“Deep concerns that do not arise in traditional welfare economics”

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October 11, 2017 by AK

In 2013, “W.W.” wrote in the Democracy in America column in The Economist:

The insidiousness of “libertarian paternalism” is not in the slippery slope from the non-coercive nudge to explicitly coercive limits on individual liberty. Rather, the problem is that, as a piece of language, “libertarian paternalism” renders difficult the ability to conceive of a principled distinction between policy that respects and policy that violates individual autonomy.

According to W.W., this “Orwellian terminology” made its way to a popular audience via Nudge: Improving Decisions about Health, Wealth, and Happiness, the 2008 book by Richard Thaler (Chicago) and Cass Sunstein (Chicago, then Harvard). Predictably, “libertarian paternalism” was promptly picked up by the columnist David Brooks of the New York Times.

In this excellent post on the shortcomings and dangers of Richard Thaler’s brand of behavioral economics, Streetwise Professor (Craig Pirrong) links to Mario Rizzo’s response to Thaler’s Nobel:

Neoclassical man was never intended to be an image of a real person. He was, and is, a puppet – a theoretical construct designed to generate predictions about market or aggregate behavior…

And yet behavioral economics remains wedded to this narrow conception of rationality as a normative and prescriptive standard of evaluation… It is precisely because people are not narrowly rational that their behavior must be fixed.

A more laconic formulation can be found in the abstract of a 2015 paper by Whitman and Rizzo:

Behavioral paternalism raises deep concerns that do not arise in traditional welfare economics. These concerns stem from behavioral paternalism’s acceptance of the defining axioms of neoclassical rationality for normative purposes, despite having rejected them as positive descriptions of reality.

This is probably a little harsh on the neo-paternalists, but can they do without a “normative and prescriptive standard of evaluation?”

And why isn’t the “insidiousness” of this oxymoron in the “slippery slope” – from nudge to kick, from a gentle private elbow to the unapologetic government jackboot? Just because an idea doesn’t make sense doesn’t mean it won’t become a government policy.


1 comment »

  1. […] …but what is rationality? What is rational behavior? In a word, maximizing: choosing the preferable consumption bundle given the budget constraints and certain other factors. […]

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