Friday, May 25, 2007

Don't get it

I always struggle a little when free market economist types take issue with Thaler's concept -- Libertarian Paternalism. It's easy to understand how this particular branch of behavioral economics came out of U Chicago since it takes the very real findings of systematic human fallibility and synthesizes it with the very real benefit of individuals making their own choices.

Thaler sums it up well in this WSJ debate:
Let's recapitulate. People make mistakes, so sometimes they can be helped. It is possible to help without coercion. That is libertarian paternalism. The concept can be and is used in both the public and private sectors. For example, in London, pedestrians from abroad are reminded by signs on the pavement to "look right" because their instincts from back home are to expect traffic to approach from the left. No one is forced to look right, but fewer pedestrians are hit by trucks.
I find this position impossible to argue with. Since we cannot help but to have default choices (emphasis on *default* and *choices* separately) we might as well try to get central planners to pick the best defaults. These central planners will make mistakes, as they always do (they have the same systematic human fallibility as the rest of us) but since we've left the *choice* part in, these centralized decisions should have less bad consequences as they do not bound people's actual opportunity set in any way.

Nevertheless, everyone doesn't agree:
Mario Rizzo writes: Libertarianism is a political philosophy that seeks to reduce the activities of the state to a very low level. It is very much about less government. Paternalism is a political or moral philosophy that seeks to override the actual or operative preferences of individuals for their own benefit, however defined, according to Donald VanDeVeer's 1986 book on the subject. When applied to the actions of government, paternalism cannot be libertarian. It can only be more or less intrusive.
With respect, this is a pedantic argument. Libertarianism does focus on reducing the activities of the state, and this is because it presumes that the states activities are harmful. But there is still some state there. Why not try to make it a better state which encourages (hopefully) good decisions and does not bind people to the bad decisions it will nevertheless make?


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