• Uncategorized

    In Defense of Nudge

    A friend writes in response to my criticism of Nudge:

    To the first point, I think the issue is that in any setting, it is impossible to avoid constructing some choice architecture. I actually think the recognition of this should reduce special interest control, since the government will be able to employ people who think about the implications of the choice architecture, rather than letting special interests set it.

    Further, a nudge is not the same thing as an intervention. It is important that Libertarian Paternalism does not imply an expansion of interventions–just smarter construction of existing interventions.

    To the second, a defining characteristic of Libertarian Paternalism is that the decision space is not changed in any way. Consumers/citizens can choose the exact same set of goods under a different choice architecture. (Ideally there are no costs to doing this, but I think this probably plays out differently depending on the specific example.)

    In the policy areas they make recommendations on, the broad finding is that a majority of people don’t care or are not expert enough to figure out what is best for them. I see no problem with attempting to help those people make smarter decisions, as long as they are nudges and not shoves.

    Given this, it seems that your problem is not with Nudge, but with the government. In my reading, the authors are agnostic about the appropriate level of intervention. If your complaint is against the government manipulation of markets, your fight should not be against efforts to make that manipulation smarter, but against the manipulation itself.

    More to come.

  • Uncategorized

    Against Nudge

    Some preliminary arguments against Nudge, adapted from some of my correspondence with a friend:

    I had a couple of problems with [Nudge].

    The first – an objection I’ve seen made elsewhere – is that Sunstein and Thaler don’t take public choice problems seriously. Government interventions tend to favor special interests and especially incumbents because these interests derive known and concentrated benefits from certain laws. [Special interests] are better able to organize political and lobbying power to capture their desired interventions than the general public, whose interests are diffuse and often unknown. A common example is agricultural subsidies. By advocating the expansion of interventions, Sunstein and Thaler are inevitably enabling special interests power to capture government regulation.

    The most direct response I can find in Nudge to this objection is on p. 243 where they say, “But if private-sector interests are just following the invisible hand in furthering the interests of their customers, what’s the problem?”

    I can’t tell if that response is intended to be a serious or just a humorous rebuttal. Obviously, private lobbying for government mandates is not a market interaction, and no economist would expect it to serve the “public interest”. So either they don’t really understand public choice problems, or they aren’t interested in addressing them.

    [ed: In retrospect, I’ve decided the latter is true]

    The second, and more fundamental, for me, objection is that Sunstein and Thaler don’t take seriously the ultimate subjectivity of ends. Throughout the book we hear them complain that consumers haven’t “rationally” shifted their behavior to the ends that government thinks they should [have] (investing for retirement, buying certain types of health insurance, donating their organs). Obviously the authors want very much for their interesting psychological and economic findings to be relevant and prescriptive. But science can never be anything more than descriptive.

    The problem is not that consumers have failed to respond to government manipulations of retirement markets, health care, etc. The problem is that government has, in the first place, arbitrarily privileged decisions to save for retirement, buy health insurance, and donate organs. These decisions don’t make consumers “better off” in some objective sense. They simply further some government official’s preconceived notion of how other people should spend their money.

    I’ve been meaning to write at length about the second part on my blog. I’ll let you know if/when I do.

    I should note that I don’t find the private sector nudging at all controversial. And of course, part of the problem with government nudges is that they can supersede the market equilibrium [in nudges]. As Sowell says of markets, “The degree of rationality in the process is by no means limited to the degree of rationality of the individuals”. The reverse is true of government.

    More to come.

  • Uncategorized

    Bread and Circuses

    Looks like there won’t be any Victor David Hanson column by this title, so I’ll go ahead and use it myself.  Over lunch, my ex-coworkers and I tried to predict what crowing headline Drudge would use to celebrate Chicago’s defeat.  Turns out the winner is “The Ego has Landed / World Rejects Obama: Chicago out in First Round”.  All in bright red caps, of course.

    I’m glad that President Obama has been denied more political capital to advance his plans on health care (though I wonder how Brazil will fare in its own battle against socialism).  I do worry that Drudge’s obsessive coverage of this story has somewhat legitimized the “President as patron” model that Obama seems to have been following.  But it’s only appropriate that Obama should suffer for failed patronage when he had sought to benefit from its success.

  • Beware of Specialists

    Beware of Specialists – Friedman

    The incentives and knowledge of bureaucrats create another peculiar problem for “rule by experts”.  On the one hand, the bureaucrats that operate the various governmental agencies are necessarily the “experts” on these programs.  Who can be expected to know more than the managers of the myriad administrative fiefdoms?  On the other hand, these specialists are the least likely people to desire limiting these bureaucracies, because they have self-selected to their agency of choice.  Milton Friedman makes this point in his typically understated manner on pages 186-187 of Capitalism and Freedom:

    The issues involved become very technical and complex.  The layman is often incompetent to judge them.  Nationalization means that the bulk of the “experts” become employees of the nationalized system, or university people closely linked with it.  Inevitably, they come to favor its expansion, not, I hasten to add, out of narrow self-interest but because they are operating within a framework in which they take for granted governmental administration and are familiar only with its techniques…

    Effective control by Congress over the operations of such agencies as the Social Security Administration becomes essentially impossible as a result of the technical character of their task and their near-monopoly of experts.  They become self-governing bodies whose proposals are in the main rubber-stamped by Congress.  The able and ambitious men who make their careers in them are naturally anxious to expand the scope of their agencies and it is exceedingly difficult to prevent them from doing so.  If the expert says yea, who is there competent to say nay?  So we have seen an increasing fraction drawn into the social security system, and now that there remain few possibilities of expansion in that direction, we are seeing a move toward the addition of new programs, such as medical care.