The Goal Is Freedom: Paternalist Nudges

First Published: 2008-09-12

Reprinted with the kind permission of the author, Mr. Sheldon Richman and the Foundation for Economic Education (FEE).

Sheldon Richman is the editor of The Freeman and “In brief,” and a contributor to The Concise Encyclopedia of Economics. TGIF appears Fridays. Comments welcome.

Harvard law professor Cass Sunstein and University of Chicago economics professor Richard Thaler are self-proclaimed “libertarian paternalists”. Contradiction in terms? They think not. According to their approach, “[G]overnments try to move people in good directions without imposing penalties, mandates or bans.” The part about “moving people in good directions” is the paternalism. The part about “without penalties” is the libertarianism.

I’m thinking they’ve got this wrong. It’s too clever by half. In fact, there’s nothing libertarian about it.

Sunstein and Thaler are impressed that people are influenced by the context they find themselves in. Marketers and others have noticed this. So, for instance, when people buy something online and are given the option to receive future e-mail offers, they will tend to accept whichever option is already checked–the default. If “yes” is pre-checked, lots more people will receive the notices than if “no” is pre-checked or, I surmise, if nothing is checked.

Sunstein and Thaler sense important implications for public policy. “Automatically enrolling people in a savings plan dramatically increases participation, even though people retain the right to opt out,” they write.  So why can’t government do things like that? Leave people free to opt out–but opt them in to begin with. Sunstein and Thaler see great things on the horizon:

“The mounting international interest suggests the possibility of developing a genuine Third Way, one that accepts some of the progressive goals traditionally associated with the left, but insists on the market-friendly means traditionally associated with the right. Libertarian paternalists resist coercion. They think that freedom of choice is an important safeguard against the bias, confusion and self-interest of government. They also think that everyone can benefit from a friendly nudge.”

Libertarian yet paternalistic at the same time. Brilliant!

Not so fast. As Dwight Lee points out in July 2007 Freeman, Sunstein and Thaler seem in no hurry to apply their revolutionary principle to Social Security and Medicare. I’d have to concede that a no-penalty opt-out provision for these government interventions would be an improvement on the current system. So why isn’t it proposed? (Hint: Because the system has no chance of working if everyone isn’t compelled to participate. It can’t be sustained under those circumstances either.)

Background of Coercion

There’s another criticism. Government by nature is coercive. It is the only group that may legally use nondefensive physical force, that is, force against people who have aggressed against no one. Yet this same group — the one Sunstein and Thaler admit is riddled with “bias, confusion and self-interest” — would decide what the default “choice” would be in a variety of matters. It would decide what is good for everyone and give them a “friendly nudge” in that direction. The government’s inherent knowledge deficiencies don’t much bother Sunstein and Thaler.

Of course, if government permits people to opt out of some programs, there must be programs to opt out of–programs that can exist only because the government has the power to aggress, namely, taxation. Will the opt-outs really see their taxes lowered? What do you think?

So on closer examination, libertarian paternalism is not so libertarian after all. It requires a background of coercion.

Sunstein and Thaler hasten to add that they do not mean that government-by-nudge is sufficient for all things. “We concede that in some contexts libertarian paternalism is not enough,” they write. “. . . No sensible person could argue that government action should be limited to nudges. But too often governments resort to coercion when gentler approaches, preserving freedom of choice, are at least as effective.”

What these authors ignore is that the gentlest approach of all is to preserve real freedom of choice by letting people keep what they earn and spend it as they see best. In a free society, government wouldn’t presume to construct the default environment in order to “move people in good directions.” The “good” is for people to decide for themselves–without  nudges from friendly, biased, confused, or self-interested politicians. Let’s remember that “nudge” is also Yiddish for someone who pesters, annoys, or complains.

The views expressed are those of the author, and not necessarily those of the Nassau Institute (which has no corporate view), or its Advisers or Directors.

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