balance sheets) of many commercial and investment (...) banks. As a practical matter, it was impossible to predict the disastrous outcome of these interacting regulations. This fact calls into question the feasibility of the century‐old attempt to create a hybrid capitalism in which regulations are supposed to remedy economic problems as they arise. (shrink)

ABSTRACT Asset‐market bubbles occur dependably in laboratory experiments and almost as reliably throughout economic history—yet they do not usually bring the global economy to its knees. The Crash of 2008 was caused by the bursting of a housing bubble of unusual size that was fed by a massive expansion of mortgage credit—facilitated, in turn, by the longest sustained expansionary monetary policy of the past half century. Much of this mortgage credit was extended to people with little net wealth who made (...) slender down payments, so that when the bubble burst and housing prices declined, their losses quickly exceeded their equity. These losses were transmitted to the financial system—including banks, investment banks, insurance companies, and the institutional and private investors who provided liquidity to the mortgage market through structured securities. It seems that many of these institutions became insolvent; it is certain that they became illiquid. Liquidity loss and solvency fears created a feedback cycle of diminished financing, reduced housing demand, falling housing prices, more borrower losses, and further damage to the financial system and eventually the stock market and the real economy. There are important parallels with the housing and financial‐market booms that led up to the Crash of 1929 and the Great Depression. (shrink)

ABSTRACT By means of the high ratings that they awarded to subprime mortgage‐backed bonds, the three major rating agencies—Moody's, Standard & Poor's, and Fitch—played a central role in the current financial crisis. Without these ratings, it is doubtful that subprime mortgages would have been issued in such huge amounts, since a major reason for the subprime lending boom was investor demand for high‐rated bonds—much of it generated by regulations that made such bonds mandatory for large institutional investors. And it is (...) even less likely that such bonds would have become concentrated on the balance sheets of the banks, for which they were rewarded by capital regulations that tilted toward high‐rated securities. Why, then, were the agencies excessively optimistic in their ratings of subprime mortgage‐backed securities? A combination of their fee structure, the complexity of the bonds that they were rating, insufficient historical data, some carelessness, and market pressures proved to be a potent brew. This combination was enabled, however, by seven decades of financial regulation that, beginning in the 1930s, had conferred the force of law upon these agencies' judgments about the creditworthiness of bonds and that, since 1975, had protected the three agencies from competition. (shrink)

My purpose is to offer an assessment of the scientific legacy of Converse's “Belief Systems” by reviewing five productive lines of research stimulated by his authoritative analysis and unsettling conclusions. First I recount the later life history of Converse's notion of “nonattitudes,” and suggest that as important as nonattitudes are, we should be paying at least as much attention to their opposite: attitudes held with conviction. Second, I argue that the problem of insufficient information that resides at the center of (...) Converse's analysis has not gone away, and that newly fashioned models of information processing offer only partial remedies. Third, I suggest that the concept of the “average voter” is a malicious fiction, as it blinds us to the enormous variation in political attention, interest, and knowledge that characterizes mass publics, in Converse's time as in our own. Fourth, I develop an affirmative aspect of Converse's analysis that has mostly been overlooked: namely, that if ideological reasoning is beyond most citizens’ capacity and interest, they might fall back on a simple and reasonable alternative, which I will call “group‐centrism.” And fifth, I consider the possibility that while the majority of individual citizens falls short of democratic standards, the public as a whole might do rather well. (shrink)

Although Professor Lewin is not testing existing views that, for people in politics, 'egoism rules' on deep theoretical grounds, he strongly argues that empirical facts do not support such views and thus opens a new chapter in the debate on ...

Bryan Caplan’s The Myth of the Rational Voter treats several immensely important and understudied topics—public ignorance of economics, political ideology, and their connection to policy error—from an orthodox economic perspective whose applicability to these topics is overwhelmingly disproven by the available evidence. Moreover, Caplan adds to the traditional and largely irrelevant orthodox economic notion of rational public ignorance the claim that when voters favor counterproductive economic policies, they do so deliberately, i.e., knowingly. This leads him to assume (without any evidence) (...) that “emotion or ideology” explain mass economic error. Straightforward, unchosen mass ignorance of economic principles—neither “rational” nor “irrational,” but simply mistaken—is a more coherent explanation for economic error, and it is backed up by the vast body of public‐opinion research. (shrink)

Parties are back, and many are cheering. Party polarization has voters seeing stark differences between Democrats and Republicans and demonstrating more ideological constraint than previous generations. But these signs of a more “responsible” electorate are an illusion, because the public is no more knowledgeable than ever about the type of “information” it needs if it is to exercise effective control over the public‐policy outcomes it cares the most about. Indeed, polarization has produced a political environment where both voters and policy (...) makers may be less likely to learn about the potential consequences of their governing choices. The result is that holding elected politicians to account for policies treated as divisive ends in themselves has become easier—but that holding them accountable for policies intended as means to the achievement of consensual ends has become harder. (shrink)

ABSTRACT One of Murray Edelman’s most important insights was that understanding public ignorance about politics and policy requires an analysis of how symbolic communication and popular culture shape public knowledge and opinion. Approaches that simply dismiss the public as ignorant or idiotic make a similar error as those that simply embrace the modern public as capable of engaging in the work of a competent demos, insofar as both simplify complex social and cultural processes of meaning‐making and comprehension. The problem for (...) those who wish to take Edelman’s insight seriously—a problem that Edelman failed to resolve—is precisely how to study and theorize the public as something less than deliberative and knowledgeable, but more than simply ignorant. (shrink)

頽廃に至っても、いまだ発現する偶然への希望はある。しかし、頽廃、すなわち消尽に至るならば、無と慨嘆の現実しかありえない。希望の存立自体、五分の可能性に生きる偶然なのである。.

In their debate about whether Cultural Studies is helpful for understanding public ignorance, Chris Wisniewski and Mark Fenster view ignorance as inevitably plaguing the public in mass democratic society; and they see ?the public? as an abstract entity. However, Pierre Bourdieu's sociology rightly contests these positions. A thorough investigation of the concrete social conditions of political ignorance reveals that ignorance is unevenly dispersed throughout social space and that its relevance depends on social position, such as that of the advantaged and (...) disadvantaged. Such a comprehensive approach to public ignorance is required for advancing political participation among the least advantaged. (shrink)

The partisan and ideological polarization of American politics since the 1970s appears to have affected pubic opinion in striking ways. The American public has become increasingly partisan and ideological along liberal-conservative lines on a wide range of issues, including even foreign policy. This has raised questions about how rational the public is, in the broad sense of the public's responsiveness to objective conditions. Widespread partisan disagreements over what those conditions arei.e., disagreements about the factssuggest that large proportions of the public (...) may be perceiving the facts incorrectly. The facts in question are important enough that these partisan disagreements may translate into sub-optimal policy preferences and electoral decisions. (shrink)

ABSTRACT The main cause of the crisis was the behavior of the banks—largely a result of misguided incentives unrestrained by good regulation. Conservative ideology, along with unrealistic economic models of perfect information, perfect competition, and perfect markets, fostered lax regulation, and campaign contributions helped the political process along. The banks misjudged risk, wildly overleveraged, and paid their executives handsomely for being short‐sighted; lax regulation let them get away with it—putting at risk the entire economy. The mortgage brokers neglected due diligence, (...) since they would not bear the risk of default once their mortgages had been securitized and sold to others. Others can be blamed: the ratings agencies that judged subprime securities as investment grade; the Fed, which contributed low interest rates; the Bush administration, whose Iraq war and tax cuts for the rich made low interest rates necessary. But low interest rates can be a boon; it was the financial institutions that turned them into a bust. (shrink)

The topic of the democratic public's limited competence has preoccupied students of democracy for centuries. Anecdotal concerns about the problem reached their peak of sophistication in the writings of Walter Lippmann and Joseph Schumpeter. Not until Philip E. Converse's “The Nature of Belief Systems in Mass Publics” did statistical research overwhelmingly confirm the worst fears of such democratic skeptics. Subsequent work has tended to confirm Converse's picture of a tiny stratum of well‐informed ideological elites whose passionate political debates find little (...) echo, or even awareness, in the mass public. While a great deal of attention has been devoted to “saving” democratic legitimacy from such findings, the Converse‐inspired work of John Zaller (1992) shows how fruitful Converse's basic ideas can be not only in analyzing real‐world political events, but in pulling together and stimulating new lines of research into what moves the “creative synthesizers” of belief systems; into the factors that affect the small numbers of people who grasp such systems and attempt to transmit them to the public; and into the long‐term psychological or cultural sources of the predispositions with which members of the mass public confront the resulting political messages. (shrink)

Murray Edelman's work raised significant theoretical and methodological questions regarding the symbolic nature of politics, and specifically the role played by non‐rational beliefs (those that lack real‐world grounding) in the shaping of political preferences. According to Edelman, beneath an apparently functional and accountable democratic state lies a symbolic system that renders an ignorant public quiescent. The state, the media, civil society, interpersonal relations, even popular art are part of a mass spectacle kept afloat by empty symbolic beliefs. However suggestive it (...) is, the weaknesses of Edelman's theoretical and methodological approach, and the relative strengths of more recent research on the politics of cultural symbols, render Edelman's work unable to serve as either model or springboard for the contemporary study of political symbols. (shrink)

ABSTRACT Banks provide a valuable but inherently unstable combination of deposit‐taking and lending functions that were successfully held together for several decades after the New Deal by tough banking rules. The weakening of the rules after the 1970s promoted the displacement of traditional relationship‐based banking with securitized, arms‐length alternatives that encouraged banks to undertake activities about which bankers lacked deep relationship‐based knowledge of the risks. Ironically, this risky behavior, encouraged by loosened regulation, was reinforced by progressively tightened securities regulation, which (...) promoted stock‐market liquidity but also deprived large banks (and other publicly traded companies) of oversight by investors with “insiders’” knowledge. Both the underregulation of banking and the overregulation of securities were underpinned by economic theories that favored blind diversification in liquid, anonymous markets, and that ignored the value of relationship‐based knowledge and case‐by‐case due diligence. (shrink)

ABSTRACT Economists not only failed to anticipate the financial crisis; they may have contributed to it—with risk and derivatives models that, through spurious precision and untested theoretical assumptions, encouraged policy makers and market participants to see more stability and risk sharing than was actually present. Moreover, once the crisis occurred, it was met with incomprehension by most economists because of models that, on the one hand, downplay the possibility that economic actors may exhibit highly interactive behavior; and, on the other, (...) assume that any homogeneity will involve economic actors sharing the economist’s own putatively correct model of the economy, so that error can stem only from an exogenous shock. The financial crisis presents both an ethical and an intellectual challenge to economics, and an opportunity to reform its study by grounding it more solidly in reality. (shrink)

ABSTRACT A review of two of the strands of cultural studies that Mark Fenster contends are superior to Murray Edelman’s analysis of mass public opinion—Gramsci’s theory of hegemony, and Bourdieu’s sociology—and a more general look at work in the field of cultural studies suggests that all of these alternatives suffer from severe theoretical and methodological limitations. Future studies of culture and politics need to pose questions similar to the ones that preoccupied Edelman, but they must move beyond the political and (...) interpretive biases that have dominated cultural studies (some of which Edelman shared), as well as the questionable view of “ideology” as a matter of elite domination of the masses, rather than as a mediating, constitutive force in the process of individual opinion formation. (shrink)

ABSTRACT Capital regulations stemming from the Basel accords created incentives for banks to securitize mortgages, even risky ones; hold them at a correspondingly low Basel risk weight; or shift them off of banks' balance sheets to obtain even greater leverage. Securitization was praised by economists and regulators for dispersing risks to investors across the world, providing greater resilience to the financial system. However, since in reality banks tended to hold onto securitized assets—either on their balance sheets or off of them, (...) in off‐balance‐sheet entities—the accumulated credit risk remained with the banks, especially in the “shadow banking sector.” This explains the heightened vulnerability of the financial system to a sudden collapse. (shrink)