In response to my recent post on governmental regulation and energy conservation, an excellent debate has started in the comments. On the one hand, there is a long list of areas in which governmental regulation has forced corporations into making decisions that are beneficial for society at large:
Catalytic converters? Mileage requirents on cars? Unleaded gasoline? Clean water act? Clean air act? Endangered species act? Vaccination requirements for public schools? Building codes? OSHA regulations? Fire codes? Why do we have these things? Were they decided on by consumers? Nope. Nearly every time they were forced on people and corporations by government because industries and individuals would not do the right thing without that evil government telling them to behave, or because some unbelievable idiotic crisis or accident forced us to realize that regulations needed to be put in place.
On the other hand, it's generally true that "Governments have never, ever been as good at allocating resources as well as people working for their own best economic interests." Just look at any one of the failed attempts at creating a command-and-control economy. Winston Churchill's take on democracy is also true of free-market capitalism: "It is the worst possible system, except for all the others that have been tried."
That said, I think the new science of neuroeconomics, which has challenged the assumptions of rational decision making ingrained in classical economics, should make us rethink many of our reflexive libertarian tendencies. The free-market isn't perfect, and crowds aren't always wise. As John Cassidy noted in the New Yorker:
If emotional responses often trump reason, there can be no presumption that people act in their own best interest. And if markets reflect the decisions that people make when their limbic structures are particularly active, there is little reason to suppose that market outcomes can't be improved upon.
So how can this new research on human decision making help us make better decisions? Take this example: behavioral economists have long known that people aren't very good at making choices concerning the future. We buy cars with big engines for the same irrational reasons that we purchase cheap (and energy inefficient) air conditioners, refrigerators and water heaters. Instead of cooly calculating the cost of energy over the long term, we are swayed by the growl of V8 engines and the prospect of immediate cash rebates. Given our own errors, it only seems fair that the EPA step in, and impose mandatory energy efficiency standards on automakers and appliance manufactuers. I can happily tolerate that sort of liberal paternalism, especially when it saves me money.
Here's another example: Americans currently have a negative savings rate. Various neuroeconomic experiments have demonstrated that thinking about getting something right away activates brain areas associated with impulsive emotion, like the midbrain dopamine system. On the other hand, when subjects contemplated financial decisions in the distant future, brain areas associated with "higher level deliberative processes and cognitive control, including numerical computation" were turned on. The bad news is that our "rationality" is usually overruled by our impetuous emotions. We instinctively want to spend money now, and end up delaying saving until tomorrow (and tomorrow and tomorrow.)
But some behavioral economists have begun designing savings programs that take our impulsive emotions into account. In March 2004, Richard Thaler of the University of Chicago testified before the American Senate on ways to increase the national savings rate. His plan was simple: rather than asking people whether they want to start saving right away, companies should ask people if they want to opt into a savings plan in a few months. Since this allows people to make decisions about the distant future without contemplating the present, it bypasses our emotions. Trial studies of this program have been a resounding success: after three years, the average savings rates went from 3.5 percent to 13.6 percent.
This is another example of the sort of very limited paternalism I can live with. Rather than forcing people to make a certain set of decisions, it simply nudges them in the right direction. It helps us help ourselves.
PS. If you want to read an elegant essay that completely disagrees with me, check this out.
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I don't see this as paternalism, I think only libertarians see these measures as paternalistic, I see this as intelligent utilization of pooled resources.
I think what I'm arguing against is this "fallacy of the omniscient consumer." You similarly identify the consumer as a less than ideal economic actor, and there we agree. But I think it's more than just bad choices being made for emotional reasons, it's just the inability to know everything about everything. An average consumer can't, for instance, know enough about pharmacology to determine if a medication is safe, enough about architecture to know a building is safe, to know enough about software/engineering to know their airplane is safe, enough about individual business owners to know they won't be defrauded, etc. This libertarian argument that the government should not regulate requires this omniscient consumer, and most people have to work for a living and can't afford to research every goddamn decision they make.
That's why we have the government regulate these various industries. It's a pooling of resources. We can't check every food item and drug, so we have the department of agriculture and the FDA. We can't check airplanes software and engineering ourselves, so the FAA has to approve each new design and software change. We can't prevent people from screwing us in scams over state lines, so we have the FTC track down the crooks. We can't be sure stockbrokers aren't colluding and breaking the rules so we have the SEC, etc. The regulations that exist are there because we've decided, correctly, every consumer can't be omniscient. Next they'll respond that if there's a problem you could always sue or something. Well, frankly, I don't want the threat of lawsuits to be the only thing between me and shoddy airplane engineering, contaminated food, ineffective/dangerous drugs etc., because I'll be dead, and my family then would have to pay the expense of figuring out exactly which unregulated item killed me. This idea just doesn't take into account sensible prevention.
Then when you get to these more sophisticated regulations, it's people saying they want the government to fix a problem, and they simply don't have the time or resources to take care of it. For instance, we have the clean water act because lake Erie caught fucking fire. How does the individual consumer correct this problem? One could organize, I suppose, and oppose the polluting industries. But then you'd need someone to figure out which industries did it, someone to monitor that they have changed their ways, someone to track the water quality, not to mention someone to organize the protests and information campaign to make consumers aware of the problem (sounds like a government), and then, people will probably still just buy whats cheaper and pollutes more! Consumers can't control things like this with choice. It's just fallacious reasoning, and a luxury of a society that protects us to the degree that we think we're safe and long-lived because were just so freaking smart. Well, we're not. People are stupid, and they don't deserve to die or wreck the planet just because they're dumb and make bad choices.
Let's not forget that all the failures on the part of human beings to act rationally also apply to government officials. Government agents have their own biases and failings. The difference is that government mistakes tend to get corrected only slowly and imperfectly, whereas market mistakes tend to get corrected rather quickly. Was there an internet bubble? Maybe, but it lasted a couple of years at most. Meanwhile, the government is still subsidizing mohair to ensure that we have enough for our WWII uniforms.
That's not to say that there can't be some appropriate application, but let's not lose our heads.
Jonah,
Thank you very much for being objective enough to link to Wil Wilkinson's rebuttal.
Wilkinson dismantles quitters post above with this statement:
"In any case, if you really think people make systematic "mistakes" in judgment and choice, there is no reason to believe that democratic voters --who have less at stake when casting their ballots than when choosing what to have for lunch -- will be especially good at populating the government with Spock-like rational legislators interested in tweaking cognition through expertly targeted policy rather than with well-coiffed primates interested in hoarding status and power."
How do we know that the laws that congress writes telling the FDA how to do their job are correct? Have you read them? (I have) Can you really prove that the Food Drug and Cosmetic Act of 1938, amended in 1997, really provides the protections you claim? How do you know it's not the good will of the people who work in the food, drug and cosmetic industries today (especially food and drug) that keeps you safe?
I'll say it again, and I expect you to provide the burden of proof to the contrary: The FDA did not have agents in my lab all day, looking over my shoulder. I had no reason to perform the tests the way they were written other than my own integrity. The companies I worked for had no reason to bring in outside experts to help us improve our systems other than their own interest, which was to compete in the market, delivering safe and effective treatments to people who needed them. I and my colleagues could very easily have "cooked the books" and created lab results that the FDA would have liked, if we had wanted to, and there's nothing you or the government could have done to stop us. We didn't do it (you have to trust us!) and when others "went astray" we showed them the light, or showed them the door.
Faith in government's benevolent paternalism is no more rational than faith in god's benevolent paternalism.
If anyobody is still reading this, hop over to Ed Brayton's page and read:
The Danger of Ignorant Legislators
Apples and oranges. Silly illogical crap arguments there spike.
Regulation is not just decided by some bureaucrat sitting in a room pulling ideas out of his/her ass. The process is not equivalent to a consumer decision. My arguments are not effected by this imaginary government of which you speak.
Legislation, especially dealing with regulation of very complicated issues like drugs, food safety, interstate commerce, whatever, are decided by panels of experts, who write reports. Reports are read, digested, and legislation is hopefully crafted to address problems identified by panels of experts in their reports or testimony before congressional panels. It doesn't always work of course, it is a human endeavor, but your leap to say that any human endeavor is equivalent to some schmuck on the street is ludicrous.
So, denialist arguments again. Selectivity (your silly mohair example to counter all the positive regulation by government), and red herrings. You address none of my positive arguments, you provide no data. It's just denialism. You refuse to accept the fact that regulation isn't some horrible paternalistic assault on freedoms, but just a pooling of resources to help us make correct decisions. The libertarian fallacy of the omniscient consumer is a joke. No one can know everything, about everything. Do you read the blueprints for the airplanes you fly on before you take a trip? Or do you trust the FAA to regulate safety of air travel? Do you verify the code that runs your ATMs before you make a withdrawal or do you let the various banking regulatory bodies do this? Do you understand the pharmacology of every drug on the shelf? Have you tested them in double blind clinical trials? No, you let the FDA require drug companies to provide that proof (if imperfectly) and decide whether or not drugs are poison. Are you prepared to study drugs periodically every 5 years to ensure their continued safety? Who will pay for these studies without the regulation?
You ignored all my arguments about the clean water act, various regulatory agencies, and the necessity of pooling resources to make things safe in a complex world. Anyone who thinks they are omniscient enough to make informed choices about every single damn thing we confront in a day is deluded or doesn't have a freaking job. And the data proves it. Consumers make irrational choices all the time, and industry has figured out how to profit from this. And individual consumers have neither the time nor the resources to make rational informed decisions about everything they will confront in the course of their day.
I think that the linked article needs clearer rebutting than quitter has provided. Put simply, this kind of paternalism isn't about irrationality, it's about lack of knowledge. It's not saying that detached and cool considerations are more morally worthy than heated or impulsive ones, it's saying that uninformed considerations are worse than informed ones. If that's a value judgement, it's one so obvious that it would be silly to oppose on that basis.
If by "paternalism" you mean "manipulative", both government and society are guaranteed to be paternalistic. We should at least try to get some benefit out of it by presenting options in a way that leads people to make (what are likely to be) correct decisions about important subjects.
Not that we can trust either completely, but whom do you trust more -- a corporation who, by law, is to seek a profit and externalize (i.e., dump on to the society) all costs (such as pollution) as much as possible (see The Corporation for an idea of their sociopathic behavior) or, the government whom you can (at least theoretically, in a democracy) elect/unelect? We can trust the corporation to make adjustments on their revenue side, but they will keep shafting us their costs w/o govt. regulation.
Unfettered free market capitalism makes neat equations, but like the architect in The Matrix his/those equations can't possibly cover all the complications of reality -- quitters points are well-taken -- we really can't assume people make "rational" decisions -- do economists purposely ignore psychology?!.
Andrew Wilkins on neuroeconomics, behavioural psychology and 'soft' paternalism (2011)
http://roehampton.academia.edu/AndrewWilkins/Papers/396089/On_neuroecon…