My previous post triggered a lot of comments accusing me of misunderstanding Coase’s Theorem.  It is certainly possible that I did, but I am going to argue that many of my commenters are misunderstanding that famously misunderstood Theorem.
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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.
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Tyler Cowen called on bloggers to list the books that most influenced them.  As soon as I started looking at other lists I got worried that I wouldn’t be able to come up with anything respectable.  Yes, I am familiar with A Theory of Justice,  The Structure of Scientific Revolutions, Guns Germs and Steel, The Bell Curve, The Road to Serfdom, etc, etc.  But have I read them?  Well, 30 years ago I read The Road to Serfdom, but I really don’t remember the book at all.
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Before concluding chapter 5, a few comments on a recent post by Mark Thoma, who responds to my previous post on Adam Smith.  First a couple areas where I agree with Thoma:

1.  I shouldn’t have used the term ‘trivial’ to describe the list.  I should have said something like “modest.”

2.  Because I read the post too fast, I did not notice that the list was Viner’s, not Kennedy’s.  That does change things somewhat (and not just because he is a University of Chicago guy.)  In 1928 the Federal government in the US comprised 3% of GDP, as compared to nearly 25% today.  If that was the benchmark for normal, then yes, Smith’s views did not seem all that laissez-faire by comparison to the role of government in 1928.  We weren’t completely laissez-faire in 1928, but we were much closer than today, and hence Viner’s list would have seemed much more impressive back then.

Update: I just noticed the following comment from Thoma:

You say “I did not notice that the list was Viner’s, not Kennedy’s.”

You also don’t seem to realize that the latest points are from Gavin Kennedy, not me. (e.g. “Thoma ends up with this argument…”)

Let’s hope you read Smith with a more comprehension than you’ve demonstrated here.

Touche.  Yes, I did get confused by Thoma’s quotations within quotations.  But that’s my fault, as I know he often uses that format.  In any case scratch Thoma and consider all these comments directed at Kennedy.  Back to the original post:
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First a few interesting links:

1.  Adam Smith did favor laissez-faire.

Mark Thoma recently linked to a Gavin Kennedy post that argued Adam Smith did not favor laissez-faire.  I don’t agree.  The evidence cited was a one page list of government interventions that Smith favored.  The US, by contrast, has enough government interventions to fill a New York City phone book, if not a small library.  And the US is regarded by the Europeans as “unbridled capitalism.”  Even Hong Kong intervenes in far more ways than Adam Smith contemplated.   Of course Smith was not an anarchist, he did favor some government intervention in the economy.  But relative to any real world economy, his policies views were extremely laissez-faire. 
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