January 14, 2007 to January 21, 2007
Libertarian Paternalism: A Critique
Libertarian Paternalism: A Critique--BECKER
Libertarians believe that individuals should be allowed to pursue their own interests, unless their behavior impacts the interests of others, especially if it negatively impacts others. So individuals should be allowed, according to this view, to buy the food they want, whereas drunk drivers should be constrained because they harm others, and chemical producers should be prevented from polluting as much as they would choose because their pollution hurts children and adults.
Modern research argues that sometimes individuals may not have enough information to effectively pursue their interests. In these cases, it may be suggested that government regulations and rules help guide individuals to the better pursuit of interests they would have if they had additional information. A few weeks ago Posner and I debated the role of information in interpreting New York City's recently enacted ban on the use of trans fats in restaurants.
A libertarian paternalist is happy to accept information arguments for government regulation of behavior, but typically stresses other considerations. One of the best statements of this view argues that "Equipped with an understanding of behavioral findings of bounded rationality and bounded self-control, libertarian paternalists should attempt to steer people's choices in welfare-promoting directions without eliminating freedom of choice. It is also possible to show how a libertarian paternalist might select among the possible options and to assess how much choice to offer." Cass Sunstein and Richard Thaler, "Libertarian Paternalism is Not an Oxymoron", University of Chicago Law Review, 70(4), Fall, 2003; for a strong response, see Daniel Klein, "Status Quo Bias",* Econ Journal Watch*, August 2004.
If not literally an oxymoron, the term "libertarian paternalism" is, I believe, awfully close to it. Before trying to show why, let me illustrate what this expression might reasonably mean--Sunstein and Thaler give some innocuous examples like the placement of desserts in cafeterias that raise no significant issues. Suppose a person smokes, but has an internal conflict between his stronger "self" who wants to quit, and his weaker "self" who continues to smoke whenever he feels under pressure, or in social situations. In effect, the weaker self does not stop smoking because he has limited self-control.
The goal of paternalism in this case is to help the more dispassionate self obtain greater control over the choices made by the conflicted individual because of his dual selves. Such paternalism may take the form of high cigarette taxes, so that even weaker selves would not want to smoke so much, or of ordinances to limit smoking in restaurants, bars, and other social situations to prevent weak selves from being tempted to smoke. The argument is that individuals would be "happier" if they were given a helping hand to exercise self-control. One study even claims to find that smokers are happier in states of the United States that heavily tax cigarettes than in seemingly comparable states that tax cigarettes more lightly because higher taxes help control the urge to smoke. If this evidence were valid, groups of smokers should lobby for higher cigarette taxes, yet to my knowledge there is not a single instance where this has happened. Indeed, if anything, they lobby for lower taxes, but perhaps one can claim--most anything goes in such a world-- that they do not even know they have this conflict among their different selves!
Classical arguments for libertarianism do not assume that adults never make mistakes, always know their interests, or even are able always to act on their interests when they know them. Rather, it assumes that adults very typically know their own interests better than government officials, professors, or anyone else--I will come back to this. In addition, the classical libertarian case partly rests on a presumption that being able to make mistakes through having the right to make one's own choices leads in the long run to more self-reliant, competent, and independent individuals. It has been observed, for example, that prisoners often lose the ability to make choices for themselves after spending many years in prison where life is rigidly regulated.
In effect, the libertarian claim is that the "process" of making choices leads to individuals who are more capable of making good choices. Strangely perhaps, libertarian paternalists emphasize process when claiming conflict among multiple selves within a person, but ignore the classical emphasis on decision-making process that helps individuals make better choices.
Two other serious limitations of the libertarian paternalist approach further weaken its appeal. First, it is virtually impossible to distinguish such paternalism from plain unadulterated paternalism. How does one decide with objective criteria where "bounded rationality and bounded self-control" are important, and areas of choice where they are not? For example, models of rational addiction appear to do as well if not better than models of bounded self-control when applied empirically to smoking behavior. Why adopt models of bounded self-control in this case?
Or to take another illustration, is the weight gain of teenagers and adults since 1980 in much of the developed world, particularly the United States, due to bounds on rationality and control? If so, why did it not happen earlier, or why is the gain in weight so much greater in the United States than in most other countries? Are Americans less able than say the Japanese or Germans to exercise self-control? Often libertarian paternalism simply involves substituting an intellectual's or bureaucrat's or politician's beliefs about should be done with other peoples' time and money for the judgment of those choosing what to do with their own incomes and time. It is in good part because libertarians recognize the temptation in all of us to control choices made by others that they end up in favor of allowing people to make their own choices, absent clear negative (or positive) effects on others.
A serious problem arises if libertarian paternalism is not just considered an intellectual exercise, but is supposed to be implemented in policies that control choices, such as how many calories people are allowed to consume, whether adults are allowed to use marijuana or smoke, or how much they can save. Even best-intentioned government officials should be considered subject to the same bounds on rationality, limits on self-control, myopia in looking forward, and the other cognitive defects that are supposed to affect choices by us ordinary individuals. Can one have the slightest degree of confidence that these officials will promote the interests of individuals better than these individuals do themselves?
This is why classical libertarianism relies not on the assumption that individuals always make the right decisions, but rather that in the vast majority of situations they do better for themselves than government officials could do for them. One does not have to be a classical libertarian--I differ on some issues from their position--to recognize that the case for classical libertarianism is not weakened by the literature motivating libertarian paternalism. Indeed, when similar considerations are applied to government officials and intellectuals as well as to the rest of us, the case for classical libertarianism may even be strengthened!
Libertarian Paternalism--Posner's Comment
The term is indeed an oxymoron. Libertarianism, as expounded in John Stuart Mill's On Liberty, is the doctrine that government should confine its interventions in the private sector to what Mill called "other-regarding" acts, which is to say acts that cause harm to nonconsenting strangers, as distinct from "self-regarding" acts, which are acts that harm only oneself or people with whom one has consensual relations authorizing acts that may result in harm. So, for example, if you are hurt in a boxing match, that is a "self-regarding" event with which the government has no proper business, provided the boxer who hurt you was in compliance with rules--to which you had consented--governing the match, and provided you were of sound mind and so could give meaningful consent.
Paternalism is the opposite. It is the idea that someone else knows better than you do what is good for you, and therefore he should be free to interfere with your self-regarding acts. Paternalism makes perfectly good sense when the "pater" is indeed a father or other parent and the individual whose self-regarding acts are in issue is a child. In its more common sense, "paternalism" refers to governmental interference with the self-regarding acts of mentally competent adults, and so understood it is indeed the opposite of libertarianism. The yoking of the two in the oxymoron "libertarian paternalism" is an effort to soften the negative connotation of paternalism with the positive connotation of libertarianism.
I would further limit the term "paternalism" to situations in which the government wishes to override the informed preferences of competent adults. The dangers of smoking are well known; indeed, they tend to be exaggerated--including by smokers. (The increased risk of lung cancer from smoking is smaller than most people believe.) Interventions designed to prevent smoking, unless motivated by concern with the effect of smoking on nonsmokers (ambient smoke, which is not much of a health hazard but is an annoyance to nonsmokers), are paternalistic in the sense in which I am using the term.
Thus I was not defending paternalism when I defended the ban on trans fats in New York City restaurants. If people are aware of the dangers of trans fats but wish to consume them anyway, the only nonpaternalistic ground for intervention, which I would be inclined to think insufficient by itself, is that they may be shifting some of the costs of their medical treatment for heart disease to taxpayers who forgo consumption of trans fats. If, however, people don't know the dangers of trans fats and it would not be feasible for them to learn those dangers (prohibitive transaction costs), and if as I believe the dangers clearly exceed any benefits from trans fats compared to substitute ingredients, then the ban can be defended on nonpaternalistic grounds, as I attempted to do. Another way to put this is that it is not paternalistic to delegate a certain amount of decision making to the government. There are some goods that government can produce at lower cost than the private sector, and among these is the banning of trans fats from food served in restaurants.
It might seem that the good could be produced just by competition-impelled advertising by restaurants that do not use trans fats. But such a suggestion ignores the difference between disseminating and absorbing information. If you have a peanut allergy, and the label on a package of cake mix says that the mix contains peanut oil, you know not to buy it; the cost of absorbing the information on the label is trivial. But if you are told that a restaurant does not use trans fats in its meals, determining the significance of that information to you would require you to undertake a substantial research project. You would have to learn about trans fats, somehow estimate the total amount of trans fats that you consume every year, estimate the amount of trans fats in the restaurant meals you consume relative to your total consumption of trans fats, and assess the significance of that consumption in relation to other risk factors that you have or don't have for heart disease. Few people have the time for such research, or the background knowledge that would enable them to conduct it competently. Given that trans fats have close substitutes in both taste and cost, it is not unrealistic to suppose that the vast majority of people would if consulted delegate to government the decision whether to ban trans fats.
One of the great weaknesses of "libertarian paternalism" is failure to weigh adequately the significance of the operation of the cognitive and psychological quirks emphasized by libertarian paternalists on government officials. The quirks are not a function of low IQ or a poor education; they are universal, although there is a tendency for the people least afflicted by them to enter those fields, such as gambling, speculation, arbitrage, and insurance, in which the quirks have the greatest negative effect on rational decision making. As Edward Glaeser has pointed out, the cost of these quirks to officials--who are not selected for immunity to them--is lower than the cost to consumers, because the officials are making decisions for other people rather than for themselves.
Posner's Response to Comments on Libertarian Paternalism
Professor Sunstein has posted a response to Becker's and my postings on the University of Chicago Law School blog. It can be accessed at http://uchicagolaw.typepad.com/faculty/.
One comment that was made on my post, a comment similar to arguments made by Sunstein and Thaler, is that paternalism can be libertarian if it does not extinguish consumer choice. An example is "cooling off" requirements in laws such as the Truth in Lending Act. The Act does not forbid people to borrow at what might strike an observer as an exorbitant interest rate, but merely gives him an opportunity to rescind without penalty what may have been his impulsive decison to borrow at that rate. It is true that such a law does not interfere with freedom of choice as much as a law imposing an interest ceiling would do. But it does interfere with it to an extent, by increasing lenders' costs. Moreover, if it is true that borrowers would be happier in the long run to have their impulses checked in this fashion, then some lenders would offer the rescission right without prodding by government--in fact it is quite common for sellers to permit consumers to return goods they have bought without penalty. So perhaps the matter of cooling off can be left to the market after all.
Here it should be added that impulse control can often be left to the impulsive. "Chocolaholics" may decide not to keep chocolate in their house because they know they cannot control their "addiction" otherwise. There is something to be said for encouraging self-control rather than shifting some or much of the responsibility for impulse control to the government.
I distinguish the cooling-off case and self-control issues generally from the trans fat case (to which several of the commenters returned) on the ground that the market may not solve a problem when information costs are prohibitive. They are not prohibitive in the cooling-off case. There is also an empirical question whether cooling-off requirements have any effect, or whether borrowers ignore them as govrernment-mandated paperwork.
I don't consider proposals for energy conservation, even when required by government rather than undertaken on purely private initiatives, to be paternalistic. If as I believe the social costs of global warming and excess empowerment of oil-exporting countries are considerable, then government should intervene, since few individuals will reduce their consumption of energy in order to reduce the social costs of energy consumption; the contribution that the individual's change in consumption would make to energy conservation would be virtually zero.
I agree with the comments that disavow doctrinaire libertarianism. I am not an "anarcho-capitalist," which is the extreme of libertarianism, or even a strict Millian (nor was MIll!). I'm happy to listen to arguments for government interventions designed to protect people from themselves, even if they are adults and not mentally incompetent. What troubles me is that the interventions may be thought up by officials suffering from the same cognitive or emotional limitations as the consumers or other private individuals with whose choices they want to interfere; that the interventions may be politically motivated rather than based on efficiency norms; and that once one begins questioning consumer competence it is difficult to know where to draw the line.
I do think the cognitive and psychological limitations are real, but II happen to think that they are especially serious in a domain of policy that I have written about extensively in recent years--that of national security intelligence, where the limitations--operating on intelligence officers and policymakers, which is to say govenment actors--explain many intelligence failures.