Why Voters Reward Lucky Governments More than Good Ones:

Some scholars who discount the dangers of widespread political ignorance argue that voters don't really need to know much to make good decisions. They can simply reward incumbents who do well and punish those who perform poorly - an approach known as "retrospective voting." Unfortunately, effective retrospective voting requires citizens to be able to tell the difference between conditions caused by incumbents' policies and those that merely happened to occur on their watch without any such causal connections. Tim Horford summarizes a recent study by Australian economist Andrew Leigh which shows that voters generally can't do this [HT: Bryan Caplan]:

The question is, can the voters tell the difference between an incompetent government and an unlucky one? Andrew Leigh, an economist at Australian National University, thinks not. In a recent article in the Oxford Bulletin of Economics and Statistics, he looks at 268 elections held across the world between 1978 and 1999. He estimates how much of a country's economic performance is due to booms in the world economy and how much is due to competent government - and whether the voters can tell the difference.

Both matter, but as far as the voters are concerned, it is better to be a lucky government than a skilful one. For instance, a one-percentage point increase in world economic growth above the norm is associated with a hefty rise in the chance that incumbents will be re-elected - from the typical chance of 57 per cent to a more than decent 64 per cent. A stellar domestic performance, outpacing world growth by one percentage point, contributes less than half as much to the chances of being re-elected, raising them from 57 to 60 per cent.

These results may actually overstate the voters' knowledge. Short term growth rates higher than those of the world economy are also often due to luck. For example, Vladimir Putin reaped enormous political benefits from Russia's strong growth earlier in this decade - despite the fact that the growth was mostly due to a rapid increase in world demand for oil that Putin had done nothing to cause (just as he also didn't create Russia's large oil deposits). Ultimately, the effects of government competence are swamped by those of luck because the latter has much larger effects on short term swings in economic conditions - even though good policies have a major influence on long-run growth rates, which are far more important. Unfortunately, as Princeton political scientist Larry Bartels notes, most voters tend to focus inordinately on very recent economic events, discounting more significant longer term trends.

Leigh's study reinforces the conclusions of previous research on retrospective voting, which shows that voters routinely punish incumbents for bad events they didn't cause and could not prevent, including shark attacks and droughts.

A related danger of flawed retrospective voting is that it might lead voters to punish flawed incumbents by electing opposition parties that are much worse. The most famous example is the reaction of German voters to the Great Depression, which was blamed on the mainstream parties of the Weimar Republic. This led to electoral successes for the Nazis and (to a lesser extent) Communists, with horrible consequences for both Germany and the world. In recent years, poor economic performance and rising crime rates in Western Europe has led many voters to support parties on the socialist far left and nationalist far right; to put it mildly, either of these factions' policies are likely to make Europe's problems worse rather than better. Even if the incumbents really have screwed up, voters need to have sufficient knowledge to consider the possibility that the alternative is even worse.

I describe several other shortcomings of retrospective voting in Part III of this paper.

As Horford emphasizes, flawed retrospective voting is part and parcel of the more general problem of the public's rational political ignorance. Voters have little or no incentive to do the hard work of separating out outcomes that really are the result of incumbents' policies from those that are due to factors beyond their control:

Why are voters so wretchedly ungrateful? The common-sense answer is that it is not easy to distinguish a lucky government from a skilful one. In addition – and this point is less obvious – an individual voter has little incentive to do so. We all know that elections are almost never decided by a single vote, and so each voter would be right to conclude that her vote is highly unlikely to make a difference....

And if the result does not depend on any particular one of us, trying to disentangle luck from skill by ploughing through the latest reports from the International Monetary Fund is likely to remain a minority hobby.

UPDATE: It's worth noting that voters' myopic focus on short term economic trends has two other bad effects. It reduces officials' incentives to adopt policies that promote long-term growth (especially if they have visible short term costs), and it gives them strong incentives to adopt ones that artificially stimulate the economy in the short run at the cost of serious long term damage. Richard Nixon's 1971 price controls (which helped him win in 1972, but caused considerable longterm harm) are an excellent historical example.