I haven’t yet weighed in on the subject of libertarian paternalism, partly because I don’t have strong views on the issue. Now Cato Unbound is doing a debate on the topic. After reading essays pro and con, I’m still undecided, but leaning pro. Here’s Glen Whitman speaking out against paternalism:
Choosing Among Preferences
What does “irrationality” look like? How can you prove someone is irrational, rather than simply having preferences you don’t share? After all, there is nothing per se irrational about strongly valuing the present relative to the future, or enjoying food more than you enjoy good health.
To demonstrate irrationality, behavioral economists frequently point to inconsistent behaviors that suggest inconsistent underlying preferences. For instance, people make long-term plans for saving or dieting but then, when the time comes, reverse those plans and succumb to the desire for short-term gratification. They also make different choices in different emotional states — such as saying they would never sleep with an obese person, then reversing that preference when sufficiently aroused. (Yes, an experiment by Dan Ariely has actually shown that.)
There is some dispute as to whether all such behavioral inconsistencies reveal irrationality. But let’s say they do. Even so, that fact does not license a third party to choose among competing preferences. If a person is more patient when thinking about trade-offs in the distant future, but less patient when thinking about trade-offs near the present, which level of patience is “correct”? If you would sleep with a given person when you’re in a “hot” state but not in a “cool” state, which sexual preference is “correct”? Neither theory nor evidence provides a basis for answering these questions. As some new paternalists admit, behavioral inconsistencies may indicate that “true” preferences simply don’t exist.
Nevertheless, new paternalists have not hesitated to pick and choose the “right” preferences. O’Donoghue and Rabin, for instance, define “optimal sin taxes” in terms of a person’s most patient rate of time preference. Similarly, the new paternalists favor the preferences we display in a cool state (calm and sober reflection) over those we have in a hot state (fear, anxiety, arousal, etc.), even though arguably the “hot” preferences might do a better job of revealing our true desires.
So how are the paternalists choosing, if not on the basis of hard science? It’s not hard to see: they are favoring their own preferences, which also happen to be the socially approved ones.
I like this argument. To be fair, the libertarian paternalists don’t want to force others to adopt socially approved behavior, rather just “nudge” then in that direction. Glen Whitman worries, however, that this could lead us down a slippery slope toward more repressive forms of paternalism:
Sound paranoid? Anti-smoking regulations followed a similar path. Once upon a time, banning smoking on airplanes seemed like the reasonable middle ground. Now that’s the (relatively) laissez-faire position, smoking bans in bars and restaurants are the middle, and full-blown smoking bans have come to pass in some cities.
Decades ago I made this argument to progressives—I argued that eventually they would start banning smoking in people’s own apartments. And then they’d go after the fatty foods. I still recall how the progressives used to roll their eyes at my paranoia. Even worse, it seems to me that in his reply to Whitman, Richard Thaler validates my worst fears—the fear that libertarian paternalists will eventually use the cover of “externalities” to go beyond a gentle nudge:
The only example Whitman gives is smoking, where there certainly has been a progression of increasingly intrusive laws passed. But there are several problems with this example. First, most of the anti-smoking laws are based on externalities, not paternalism. People do not want to fly, eat, or work in smoke-filled environments. Indeed, many smokers favor such laws.
I had to read this several times, as it seems flat out wrong. Of course I am just a lowly macroeconomist who hasn’t studied micro in decades, whereas Thaler is a microeconomist at the University of Chicago. So I’d like your reaction. Doesn’t this argument violate the Coase Theorem? For example, let’s take the ban on smoking in the workplace. Where is the externality argument? Doesn’t the employer already have an incentive to put in place the smoking rules that minimize his productivity-adjusted wage bill? I.e. suppose you have 100 smokers in your company, and they get $1000/year in perceived benefit from being able to smoke at work. Also suppose there are 200 nonsmokers. Then doesn’t the company have an incentive to ban smoking if and only if each nonsmoker averages more than $500 in disutility from second-hand smoke? And the same applies to bars and restaurants and any other indoor private property. The cost of second hand smoke outdoors is trivial. So I don’t see any externality argument for the new wave of anti-smoking regulations. And as far as public health costs, they aren’t as high as most people assume (partly because smokers don’t live as long as others) and thus the tax on cigarettes is already far higher than the expected net cost to the Treasury from people smoking and damaging their own health.
Thaler’s a smart guy so the odds are that I’ve misinterpreted Coase’s Theorem. After all, everyone else does. Please let me know the flaw in my reasoning, as this is the example I always use to explain Coase’s Theorem to my students. I don’t want to continue committing economic malpractice if the argument is flawed.
[Update, 4/12/10: Richard Thaler emailed me and indicated that he didn't necessarily mean to imply that the externality arguments were justified, but rather that externalities rather than paternalism was the justification for this legislation, and hence that it did not provide a good example of the slippery slope argument. That's a fair point. In that case my argument is not directed at Thaler, but rather those who implemented the legislation using bogus externality arguments.]
And yet, despite everything I’ve said, I still am not really convinced that libertarian paternalism is such a bad idea. Thaler makes the following argument, which seems to make sense to me:
In short, the risk of the slippery slope appears to be a figment of Professor Whitman’s imagination, and clear evidence of his bathmophobia. To be fair to him, this phobia is hardly unique to him and Professor Rizzo. Slope-mongering is a well-worn political tool used by all sides in the political debate to debunk any idea they oppose. For example, when the proposal was made to replace the draft with an all-volunteer army, the opponents said this would inevitably lead to all kinds of disastrous consequences because we were turning our military into a band of mercenaries. The argument is perfectly versatile. If we allow (blacks, women, gays. . . .) into the military then (fill in the awful but inevitable consequence here). If we allow free speech then we will give voice to the next Hitler. “Allowing a partial privatization of Social Security will destroy the moral fabric of our society.” Never mind that Sweden did it a decade ago. You get the idea.
Instead of slope-mongering we should evaluate proposals on their merits. (We devote a chapter of Nudge to an evaluation of the choice architecture used in Sweden’s social security experience.) Helping people make better choices, as judged by themselves, is really not a controversial goal, is it?
A couple reactions:
1. If we had to have a Singapore-style benevolent dictator we could do much worse than Richard Thaler.
2. The real test of libertarian paternalism will come when we see how often it is advocated as a way of softening hard paternalism. We all know about Thaler and Sunstein’s advocacy of ideas such as making membership in a pension plan the default option for new employees, and requiring affirmative steps from those who wish to opt out. (I lost a lot of money by not joining a 403b back in 1981, when I had the chance. If only their idea had been around back then.) What I will be watching for is to see if there are an equal number of proposals to move from hard paternalism to libertarian paternalism, as there are to move from laissez-faire to libertarian paternalism. Thus do people like Thaler and Sunstein advocate replacing the requirement that the FDA approve all new drugs, with a mere stamp of approval, which consumers are free to disregard if they wish? It would give me much more confidence if they did.
In the end I think a mass movement of libertarian paternalism might actually be a very good thing. Suppose it starts getting implemented in one area after another. I know it seems unlikely that a mass movement could ever form around such a bland and innocuous idea, but let’s suppose it did. It seems to me that if people started viewing libertarian paternalism as the norm, they might start asking hard questions about the many types of hard paternalism that do great damage to our society. Starting with our legal drug laws, and then on to our illegal drug laws. In my view if we got a few nudges toward socially approved behavior, that were easily circumvented by those who wish to go their own way, the costs would be trivial compared to the benefits of people in great pain getting adequate pain medication, and also the benefit of 400,000 innocent people being freed from prison. So by all means let’s bring on libertarian paternalism. It is far more libertarian than it is paternalist. But don’t stop with pension plans; apply it everywhere.
First I plan to see Sweetgrass. Then I’ll take direct action. If you see a guy in front of the White House with a sign saying “We Demand the Goverment Begin Gently Nudging Us,” you’ll know it’s me. Now we just need to find our William Jennings Bryan.
HT: Will Wilkinson
BTW, the oxymoronic term ‘libertarian paternalism’ reminds me of the similarly ungainly ‘liberaltarianism.’ If we are going to make progress in that direction, it would help if libertarians absorbed the ideas of David Boaz, which are discussed in this Will Wilkinson post. I don’t know what advice I’d give liberals—maybe spend three years studying under Gary Becker.