Why I am not a Libertarian Paternalist

Hooray!

The most generous reading of the libertarian paternalist position is that the government should monkey around with various default options, in order to improve “welfare.” In fact, Thaler often goes well beyond this, staking out completely outrageous positions, but this post is not titled “Why Richard Thaler is a mendacious jackass” so I will leave that to one side.

The problem is that it is never clear whose welfare is meant to be maximised. Consider the one lib pat reform that has been introduced, which makes it harder to skip the question on if you want to be an organ donor. It is hard to argue that this increases the welfare of people applying for a driving licence. Instead, it is clearly meant to increase the welfare of people who hope to receive an organ donation. So rather than being paternalist, perhaps it would be better to call it redistributive?

What needs to be borne in mind is that decisions have costs, and changing the defaults means changing where the costs fall. Consider lib pat compulsory purchase! If the government thought that seizing your property would increase welfare it could do so, unless you register an objection with the council, every day. If ever you should be ill, or have other pressing engagements, or whatever, the government takes your land. Obviously such a policy would be outrageous, but it seems to be justified on lib pat grounds.

Moreover, I have no confidence that government is capable of improving my welfare, even when it wants to and my welfare is relatively well-defined. Thaler’s favourite example in favour of libertarian paternalism is the partial privatisation of social security in Sweden. The government encouraged people to think carefully about what fund to put their money in, and not just choose the default fund – but in fact people who chose the default did better. Therefore the government shouldn’t have discouraged people from taking the default, which supposedly argues powerfully in favour of libertarian paternalism. My response is… what? Here you have a clear example of the government nudging people (away from the default), it ends in disaster, and your conclusion is that it proves that the government should nudge people. Huh. My conclusion is that the government doesn’t know what it’s doing, and its nudges are more likely to do harm than good. Then add in special interests and regulatory capture. Then add in the uncertainty of what my welfare is. Then add in the possibility that it will be used not for my welfare, but for other people’s. Lib pat now looks disastrous.

At this point the lib pat rejoinder is as follows: “It is unavoidable that governments nudge. Therefore they should nudge so as to increase welfare. Or are you seriously suggesting that they act to make us worse off?” It’s a very weird way of thinking, because it seems to presuppose that there are no other mechanisms by which defaults could be judged. Obviously, I disagree. The best defaults are the ones which preserve the status quo, something which the common law has long upheld – for example, if you say nothing, you are held not to have accepted a contract. In other words, if the government can’t help nudging, it should make sure its nudges are as gentle as possible, rather than the sharp elbow in the ribs that Thaler proposes.

What’s more, monkeying with the defaults is highly disruptive in itself, as it displaces expectations. See for example the idiotic proposal to give legal rights to cohabiting couples. As I have said so many times before, the government should stick to bright line rules, not micromanagement. Any time that people are actually using the defaults, they should be left as they are. The only time that it is legitimate to even consider changing defaults is when (1) people are not using the default but taking expensive steps to avoid it and (2) the default was originally created by the government. An example of this would be intestacy law. But otherwise, leave well alone – ancient custom and the common law trump bureaucratic interference every time.

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2 responses to this post.

  1. What’s special about the status quo, that it shouldn’t be “monkeyed with”?

    Reply

  2. Posted by I am not... on February 24, 2011 at 7:29 pm

    I’m not sure on what level you want that question answered. But if I say I’m a conservative, and a firm believer in the legitimacy of private property and the free-market, then perhaps you can imagine the arguments I would make.

    Reply

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