Rizzo versus Thaler on “Libertarian Paternalism”

Earlier this month, a few of us at Cato had the opportunity to hear NYU economics professor Mario Rizzo discuss a paper he has been working on with Glen Whitman on the so-called "new paternalism." Their conclusion is that there is nothing "new" about it, and that it collapses into plain old paternalism. Today, over at the Wall Street Journal's Econoblog, Mario takes on Richard Thaler, who along with his University of Chicago colleague Cass Sunstein, is responsible for the notorious "libertarian paternalism" pseudo-concept.

Mario, gets the best of Thaler, I think, despite the fact that Thaler is incredibly evasive and slippery in this exchange, basically refusing to address a number of Mario's rather deep objections head on. He wants to keep the "libertarian paternalism" terminology while denying that he is offering a set of ideas that are in the same line of semantic business as either "libertarian" or "paternalism." It's hard to see the point of this, other than to rhetorically "nudge" people into thinking that paternalism is sometimes okay because it is sometimes "libertarian," and to get people to think that even libertarianism can sometimes be "paternalistic." 

It is surely true, as "behavioral economists" like Thaler have shown, that we have a tendency to make certain kinds of cognitive "mistakes" (relative to some impossible blackboard standard of economic rationality, at least) and suffer from certain weaknesses of will. And it may also be true that many workers will be glad to accept labor contracts that provide for work and compensation arrangements that help them structure their time or manage their money in light of these foibles. I guess if one insisted on abusing words, one could say that voluntary labor agreements are "libertarian" in the sense that they are uncoerced. (By the same standard, choosing to eat pistachio instead of rocky road ice cream is "libertarian.") But if there is no coercion, there is no paternalism, since "paternalism" already means something. 

Here is how Thaler motivates "libertarian paternalism":

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.

This is so broad as to be completely intellectually useless. If your kid is misspelling a lot of words, and then you teach them the "'I' before 'E' except after 'C'" rule, you've helped them correct mistakes non-coercively. Is that libertarian paternalism? A "watch your step" sign in restaurant? An instructional DVD that helps your golf swing? 

Mario, I think, gets it just right:

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.

Does Richard wish to reduce his "libertarian paternalism" to the appropriate management of government-owned streets or other enterprises? In the London case, what people want is obvious: They don't want to get hit by cars. London is doing what entrepreneurs generally do: satisfying actual preferences. London is mimicking the market.

[...]

Richard wants to use the word "libertarian" to differentiate his paternalism from the traditional variants. Yet he uses the word in a fuzzy way. He wants to define libertarian along a continuous variable -- the cost of exercising the exit option. However, libertarianism, as every libertarian understands it, uses a bright-line test -- who imposes the cost? The authors of the concept of "libertarian paternalism" have said that clearly intrusive/coercive interventions are consistent with it. See my previous post. And they have also said, explicitly, that there is no sharp line between libertarian and non-libertarian paternalism. Thus, Richard cannot claim that his standard creates a bright-line rule that would help us resist the slippery slope.

As Mario and Glen have titled the paper they're writing: "Meet the New Boss, Same as the Old Boss."

If you missed it, be sure to check out Glen's Cato paper, "Against the New Paternalism: Internalities and the Economics of Self-Control."