Libertarian Paternalism?

Ilya Somin from the Volokh Conspiracy has this post on a resurgent paternalism -- using as its justification new findings from behavioral economics:

"Libertarian Paternalism" is all the rage in law and economics circles these days. To slightly oversimplify, libertarian paternalists claim that people systematically make mistakes as a result of cognitive errors and biases. Afterwards, they end up with outcomes that they themselves consider inferior to at least some of the alternatives they could have gotten by making a different decision in the first place. As a result, third party intervention (usually, but not always, by the government) can help people make the "right" decision. The difference between the new paternalism and the old is that the former defines "right" by reference to the actor's own preferences, not by some "objective" theory of morality or utility imposed by others. Thus, claim libertarian paternalists, we aren't saying that government should override people's preferences; we just want to help people get what they themselves want. For an introduction to the concept by David Thaler (a leading proponet) and a critique by NYU economist Mario Rizzo, see this debate in the Wall Street Journal Econoblog.

At least tentatively, I agree with libertarian paternalists that cognitive errors often lead people to make mistakes that they afterwards regret. The question is, however, compared to what? To justify paternalistic policies ("libertarian" or otherwise), advocates must prove not only that autonomous individuals make mistakes, but that the government will make fewer mistakes if you let it constrain individual choices.

If government policy is subject to democratic control, the key question is whether people are more irrational and ill-informed when they act as consumers than when they act as voters. Regular VC readers won't be surprised to learn that my answer to this question is an emphatic "no." Ignorance and irrationality heavily influence voting decisions, and voters are routinely ignorant about very basic things, such as the mere existence of extremely important government policies. They also hold irrational and ill-founded beliefs about even simple political issues (e.g. - believing that the economy is a zero-sum game and that free trade reduces national wealth instead of increasing it). While direct comparisons with markets are hard to come by, few if any market errors are as widespread as numerous voter errors (of which the free trade example is a notable case). Similarly, few consumers are likely to be as ignorant of the basic characteristics of the products they buy as the 70 percent of eligible voters unaware of the very existence of President Bush's medicare prescription drug plan, the largest and most expensive new government program voters have "bought" over the last 40 years. (Emphasis mine.)

He goes on to explain how while we can't trust individuals to always make correct decisions, we can't trust the democratic process to always make them either. I agree but I would even take the arguments further:

1) It may start off as "helping people choose what they want," but that will rapidly proceed into "helping people choose what we think they should want." It may be well-intentioned at the beginning, but I doubt it will stay that way.

2) I would even extend the argument further with respect to markets and the democratic process. We have both because correct policies cannot generally be predicted a priori. The assumption that any group -- behavioral economists included -- can decipher what is best for a person or even what will make them happy ahead of time is just farcical. It assumes that there is one answer to a question that has many, many answers for an individual much less a society. I just finished Stumbling Upon Happiness by Daniel Gilbert where one of his arguments is that we are unhappy because of inability to correctly predict what will make us happy in the future. When the future comes we have changed, and our feeling about what made us happy may have also changed as well. In this sense, buyer's remorse is the inevitable consequence of living; it isn't something that can be improved by policy.

This doesn't sound much like libertarianism to me.

More like this

So, it turns out people don't behave in the ways predicted by classical economics and game theory, and someone concludes that the problem lies with people?

Scientists make models, and then try to improve them to match reality. Economists make models, and then try and "improve" reality to match them. (Trite and not entirely true, I know.)

The fundamental premise, namely that "happiness" corresponds to utility-maximisation, is complete and utter bunk.

e.g. - believing that the economy is a zero-sum game and that free trade reduces national wealth instead of increasing it

Increasing "national wealth" is not the same thing as "increasing median wealth". The distinction appears lost on many advocates of unlimitted free trade. Free trade in practice appears to work to increase the wealth of the already very wealthy considerably while, at best, causing the wealth of the middle class to stagnate or possibly even decrease as capitol pursues the lowest cost labor markets to manufacture goods in.

Total national wealth means little to the average person. Wealth distribution means a lot.

By Benjamin Franz (not verified) on 29 May 2007 #permalink

There's some very strange arguments here and some that appear to be missing.

For example, the active use of disinformation, misinformation, and misdirection by businesses seems to be completely ignored. It seems to make the implicit assumption that Scam artist Kevin Trudeau's "Altie Woo THEY don't want you to know about" series and TechCentralStations' corporate appologetics under the guise of "Junk Science" are somehow more ideologically valid than the FDA, or at least not worth mentioning as a counter. To say that it's a bad idea for the state to encourage "correct choices" while ignoring the economic incentive to encourage "poor choices" seems awfully weighted in the hands of those with greater economic resources.

Secondly, it uses the American Presidential Election as an example of how badly weighted your political choices are. The US presidential election is perhaps the least democratic system available to select from; disproportionally weighted by an electoral college that by an electoral college, and restricted by the simple plurality voting system that mathematically disfavors multiple candidates (I.e. ideologically similar candidates "splitting the vote"). It's truly a "Worst Case scenario", and part of me wonders if that isn't intentionally playing to American Exceptionalism to hide that fact.

Which leads right back to my first point...

I disagree with the way the premise was stated. The point shouldn't be for the government to decide what people want based on their errors of reason and cognitive biases. Instead the focus of government should be the prevention of the exploitation of people's cognitive biases for financial gain.

But hey, I think the guys who make the Enzyte commercials should be in jail. Don't listen to me.

How many ways must the word "libertarian" be misused? Go make your own mistakes. How else will you learn?

By Greg Clark (not verified) on 29 May 2007 #permalink