Voters literally know less than zero about economic policy - we would have better policies if they just voted randomly. But people who believe in "retrospective voting models" often retort that voters' policy incompetence doesn't matter. They don't have to understand economics; they can simply reward politicians who deliver the goods, and punish those who don't.I think we need to be careful when interpreting results like these. It's true that voters don't have a good understanding of economic policy, and over short time scales attribute the responsibility for economic performance in a completely irrational way. Although they understand policy lags enough to give politicians a small grace period (as Obama is experiencing now), they tend to blame whoever is "in charge" for the current state of the economy, even when there is little legitimate reason to do so.
Sounds good. But does it work? Tim Harford reports on some interesting research showing that voters actually reward politicians more for prosperity that they didn't cause. In other words, voters know less than zero about causal responsibility...
But what does this mean? Should we abandon democracy on economic matters, because the voters are clearly too stupid to offer any useful input? Here I think it's critical to distinguish between time scales. Voters' failure to correctly attribute responsibility in the short-term doesn't obviate their long-term usefulness as a check on our governing institutions. For instance, I'm sure that a council of our most prominent economics bloggers, given dictatorial authority to manage fiscal and economic matters, would do a better job over the next few years than our bungling Congress. You could include a range of political opinion: I'll bet that if the council consisted of Tyler Cowen, Brad Delong, Paul Krugman, and Greg Mankiw, it would accomplish more and enact wiser policy than our current political leaders, even amid large gaps in ideology.
I don't, however, favor a permanent switch to dictatorship by unelected economists, and I don't think anyone does. I trust smart academic economists to make far better decisions than the median voter, but I can't be sure that they won't make some serious mistakes over the long run, and long-term democratic accountability is the only viable mechanism we have to correct this. While voters may be economically clueless, they are capable of basic observations like "we have 20% unemployment -- let's try something different" and "the economy hasn't grown for 15 years," and their retrospective voting will in the long term keep policy roughly on track. Yes, they will also produce a lot of noise, and Caplan has done political economy a valuable service by noting that this noise is in fact negative in many ways. But I shudder to think how bad the Great Depression would have been if lassiez-faire economic orthodoxy had the power to override the popular will indefinitely, and the New Deal was never even allowed to leave the ground.
The real question is how our system will implement democratic accountability. There is a tradeoff between giving elite policymaking bodies more "slack" and making them responsive to the popular will. We've created some institutions, like the Federal Reserve and the Supreme Court, that tend to function well despite (and perhaps because of) their removal from immediate democratic control. It's quite possible that we're getting this tradeoff wrong, and that we still lean too far toward the "popular will." This is a difficult question of institutional design. I just think it's important to understand this tradeoff, and that all too often we opportunistically align ourselves with one extreme (voters have the right to decide) or another (voters have no idea what's good for them) depending on the issue at hand.