Lynne Kiesling
Glen Whitman has been posting excerpts from his Arizona Law Review paper with Mario Rizzo on the “new paternalism” for a while, and his most recent discussion has to do with the paternalist policy recommendations around the human tendency toward hyperbolic discounting. Hyperbolic discounting means that individuals tend to place more weight on nearer-term outcomes than might be deemed “rational” by some expected-value-based model, and the corresponding paternalist policy recommendation is to force people into the intertemporal substitution that increases the purported future benefit. There’s an enormous literature on this idea, and applications of this idea in many areas (including vehicle fuel efficiency, in which some people claim that hyperbolic discounting is a “market failure” — a claim that drives me completely batty due to its lack of logical content!), well beyond what I want to discuss here and now.
Whitman is making a more pointed argument, and an important one — if we cede this kind of decision-making to centralized policymakers and allow them to exercise the coercive power to force individuals into particular forms of intertemporal substitution, on what basis are we making that decision? If individuals in their private roles engage in hyperbolic discounting, isn’t it also logical to assume that policymakers are prone to hyperbolic discounting? And if they are, what are the implications of that tendency for the efficiency and the morality of the legislated, coerced outcomes? His post goes through several reasons why we should expect policymakers to have shortened time horizons, and I encourage you to read it.
Tim Worstall puts it much more colorfully than I am capable of:
So we should be shepherded to the right decisions by those wise enough to know what the correct, non-hyperbolic, discount rates are. That’s basically the libertarian paternalism for you right there. And as Whitman points out, that’s just great but who are the people who will be taking these decisions about what is the correct discount rate?
Yup, politicians. And do politicians take decisions based upon the correct discount rates or are they also subject to this hyperbolic discounting? Was that howls of laughter I could hear? Splutters of indignation perhaps? For yes, of course, when we look at how politicians actually run any of the long term schemes which they currently have power over we see that they’re vastly worse at this than we little sheep are. Look at civil service pensions, roaring out of control as far as the eye can see into the future because years ago it was easier to buy political support or buy off industrial unrest by promising what could never be afforded. The untold off-balance sheet promises that have been made that will impoverish our grandchildren just to get one politico or another through a difficult election. The hocking of the future in that every few year electoral scramble to get the right bums on the right benches at Westminster.
For the failure of this libertarian paternalism, the hole in this argument about hyperbolic discounting, is that we as individual humans may well be imperfect: but those who would rule us are worse by this measure. I know of no adult who lives their life with a final horizon of only the next election and I know of no politican with a horizon of longer than that next election.
Hear, hear.
The objections to libertarian paternalism seem overstretched. If we want our government to behave with the efficiency of a business, shouldn’t it have all the tools available at it’s disposal to do so, including marketing ideas that can encourage desired behavior by taking advantage of our innate irrationality? Eg, if it is good practice for Proctor & Gamble to offer a “two for one” discount on detergent to take advantage of buyers short time horizons, why is it not good practice for government to craft policies based on the same understanding of human behavior?
I realize this isn’t precisely the point that Whitman is making, but it does seem to underpin his argument (and most of the other objections that one hears) – namely, the idea that a business that acts on understanding of human nature is smart, but a government that does so is Orwellian.
What seems false to me in his post though is the idea that this is all fixed if we simply argue for limits on government power. Our primary objective ought to be GOOD government, which presumably includes a government that passes laws that are most likely to facilitate the public good at the minimum cost/maximum effectiveness. Taking human behavior into account in the passage of those laws can only help that goal. Those benefits may also be facilitated by smaller, more limited government, but there is no obvious reason why the one is predicated on the other.
I knew it sounded familiar.
“The Social Contract or Principles Of Political Right” [1762] by Jean-Jacques Rousseau Book I: Chapter VII: “The Sovereign”:
In fact, each individual, as a man, may have a particular will contrary or dissimilar to the general will which he has as a citizen. His particular interest may speak to him quite differently from the common interest: his absolute and naturally independent existence may make him look upon what he owes to the common cause as a gratuitous contribution, the loss of which will do less harm to others than the payment of it is burdensome to himself; and, regarding the moral person which constitutes the State as a persona ficta, because not a man, he may wish to enjoy the rights of citizenship without being ready to fulfil the duties of a subject. The continuance of such an injustice could not but prove the undoing of the body politic.
In order then that the social compact may not be an empty formula, it tacitly includes the undertaking, which alone can give force to the rest, that whoever refuses to obey the general will shall be compelled to do so by the whole body. This means nothing less than that he will be forced to be free; for this is the condition which, by giving each citizen to his country, secures him against all personal dependence. In this lies the key to the working of the political machine; this alone legitimizes civil undertakings, which, without it, would be absurd, tyrannical, and liable to the most frightful abuses.