Tag: libertarian paternalism

Three Cheers for Autonomy

In today’s New York Times, philosopher Sarah Conly gives “Three Cheers for the Nanny State,” specifically, NYC’s famed big soda ban. Invoking aspects of the theory of “nudge,” made popular in a book by Richard H. Thaler and Cass R. Sunstein, Conly argues that, sometimes, the government can rightfully save us from ourselves.

The popularity of “nudge theory” is closely tied to the recent spate of popular science books on the foibles of the human brain. Books such as Predictably Irrational and A Mind of Its Own are part of a new self-help fad: the idea that scientists studying the error-prone human brain can help us understand why we are unable to quit smoking, lose weight, and many other common problems.

It was only a matter of time until government regulators and their champions embraced this new science in order to put a fresh spin on an old impulse—their never-ending desire to save us from ourselves. But despite the valid insights of cognitive neuroscience, both nudge theory and Conly’s editorial are no more defensible than any other paternalism. We should not be deceived into believing that there is any new wine in those old wineskins.

New Paternalist Surprises

The front pages of Thursday’s Wall Street Journal and Washington Post (links below) both featured stories on the unexpected consequences of the sort of “nudging” policies recommended by so-called “libertarian paternalists.” Mario Rizzo, an economist at New York University who often blogs at ThinkMarkets, sent along this commentary to share with C@L readers:

As Glen Whitman and I have repeatedly argued, new paternalism faces a knowledge problem similar to that uncovered by F.A. Hayek in his critique of socialist calculation. In our view, paternalists cannot acquire the knowledge they need to implement policies that are effective according to their own standards.

The new paternalism purports to nudge people toward the better satisfaction of their own preferences than people can achieve themselves. We are too ignorant, too weak-willed, and computationally too incompetent to satisfy our real or underlying preferences. We save too little for our retirement because we are overly impatient and cannot postpone spending.  We eat too many calories because we underweight the costs of future illness due to obesity.

The new paternalists thought they had at least a partial solution to the first problem of undersaving. For those people who have employer-sponsored retirement savings programs we can use a common “defect” in decisionmaking to help them out.  People are prone to status-quo bias, that is, they tend to leave in place whatever situation they may find themselves in. So when employees are automatically enrolled in retirement savings unless they opt out, more people are enrolled than when the default is non-enrollment unless they opt in. What could be simpler?  Make the default automatic enrollment, and voila more retirement savings!

Now comes the annoying data.

According to a recent study commissioned by the Wall Street Journal more people are indeed enrolled in 401k programs as predicted. However, those who would have chosen enrollment under the old opt-in system (around 40% of new workers) tended to remain in a lower salary allocation in the default (frequently 3%) than they would have chosen on their own. So instead of using the status-quo bias to increase savings it turned out that the automatic enrollment decreased savings among this group.

What was the result overall?  Savings in these plans have gone down. Vanguard estimates that half the decrease in 401k savings rates in its plans from 7.3% in 2006 to 6.8% in 2010 was due to automatic enrollment. Of course, this was not entirely unexpected, as Whitman and I pointed out in our 2009 law review article.

Moving on to obesity. Mandatory posting of the caloric content of food in chain restaurants has been another new paternalist light-touch intervention in the market. Although restaurants are coerced, consumers are simply given information. With the calorie-postings staring at people at the moment of sale it was thought that many people would cut down on calorie consumption. An article in Thursday’s Washington Post indicates that the local laws mandating calorie-postings have not had the desired effect. Instead of concluding that perhaps people simply value the pleasure of caloric food more than the projected negative consequences, paternalists conclude that a stronger policy may be necessary. Many of them stand ready to impose a heavier touch: an excise tax on “junk food.”

Each of these cases illustrates the same problem. Trying to determine what people’s true or underlying preferences are (Do they want more 401k savings? Do they want to reduce calorie consumption? Do they want to incur the opportunity costs of each?) is more difficult than it may seem at first.  Trying to engineer the appropriate response from individuals requires a detailed knowledge of the interaction of many conflicting incentives. New paternalists do not take seriously the very biases literature they often cite. For one thing they choose to analyze only one — or perhaps two — biases at a time. The reality is one of many conflicting complex-interacting biases. Biases are also very context-dependent and so they may vary in direction and quantitative magnitude from case to case and from year to year.

The moral of the story: Expect more surprises and unintended consequences from new paternalist policies.

We’re Terribly Czarry

My former colleague Dave Weigel makes the excellent point that the supposed explosion of “Czars” under this administration is, in significant part, a function of journalists trying to make the same old “deputy undersecretary” sound sexier. Which is a shame, since it means that the pernicious and the benign get lumped together under the same sensationalist label – one whose public effect is to normalize the idea of unaccountable individuals within the executive branch given sweeping powers to solve specific problems, whether or not that picture is accurate.

I don’t know how much it can be attributed to the Czarmania, but I’m especially puzzled by the apparent emergence of legal scholar and prospective OIRA Adminstrator Cass Sunstein as the new hot bogeyman for conservatives. The Office of Information and Regulatory Affairs, which Sunstein’s been tapped to head, was created in 1980 and is precisely the sort of agency conservatives should love – tasked with catching inefficient and excessively burdensome regulations before they go into effect. It has, unsurprisingly, been most active under conservative presidents, and is one of the few offices where fans of limited government should want a vigorous, influential, and intellectually formidable director at the helm.

Now, Cass Sunstein is not somebody I agree with on a great number of things. On the day he’s tapped for a seat on the Supreme Court bench, I’ll break out in hives. But it’s awfully hard to imagine any realistic alternative – anyone Obama might actually have appointed – who would be better in the OIRA post from a limited government perspective. (I considered some of the specific concerns being raised about Sunstein back in the spring and found that they ranged from exaggerated to simply mendacious.) That’s one reason hardcore progressives have, in fact, been freaking out over his nomination. They must be pinching themselves  now that it seems Glenn Beck is out to do their work for them. Say what you will about the tenets of “libertarian paternalism,” but at least it’s an ethos that would demand a far lighter touch on markets than the unreconstructed technocracy of your average regulator.