Bryan Caplan describes his notion of The Idea Trap:
The motivation of the idea trap is twofold.
First of all, I had these empirical results out of public opinion that said pretty strongly and surprisingly that people who have higher income do not think more like economists, but people who either have experienced or expect higher income growth do think more like economists. So the level doesn’t matter, but the change does.
Essentially, the more optimistic view seems to actually push people in this economist direction. So there is that fact in my mind.
And then there was also this big literature on non-convergence where, at least for a very long time, economists were expecting that poor countries would tend to catch up to rich countries. Then they looked at the data and weren’t seeing it happening. Further, there’s this literature saying at least a lot of the reason why this is happening is that countries that are poor just very persistently have bad policies.
So I took these three facts and said, “Let’s come up with a little model. The model will have three variables, which we’ll call growth, policy, and ideas.”
The model will have the following laws of motion: Good ideas cause good policy, which is almost a tautology. Good policy causes good growth, and that’s almost a tautology. And then the last thing is, how does growth affect ideas?
What I said is, there’s a usual view that if you have bad growth, then people realize they’re making mistakes, and then ideas get better. On the other hand, maybe if you’re having good growth, people said, “We can afford to live a bit. We don’t need to worry about this so much,” so ideas get worse.
In that model, that actually gives you growth convergence, and basically, all countries tend to be mediocre. But I said if we tweak the models in light of that public opinion finding, where supposed good growth actually gives you good ideas, bad growth gives you bad ideas, this actually gives you a model of multiple equilibria, where you can have one equilibrium where everything is good.
You have good policy, good ideas, good growth all mutually supporting each other. Or you could have bad ideas, bad growth, bad policy all mutually supporting each other.
In terms of 2018, at least the story you might tell in a lot of countries is, there are countries that are in the bad equilibrium where, say, they’ve had some bad growth, which then led to bad ideas, which I generally in the paper equate with populism, leading then to populist policies.
2018 is not that great, just because the actual growth for most countries is good right now. It made more sense during the Great Recession when there was bad growth, and then there were a lot of kooky ideas coming around.
In a way, I would think of the last few years as cutting against my model because it seems like people are getting very angry and very populist when it’s hard to even find what the supposed cause of it is.
No criticism necessarily more than implied. But Caplan is always challenging for me, never more so than when framing things in terms of some sort of fuzzy set of things called “ideas”. In terms of growth, I always think of that as a near-synonym for “innovation”, which is common enough in recent decades but not nearly enough to form part of a stable, ever positive feedback loop available to any and every country. Otherwise, I’m not sure what “ideas” really means here.
That and the last line of the quote. I can assume he is making an economic point, but I’m hard pressed to take that expression of confusion seriously.
” it seems like people are getting very angry and very populist when it’s hard to even find what the supposed cause of it is”
We got us a comedian here!