Friday, September 15, 2006

A Further Note about "Libertarian" Paternalism

I last discussed "libertarian" (or "soft") paternalism here (and posted a related note here). Any single instance of government-sponsored (and therefore government-encouraged) paternalism may seem benign. But it is not.

Take the case of default enrollment in 401(k) plans, which the Pension Protection Act of 2006 further encourages. Default enrollment in 401(k) plans -- however benign its intention and however easily overcome by the enrollee who wants out -- is a small act of paternalism that opens the door to more intrusive ones. What comes after default enrollment? Mandatory enrollment? Mandatory enrollment in certain types of retirement fund (e.g., government bond funds for the feeble-minded)?

Analagous questions can be asked about any government-sponsored paternalistic scheme. And such questions should be asked, because government-sponsored schemes shift decison-making power from individuals to bureaucrats, with their one-size-fits-all rules.

Moreover, as Peter Van Doren, editor of Regulation,* observes in a post at Cato-at-liberty,

government actors appear to be no more rational than economic actors — and it is quite possible that soft paternalism could be more detrimental to public welfare than the private choices studied by behavioral economics. Harvard economics professor Ed Glaeser states this case (pdf) in the summer issue of Regulation.

In a subsequent (and too-optimistic) post, Mark Moller quotes from the conclusion of Stephen Choi and Adam Pritchard's 2003 article Behavioral Economics and the SEC (Stanford Law Review; working paper version available here):

Regulators are vulnerable to a wide range of behavioral contagion. Regulators may suffer from overconfidence and process information with only bounded rationality. . . .

And in groups the decisionmaking of regulators may decline rather than improve. On the one hand, groups and organizational structures may help alleviate some of the mistakes that derive from individually biased decisions. Studies of group decisionmaking provide evidence that the total can indeed be greater than the sum of individuals in enhancing the accuracy of decisions. But cognitive illusions may grip entire groups. Groupthink may also lead to an uncritical acceptance of regulatory decisions.

Will Wilkinson adds a post in which he observes that

[b]ehavioral economics done right is just good science. The real peril is in the transition over the gap from psychology to policy. Big philosophical and ideological assumptions lurk in the gap.

The biggest assumption is that government can and should steer the lawful behavior of individuals in certain directions, not knowing the specific circumstances that cause individuals to choose particular courses of action.**

We are mired in a tremendously costly regulatory-welfare state that arose from paternalistic concerns. Will we never learn? No, we will not. We will move further and further from realizing our economic potential by depleting individual freedom of choice. The road to dependency on the state is paved with the benign intentions of academics, politiicians, and bureaucrats.

Other related posts:
The Rationality Fallacy
Libertarian Paternalism
A Libertarian Paternalist's Dream World
The Short Answer to Libertarian Paternalism
Second-Guessing, Paternalism, Parentalism, and Choice
Another Thought about Libertarian Paternalism
Back-Door Paternalism
Another Voice Against the New Paternalism

* Full disclosure: I worked for Peter Van Doren in 1999-2000, when I was the managing editor of Regulation.

** A case in point: I did not enroll in my company's 403(b) plan (the nonprofit equivalent of a 401(k)) when I was 22, because I needed the money to accrue household capital. But by the time I was 24, I could afford to join, and I did.