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.

Comments

[N.E.Hatfield]

Ahh... Once again true rationality hinges on the proper application of the "Golden Mean". Those ancients seem to be a lot smarter than we give them credit for.

[Ragerz]

Posner makes some good arguments as usual. However, I think he is making a mistake equating government officials with government policy.

Government policy can be the result many ideas coming together. It can be free from short-term impulses that lead many people to make bad decisions. It can be more reflective, and less instinctual.

That said, of course Posner is right that we should be skeptical of government solutions. But, I think we need to look at the specific policy very carefully, and the specific structure of the government intervention. Some decisions are better left entirely to private individuals. Sometimes, a greater or lesser degree of government intervention might be warranted. I think Posner agrees with this.

Posner writes: "once one begins questioning consumer competence it is difficult to know where to draw the line"

This may be true. But that doesn't mean that not drawing a line at all is the best decision. Doing nothing, after all, is a choice with consequences. I think we need to look serious at the consequences of doing nothing and try to compare them to the consequences of imperfect line drawing and see which is better. So, it may be messy, but I think we have to get very specific before we can really say anything about the merits of government intervention.

[Trisha Parks]

I think gov't policy should be decided on what the people want and the for the good of the people. But sometimes what's good for the people is not really what people want, so someone must stand up to enforce such policy even if the people is against it.

[Tom Grey - Liberty Dad]

Posner's argument: I am against Lib-paternalism because I am against most paternalism.

But, "I don't consider proposals for energy conservation, even when required by government rather than undertaken on purely private initiatives, to be paternalistic."

What intellectual dishonesty -- I'm surprised and disappointed. Gov't regulations are ALL paternalistic, and are the main subject of "libertarian paternalism", as compared to mother and father paternalism for their own children.

If you need to re-define "paternalism" to mean "those gov't proposals I'm against", then everybody will be against paternalism -- but won't agree on what is, or isn't, being agreed upon.

In any case, the four big points are these:
full individual choice w/o gov't
gov't (or other power) offering an opt-in to some allegedly beneficial program (default out)
gov't offering an opt-out to a good program (default in)
gov't requiring participation in a "good" program -- like Posner's trans-fat or energy conservation (? not well defined) no-choice paternalism.

I'd like to replace/adjust all no-choice gov't programs with the addition of an opt-out, at least. A form that can be filled out to allow one to eat Trans Fats, if one wants ... or to take drugs.

[Jack]

I was going to comment on something else, however as Congress is "raking" over the credit card companies that HAVE been running completely amok the following bit of pap caught my attention:

Posner:
"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."

.......First off let's carve off the "store allowing returns" bit as it doesn't fit well at all. THE reason for liberal retail return policies are that buyers purchase more, and it's typically profitable when the return an item as they often buy as much or more than they returned.

........ Then, Ha-ha! let's take a look at our "lending contracts" which right off the bat begin with FIVE PAGES of lawyer written gibberish. Then let's skip quickly to "trip wire" provisions such as a cardco sending the card owner a note that "due to a decline in his FICO scores they have A: decided to raise the vigorish B: cap his card at precisely what is owed. Thus if he paid for lunch on the card that day........ he'd also get the penalty for exceeding his cap.

Are the poor things doing OK? Well the ROI for card companies is EIGHT TIMES that of other forms of lending and the average balance is carried at 19%!!!!.

BTW.. please guess what the most common form of getting in trouble with cardcos is? The carding of otherwise unaffordable prescriptions and medical procedures.

The nest great societal benefit? That it is VERY common for young folk to get themselves deeply in debt while "learning" to deal with predatory lending practices, next? they drop out of college due to "high consumer debt".

Need more? A quite old woman subsisting on $600 of SSI was found unable to pay even her small balances. Along with 20% plus interest rate she'd been sold "credit insurance" the premium of which was $49/month. What's this insurance for? It's to pay your monthly min payment IF you lose your job. She has no job and its unlikely the SSI will stop in her lifetime.

"Paternalistic Libertarianism" or not there has NEVER been a way to control the money changers in the temple BUT that a well informed Congress and/or state legislature writes and enforces contractual provisions.

BTW...... the "money changers" of biblical fame were so horrendous that Muslims ended up tossing the baby with the bath, disallowing ANY charging of interest, and I think, the corporate form as well. Clearly they've fallen behind as a result (even today interest is hidden as a service fee or somesuch) on the other hand, in recent years we've given too much power to the corporate form, and those preying on card holders are enriching themselves to the tune of $100 billion per year, most of which is very high interest rates and even high penalties.

I can't think of a better example for rejecting an overzealous Libertarianism. Jack

[Jack]

What's the term "Libertarian" worth? After reading the following (and being here long enough to see that half the discussion is that of holding up one sock and debating whether it is a match to "Libertarian" precepts. So..... I took a minute to review the definitions on Wiki and found, as the Professor indicates that there are extreme "rights based" Libertarians who simply would not fit into a society any more complex or populous than, say, living on the first few farms that were established in the mid-west a century or so ago.

From there "we" etch away at the utterly unworkable pure Libertarian concept and work in terms such as "paternal Libertarianism" which as one of the Profs mentioned, is a handy oxy-moronic term as well suited for the world of spin-media as was the trademarked "compassionate conservative" for the brief moment of smoke and mirrors required.

Prof Posner sez:
"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."

So, yes, all we're discussing under the auspices of the "L-word" is little more than the tug of war that has always existed between lassez faire capitalism and the mixed economy in which we've lived since the turn of the century. It probably IS good to have the use of "Libertarian" though, as in the educations and memories of many today, lassez faire took quite a drubbing in the early 20th century that nearly took down capitalism with the melt down.

As we all know and are grateful for, Humpty Dumpty was patched up and returned to service, but most of us are wiser now for having seen Humpty in parts and pieces no longer think of him as an unfailing god of perfection, and are simply left with a discussion of when there should be "government" (community?) intervention and when we think "the market" can do a better job.

Prof Posner sez:
"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.""

........ and indicates a nearly typical sort of "Libertarian" mistrust of government or community intervention by leaving out words such as "elected" or that interventions are "thought up" rather than coming from debate and public input. We'd hope that the individual "cognitive" or "emotional limitations" would drop out during the process of debate, committee work and floor votes.

As for "politically motivated" I would hope so. There seem to be about two reasons why a pol would step forth to "fight" for either an intervention or lifting an intervention that was found to be faulty:

A. Being driven to do so by his constituents.

B. Doing so to please those who helped to raise the sinfully large amounts of cash needed to get to a position where he would be expected to make the wisest political decisions for those he represents.

If the process operated mostly under (A) while we'd still make mistakes we'd have a fair chance of coming close to the right decision of how many units of smog we should tolerate, at a given time in our development, in order to provide about the right levels of efficiency. Given human falibility that's probable the best we can do.

I'm far more concerned in today's world of too many decisions coming from (B) and that they are not coming from mistakes, but from purposeful "rent seeking" and favor buying and result in FAR more inefficiencies than would the mistakes of (A)

And there seems a trap for Libertarians in that as they reject all or most government intervention and these days go a step further yet by not recognizing corporate rent-seeking for what it is, they're often bamboozled into thinking that resistance to rent-seeking, tax evasion, and even some of the corruption would be un-Libertarian or interfering in "The Market".

It would be unfair to go further and saddle decent Libertarians with having to defend what's gone down under the "Bushies" as it's certainly been nothing, at all, akin to a Libertarian administration even though I constantly run into self proclaimed "L's" who voted for the cabal twice.

So where are we? And where do we go once the wreckage has been cleared from the tracks? I conclude that the political spectrum is NOT a see-saw with "Liberals" on one end, and "Conservatives and Libertarians on the other. Instead, I see a circle, like a hot tub with the best of Liberals, Libertarians and principled Conservatives sitting next to each other striving to altruistically find the best path for our fair country to pursue.

OK so who's on the other side of the hot tub? Scammers. Those of either "party" who are in it for themselves or rent-seeking for their employers. Those who like the Bushies refuse to test the worth of their ideas and proposed policies in the open debate of democratic process that brings out "the best we can do".

Lastly, for those trying to be on the "good guy" side of the tub must understand that there's less difference in how to get there than is typically imagined. For example in the recent flap over a small increase in the min wage which would still leave it far from being anything close to a living wage, those opposing the "intervention" should understand that somewhere, somehow, our American decency will not allow working people to be out on the streets living under a peddler's cart as in poor countries, but that transfer payments ala "Earned income credits" food stamps and many others will be ramped up to fill most of the gap. Some "conservatives" including Fed Reserve "brakeman" Bernanke even stated they'd prefer raising the EIC rather than raising the min wage. Oh? whither thy "conservatism?"

And thus! the joker is that those falling in with corporate rent-seekers favoring cheap labor and exporting even larger fractions of their labor costs to the taxpayers in general find themselves promoting "big government" and "creeping socialism" when they thought or hoped they were doing the opposite. Me? I'm often called a "liberal" but would trade off the transfer programs for the "working poor" in favor of a min wage of about $15. Efficiency? I'd be rid of "big gov" transfer bureaucracy, the still low income worker could make more of his own economic decisions, and old Adam's invisible hand would see to it that employers used their human resources as efficiently as the do for assets that are not subsidized or artificially cheap. Jack

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