The BBC reports that interest rates on savings have fallen to a record low. It omits to say that this is to a large extent the direct result of Tory policy. This is simply because, for a given inflation target, more fiscal austerity means lower interest rates. What we’re seeing is just George Osborne delivering his promise to be a fiscal conservative and monetary activist.
However, nobody seems to be making this connection. Quite the opposite: the biggest losers from low interest rates – older richer people – are those most likely to support the Tories.
This is not the only way in which voters aren’t drawing the dots, however. Most people agree with Osborne that we face a high risk of a financial crisis this year. However, this is precisely the environment in which fiscal policy should be loose – to cushion us from the fall-out from such a crisis. And yet Tory austerity is more popular than Labour’s more sensible approach: in one poll, 41% of voters say the Tories are the best party to handle economy compared to only 18% of them saying Labour is.
What we have in these two cases is a failure to make connections. This is not an isolated problem. As David Leiser and Zeev Kril show, it’s a key feature of how laypeople misunderstand economics. “People are remarkably poor at combining causal links into a system” they say.
This inability to make connections is by no means confined to fiscal policy. We see it in other contexts too, for example:
- People support nationalization and price and immigration controls in part because they fail to see that these can have unintended consequences and that free markets can sometimes produce benign outcomes without state direction. The invisible hand is well-named: people can't see it.
- Employers favour overconfident but incompetent candidates – and investors fall for charlatanic fund managers - because they fail to ask: what’s the connection between competence cues and actual performance?
- All the reporting about last week’s fall in stock markets paid very little attention to the question that really matters: is there any connection between this and future market returns?
Rather than think through causal chains, says Mr Leiser, people use what he calls the “good begets good heuristic (pdf)”. They believe that good things lead to good things and bad to bad. This helps account for the popularity of minimum wage laws: higher wages are a good thing, so folk under-rate their adverse (pdf) effects. It also helps explain Osborne’s popularity: people think that a good thing (promising to reduce government debt) has good effects (reducing economic risk) and so underweight the importance of the paradox of thrift.
All this bears upon one of the week’s big issues: is the BBC biased? In part, it corroborates Owen Jones’ claim that the left over-rates the importance of the media: people form mistaken ideas because of cognitive biases unrelated to media propaganda.
Nevertheless, it might also suggest that political reporting is – at the moment – inherently biased. If you report only politicians’ words and actions and neglect connections between these and the real world, you will create a good impression of those who send out competence cues and who exploit the good begets good heuristic and a bad one of those who are poor at the presentation game but who understand better the connections between policy and the real world. Perhaps, therefore, the BBC is biased even if it doesn’t intend to be.