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People are complicated, so there is more than one problem -- and people are stubborn, so there is no agreement on which problems are most important or how to solve them. But you already knew that.
I encourage my students to start not from the vantage that "voters are stupid" but from the vantage of "rational ignorance." People know that their individual votes aren't likely to determine the outcome of an election (even assuming that the votes are fairly counted), because the statistical odds become smaller than the odds of being hit by a car on the way to the polling place. (Luckily, most people don't make and act on that particular calculation, or turnout would be much lower! Dunno, that particular factoid might be apocryphal -- the odds aren't unambiguous, but they are clearly pretty extreme.)
So, in part since people don't figure that their political judgments matter much anyway, people do tend to form them pretty carelessly from whatever happens to be 'lying around' (how the economy is, what their friends say, what they hear on Clear Channel, whatever). I tend to be in the camp that says that people generally do pretty well considering (my dissertation advisor co-authored The Rational Public, and you might say I am of that school), but in any particular case.... What is the saying, "You can fool all of the people some of the time, and some of the people all the time -- and come to think of it, those are pretty good odds"? For instance, people didn't really embrace Bush's tax cuts, but most of them have no idea just how skewed they were, and I definitely fault the media for that. (But don't get me wrong: rational ignorance, or however you want to think about it, puts a limit on how much most people are likely ever to know about political issues.)
Getting more people to vote definitely would not necessarily make things better, either for Democrats now, or in general. Democrats tend to imagine non-voters as natural Democrats (economic populists, at least), but at best it isn't that straightforward. Non-voters, unsurprisingly, tend to know less about politics than voters -- so forcing them to vote indeed won't necessarily lead to better collective decisions. As you put it, yeah, we will get donkey votes (but not necessarily the Democratic donkey). That doesn't mean I want to keep people from voting, but I'm more worried about the information they get.
(Interesting anecdote about how your high school students "voted.")
I think the drinking-buddy thing in 2004 was probably overblown. But many people did get the impression that Bush understood real people's lives better than Kerry did.
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