The paternalism of weasels

The Wall Street Journal has a long and pretty technical exchange between two economists, Mario Rizzo of NYU and Richard Thaler of the University of Chicago, debating the merits of “libertarian paternalism.” Thaler’s in favour, Rizzo is against to the point of scorn.

The idea is that sometimes we can tell what’s right for people, and they just need a little nudge to get there. As an example, Thaler talks about workplace-based retirement savings programs in which workers are automatically enrolled, but are allowed to opt out of. Saving money for retirement is good and more people should do it, so we’ll make that the default option, but people who know what they’re doing can bail out of the automatic savings plan and do what they want with their own money.

“We know what’s best,” the thinking goes. “We’re not going to force people to do it, but we’re going to make the choice we believe to be right the easiest and most immediately rewarding.”

The two economists’ back-and-forth centres on personal-finance choices, but the whole argument is very important to environmental policy, too. What Thaler labels libertarian paternalism is the philosophy underlying tax and subsidy systems designed to encourage individuals and companies to make the “right” environmental choices, which are very often fallback compromises for two groups of policymakers:

  1. Politicians and bureaucrats who know what they’d like to order people to do, but can’t pull together the political capital to, in the face of vocal resistance to their goals. The Ontario government’s tax rebates on hybrid cars are an example: they wish they could order everyone to drive hybrids, but that’s not realistic, so they offer up-to-$2,000 rewards to people who choose to.
  2. Politicians who are themselves skeptical of particular environmental goals, but want to be seen doing something on an issue of public concern. The Canadian government’s “feebates” for extremely efficient and extremely inefficient cars are an example.

Canada’s former federal Liberal government loved a particularly harsh form of libertarian paternalism — its ministers were forever musing about how they hoped industry would “voluntarily” do this or that, and if it didn’t, the government would be forced to regulate. Some strange idea of voluntarism.

Libertarian paternalism is not libertarianism. “Restrained paternalism” might be a better term for it. It’s people who really believe they know what’s best trying to not to make other people behave accordingly, while trying not to be overt jerks about it.

On my bad days, I slip into a kind of libertarian paternalism myself, which is why it’s important to keep Rizzo’s most cogent complaint in mind. It’s really the centrepiece of political libertarianism:

[T]he public sector is not governed by science or even by behavioral economists, but by ambitious people with limited cognitive abilities, lack of willpower, and faulty memories, not to mention expanding waistlines. Whom should we trust more: individuals who face the costs and benefits of their own choices, or politicians and bureaucrats who do not?

Public officials do not know what is best. They work with imperfect information. They make mistakes. Sometimes, they’re weasels. All this is true of them, of me, of you, of anybody whose understanding of the world is short of God’s. We get things wrong.

Arnold King at EconLog makes this point in less colourful language:

I attended a Cato lunch where Rizzo spoke a couple months ago, and at that time I thought he raised some doubts about whether behavioral economics was a way for economist X to infer citizen Y’s true preferences or instead was simply a fancy way for economist X to impose his own preferences on citizen Y.

Mark Thoma at Economist’s View has a visceral and, I think, appropriate response to libertarian paternalism as Thaler describes it.

My reaction is very simple. I hate feeling like I’m being manipulated. I want to decide what’s best for me, not be manipulated into making choices the government thinks is best.

Most reasonable people share this gut reaction, I think, which is why the public-policy tools libertarian paternalism supports are so dangerous and often ineffective.

Traffic-calming is an example. Seems like a good idea — put bulb-outs from sidewalks in to narrow roads, have lanes wind back and forth, and so on, all measures meant to get drivers to take it easy. But drivers hate traffic calming, and often respond by flooring it as soon as they’re out of the “calmed” area.

Grosser measures like narrower streets and on-street parking don’t generate the same response, it seems — only overt calming measures that nobody can miss.

Here’s my bottom line:

What I try to argue for, as a self-described eco-libertarian, is improvements in market systems to better assign costs to the people whose decisions incur them. The environment has long been assumed to be fundamentally impervious to damage from humans, but every day that passes, we find out just how delicate it is. Many assumptions need to be reconsidered, many long-established systems need to be reworked, and this isn’t easy.

The goal, however, is not to promote what we assume are the solutions to environmental problems are at any given time — especially considering all the previous assumptions we applied that were wrong. It is to make sure that decision-makers have the right incentives to find the solutions for themselves.

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