The Eventually Rational Man

There is some debate as to whether or not humans are rational. I think this is sometimes used as a ploy to devalue the contributions economists have been making, and to justify more government intervention. The standard response has been to suggest that if men are indeed irrational it makes even more sense to limit governments; how can we hope to have men, incapable of acting rationally for themselves, act rationally for the rest of us?

Good point, but there is more to be said:

Humans can be irrational for a period of time, but tend to learn the rational choice over time.
Humans act most rationally when the costs and benefits of an action are clear; the government has near mystical powers to confuse cost/benefit analysis.

So, as a statistical matter, it doesn't matter that a random number of people are acting irrationally. The irrationality exists for a short term. Many suggest we have a housing bubble. If irrationality was persistent, the bubble would just continue until no one could afford a house. But we know bubbles burst. Things change. And that nutty guy who thinks he can live off of sunlight will be scarfing down a burger in about three days. If he doesn't he'll die. Once dead, a person is no longer rational or irrational.

Governments have this nasty tendency to take money from some people and give it to others. They buy into the fad of the day. They distort the costs and benefits out of all reality. Governments bring us, for instance, recycling. If no one will pay you for it, that's a clue that it costs more to recycle it than it does to just make a new one. If it costs more, that doesn't just mean it costs more in money; it costs more in resources! And yet government cleverly hides this from you by mandating recycling, subsidizing it, and pointing to all the supposed benefits.
Now, people are still being "rational" when they recycle, but since the true situation is hidden, the net result is "irrational" because the effect is the opposite of the one intended by the people.


So if we want more rational behavior, we need less government. We also need clearer ways to see the cost/benefits of each transaction. Millions of us making little choices, some of which may be wrong, but can be easily corrected, or a few of us making huge decisions that cannot be changed easily. I'll go with the former; we've already seen what the latter can do.