Becker and Posner on "Libertarian Paternalism"

Josh Wright —  15 January 2007

Becker and Posner take on “libertarian paternalism” this week. The entries are both worth reading, especially for the parts where these co-bloggers disagree. Here are my favorite passages from each.  First, Posner attempts to distinguish his previous defense of the NYC trans-fat ban from good old-fashioned paternalism:

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.

A few thoughts about this distinction. I don’t find it too persuasive because it proves too much. The “consumer ignornance” argument Posner offers goes something like the following. Consumers do not value the disclosure sufficiently because the cost of absorbing the information (in terms of time, calculation, estimation, etc.) is prohibitive. Because of the these costs, which appear to boil down to the complexity of the calculation involved, we cannot trust competition to generate the optimal level of trans-fats consumption.

But doesn’t this argument apply to all sorts of transactions? Is the literature on trans-fats and their long-term health effects all that different on these grounds from smoking, wine, red meat, soda, coffee, potato chips, or credit cards (and credit card consumers appear to be behaving quite rationally in their own interest)? The food items are not types where the costs of absorbing the information is “trivial” like the peanut oil label for the consumer with a peanut allergy. Instead, consumers frequently make tradeoffs associated with long-term health effects that appear to be quite complicated. And the rush of producers going trans-fat free without government intervention suggests at least that consumers are indeed responding to evidence of the harm from trans-fats. Becker’s response to Posner’s previous trans-fat post also contains citations to a literature suggesting that consumers respond rapidly to health news.
And from Becker:

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.

The more times this point is made the better. It is not enough to justify paternalistic intervention (soft, hard, libertarian, or otherwise) simply to show that consumers make mistakes. The burden of proof is to demonstrate that the government can make better choices for the individual than can the individual. In accounting for the long run costs of paternalism, we must also be mindful of dynamic effects that are likely to follow from paternalistic decision-making before intervening (on this last point, see Klick and Mitchell in the Minnesota L. Rev., or more recently Ed Glaeser’s essay on Paternalism and Psychology).

4 responses to Becker and Posner on "Libertarian Paternalism"

  1. 

    Professor Posner is basically advocating that “rule by experts” is efficient. This is good, old-fashioned paternalism.

    From my archive of quaint political quotes:

    “Housewives on the whole cannot be trusted to buy all the right things where nutrition and health care are concerned. This is really no more than an extension of the principle according to which the housewife herself would not trust a child of four to select the week’s purchases. For in the case of nutrition and health, just as in the case of education, the gentleman in Whitehall really does know better what is good for people than the people know themselves.”

    – Douglas Jay, a British MP and intellectual influence of the Labour government of the 1940s

  2. 

    In our paper, Mitchell and I lay out the framework for determining the costs and benefits of a paternalistic intervention. It’s pretty simple stuff (arguably, only the moral/cognitive hazard point [i.e., dynamic effects of intervention on behavior] is particularly innovative), but it’s kind of shocking that essentially no one in the behavioral law and econ literature even attempts this kind of benefit-cost analysis when advocating a reform premised on some “bias.” When I ask people making these kinds of proposals whether their reform would pass such a test, the answer always comes back as some version of “well, the testing required to estimate these parameters would be hard [some even suggest that testing would be impossible in their area because data don’t exist] and we need to do something in the meantime to address these biases.”

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  1. TRUTH ON THE MARKET » Rizzo and Whitman on Paternalist Slopes - February 2, 2007

    […] Libertarian paternalism, behavioral law and economics, and “soft” paternalism are topics of discussion here on TOTM from time to time (see, e.g. here, here, and here).  Two very good economists who think about these problems quite a bit, Mario Rizzo (NYU) and Glen Whitman (Agoraphilia, CSUN), have posted their paper “Paternalist Slopes.”  I had the pleasure of meeting Rizzo and Whitman at the New York University Journal of Law and Liberty Symposium on Behavioral Economics and Classical Liberalism where they were discussing this paper.  It is an excellent read for those interested in these issues. Here’s the abstract: A growing literature in law and public policy harnesses research in behavioral economics to justify a new form of paternalism. Contributors to this literature typically emphasize the modest, non-intrusive character of their proposals. A distinct literature in law and public policy analyzes the validity of “slippery slope” arguments. Contributors to this literature have identified various mechanisms and processes by which slippery slopes operate, as well as the circumstances in which the threat of such slopes is greatest. The present article sits at the nexus of the new paternalist literature and the slippery slopes literature. We argue that the new paternalism exhibits many characteristics identified by the slopes literature as conducive to slippery slopes. Specifically, the new paternalism exhibits considerable theoretical and empirical vagueness, making it vulnerable to slopes resulting from altered economic incentives, enforcement needs, deference to perceived authority, bias toward simple principles, and reframing of the status quo. These slope processes are especially likely when decisionmakers are subject to cognitive biases – as the new paternalists insist they are. Consequently, soft paternalism can pave the way for harder paternalism. We conclude that policymaking based on new paternalist reasoning should be considered with greater trepidation than its advocates have suggested. […]

  2. The Volokh Conspiracy - January 17, 2007

    Wright on “Libertarian Paternalism”:…

    GMU law professor Joshua Wright takes sides in the Posner-Becker dialogue over libertarian paterianlism.

    ……