Friday, May 30, 2008

Libertarian Paternalism

One of the arguments put forward by relatively sane Obama supporters (yes, there are a few) for why Hillary supporters should vote for him should he be the nominee is that there really isn't any significant differences between them. This is a different argument than that offered by people like Paul Krugman, who thinks there is plenty of difference on economic issues, almst all in Hillary's favor, but that it is more important to throw out the Republicans.

Simply on health insurance, it is clear that there are substantive and pivotal differences that refute claims that these candidates are "just alike", but an argument can be offered that they are simply demarcating points along a spectrum of acceptable policy outcomes. In fact, it was something I myself discussed in general terms late last summer when I was speaking about the Democratic field as a whole in comparison to the batshit insane Republican field as a whole. Democratic policy papers offered a range of broadly similar stances towards general issues.

The strange refusal on Obama's part to make health care universal, something out of step with the rest of the candidates, was what made me go "Hmm?" and start looking more closely into his economic policies and advisors. It's been an interesting look, but one that is difficult to sum up. The problems ran deeper than the specific proposals, which individually seemed more like shortfalls or things that were incomplete, and I was not really able to bring into focus the undercurrent that bothered me.

The most recent edition of The New York Review of Books has an article by John Cassidy titled "Economics: Which Way for Obama?" that has captured what leaves me unsatisfied about Obama's approach to economics and economic programs, and makes a powerful case that one of these candidates is very much not like the other Democrats.

Cassidy reviews a book, Nudge: Improving Decisions About Health, Wealth, and Happiness,
by Richard H. Thaler and Cass R. Sunstein in which he lays out the argument. I encoruage anyone interested in economic theory to read the article, as it is interesting, sympathetic to the authors, and accessible, even to us low information voters. He uses the book as a jumping off point for talking about the economic theories and proposals of Obama's advisors and their particular approach to economics, behavioral economics, which is expressed in policy as "liberatarian paternalism." From the book, in the authors' own words:

Libertarian paternalism is a relatively weak, soft, and nonintrusive type of paternalism because choices are not blocked, fenced off, or significantly burdened. If people want to smoke cigarettes, to eat a lot of candy, to choose an unsuitable health care plan, or to fail to save for retirement, libertarian paternalists will not force them to do otherwise—or even make things hard for them. Still, the approach we recommend does count as paternalistic, because private and public choice architects are not merely trying to track or to implement people's anticipated choices. Rather, they are self-consciously attempting to move people in directions that will make their lives better. They nudge.

A nudge, as we will use the term, is any aspect of the choice architecture that alters people's behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting the fruit at eye level counts as a nudge. Banning junk food does not.

Many of the policies we recommend can and have been implemented by the private sector (with or without a nudge from the government).... In areas involving health care and retirement plans, we think that employers can give employees some helpful nudges. Private companies that want to make money, and to do good, can even benefit from environmental nudges, helping to reduce air pollution (and the emission of greenhouse gases). But as we shall show, the same points that justify libertarian paternalism on the part of private institutions apply to government as well.

Cassidy evaluates this claim (Note - I have edited out a specific argument about the sub-prime loan crisis. It is fascinating, but doesn't make much sense outside of the article. I strongly encourage you to read the entire article):

...libertarian paternalism has some fundamental problems, beginning with the fact that it sounds suspiciously like an oxymoron.

Once you concentrate on the reality that people often make poor choices, and that their actions can harm others as well as themselves, the obvious thing to do is restrict their set of choices and prohibit destructive behavior. Thaler and Sunstein, showing off their roots in the Chicago School, rule out this option a priori: "We libertarian paternalists do not favor bans," they state blankly. During a discussion of environmental regulations, they criticize the Clean Air Acts that banned some sources of air pollution and helped to make the air more breathable in many cities. "The air is much cleaner than it was in 1970," they concede, "Philosophically, however, such limitations look uncomfortably similar to Soviet-style five-year plans, in which bureaucrats in Washington announce that millions of people have to change their conduct in the next five years."

If you start out with the preconceptions about free choice of John Stuart Mill or Friedrich Hayek, it is difficult to get very far in the direction of endorsing active government. (This is precisely the problem that the New Liberals of the late nineteenth century, men like L.T. Hobhouse and T.H. Green, faced.) ...

... A refusal to accept that individual freedoms sometimes have to be curtailed for the general good is an extreme position even for a neoclassical economist to take, and it is alien to the traditions of the Democratic Party. (My emphasis)

And this is where I went "Ah-ha!" The aspect of Obama's economic approach that had always bothered me was a curious absence of any philosophy of the state as a constructive force, coupled with a stance that focused on "choice" for the isolated and abstract individual of classic economic theory. In short, there is no theory of power.

Why does this matter? If your focus is on the abstract individual and structuring choices for the individual, then you are not addressing the larger environment in which the structuring takes place. To use an example from the article Cassidy uses to illustrate behavioral economics, if people are not saving enough money for retirement, then one way to struture their choices to encourage savings is to make a company 401(k) an opt-out rather than an opt-in, much like the way employer based health insurance is structured. The employer automatically enrolls the employee in a 401(k) and deposits pre-tax dollars from the employee's paycheck, but the employee is free to tell HR to stop the ocntributions and disenroll him from the plan. Since most people intend to start a 401(k) but forget to sign up or can't quite bring themselves to put aside that much of their paycheck, reversing the usual structure of the choice will by defualt result in a higher savings rate.

This "choice" ignores the environment in which retirement savings occur. The concentration on the individual does not offer an opportunity to interrrogate the conditions of retirement now, the effect of longer life spans on the need for economic support, the evisceration of traditional pension plans, the assaults on Social Security, the way in which "right to work" laws discourage unionization, living wages, and having enough money *to* save, the gendered face of poverty and how women are disproportionately harmed by poor benefits, lousy pay, and having to work the "second shift" at home, etc. Demanding that people deposit money in a savings account is avoidance of taking on these difficult tangled issues, not a solution to them.

There is, if only in the negative, a theory of government in this approach, which is that there really isn't a role for it in people's lives if it results in a requirement rather than an option for individuals. From a liberal democratic viewpoint, the purpose of government is to regulate realtions of power such that those who are disadvantaged in society are not simply exploited by those who are. Our civil rights are the foundation of this regulation, but it reaches into things like workplace safety, disease control and environmental protection. Individual choice is meaningful only if the individual has some say in how those choices are structured, enabled and defended.

Cassidy notes:

As it happens, there is a coherent and well-developed economic philosophy that was explicitly designed to deal with the law of unintended consequences, and it is regulatory Keynesianism of the sort practiced in the United States and Britain from the end of World War II until the 1980s, a period, not coincidentally, in which working people saw their living standard improve at an unprecedented clip. With respect to the national economy, Keynesians worry that unfettered capitalism is subject to ruinous boom-bust cycles, so they advocate management of demand through interest rates or government programs that create jobs. On the micro-level, they believe that some economic activities have harmful effects that the price mechanism fails to capture, so they support taxation and regulation. Behavioral economics, by demonstrating how people often fall victim to confusion, myopia, and trend following, provides another convincing rationale for Keynesian policies, but you wouldn't realize that from reading Thaler and Sunstein.

Choice requires context, and it is the context that is wrong in Obama's economic proposals. As in health care, he appars more concerned with maintaining the illusion of choice than addressing the environment in which acceptable choices about insurance can occur. Cassidy asks a question I have asked myself in several ways: "But for what policy purposes are the masses to be mobilized?" Just what is the vision for the society and the nation that Obama intends to put into practice? There isn't one; it is fractured into small buckets of choices here and there, with neither a philosophy of governance nor a coherent plan for transforming the steaming pile left behind by the Republicans into a strong, liberal government.

The Democratic candidates' foundation of political economy is in Keynsianism for the simple reason that it works far better than any other approach when the overall wellbeing of the society is the central concern of government. That the libertarian paternalists equate the Clean Air Act with totalitarian government is telling. They cannot accept that government is needed to counteract concentration of power to the detriment of the citizenry, and their conceit that they will be among the winners in an unregulated society is not a hypothesis the rest of us really want to test.

This is why, for all the specific proposals, Obama's economic policies simply do not convince anyone who actually wants things to change.

Anglachel

17 comments:

orionATL said...

"a curious absence of any philosophy of the state as a constructive force, coupled with a stance that focused on "choice" for the isolated and abstract individual of classic economic theory. In short, there is no theory of power."

indeed.

it's called ayn rand economics.

what distinguishes senator clinton in my mind is that she wants to make gov't work for the nation by helping individuals as there is national benefit - health care, educational opportunity, national security, pollution, critical resource limitations etc.

this is WHY we have gov't.

so that there can be a collective effort to solve problems, including individual problems, that may effect us all.

need i add, as an example, that the impoverished sick effect us all - both economically and in terms of public health.

as best i can tell, senator obama's highest priority is conflict avoidance (no bickering, less partisanship).

"naive" is too kind a word to apply to this kind of public "philosophy".

orionATL said...

my apologies,

before blundering along,

i should first have said,

the fact that you're back and thinking and writing again presages good news for your family.

i certainly hope so.

Anglachel said...

Thanks for your good thoughts Orion.

My family member is still in the hospital having contracted pneumonia and having other complicating conditions. Still on IV antibiotics, but stronger. Not coming home until next week.

Anglachel

jacilyn said...

I too hope your family is well.

What concerns me - and I suspect a lot of working class people (of the sort who are far too technophobic to be represented on blogs)is: What will this attitude will mean for the people who have to work for a living and live on wages?

Will employers simply have the "choice" as to whether to pay us minimum wage, or limit us to 8 hrs a day? I have already seen the rules I grew up with being grossly violated. Workplaces that blatantly abuse overtime laws or make employees sign legal waivers as a precondition of employment (so that no matter what the workplace does, there is no legal recourse outside of "mediation" - with the company chosen by the employer) - this sort of stuff has become commonplace.

I have this idea that civilized means learning to come together and be social creatures together. In exchange for everyone agreeing to submit to limits and rules, we all gain a greater quality of life. I do not believe Obama shares that idea. I do not think he respects the role that trust plays in keeping us together in harmony.

Falstaff said...

You are right on the money (pun intended, I guess) on two key points. First, there is no intellectual coherence, no discernible theory to Obama's positions. Second, the absence of a conceptual framework is not accidental. It is the result of his (apparently lifelong) avoidance of conflict. Put the two together and one gets your absence of an idea of power.

Having said that, and agreeing that the role of the state is crucial, I would suggest a major factor of historical proportions that doesn't obviate, but does complicate the analysis. Namely, the reality of globalization. Driven most essentially by the imperatives of technology -- which has created a networked planet that will never get unnetworked -- the context you are describing is no longer national, no longer the nation-state. In all respects -- environmental, epidemiological, economic, cultural, political, etc. -- we are all now living on a global commons. The rise of the blogosphere is just one among many manifestations of this radically democratizing and enormously positive development. It is literally the case today that any literate person can become a global publisher for free in five minutes. And thanks to mash-ups, you don't even have to have a computer science degree to create new functionality in exactly the same way. The barriers to entry have disappeared, and the means of production have become available to all.

The impact of this is non-trivial, to say the least. More people on the planet have escaped from poverty in the past two decades than at any time in human history. This period is making the Industrial Revolution look like a warm-up. No serious person with progressive views can possibly regret that.

Having said that, the reality of globalization obviously raises enormous new issues -- relating to all of those spheres of human activity I mentioned above. The responsible, grown-up thing for any political leader -- and especially the President of what is still the world's most powerful nation -- is to move us toward a safer, saner and more prosperous planet by helping to figure out new forms of governance, new institutions, new processes and new kinds of relationships within and among business, government and civil society at large.

I don't think it's hard to see who offers a better prospect for that kind of serious institutional innovation. Obama's "hope" and "change" are not a serious program. They are basically the flip of Bush's "stay the course." They're another invitation not to think.

My only point is that when we do think, we need to think progressively global. And that probably means at least evolving Keynesianism, as well as all the frames of industrial capitalism. We ain't living in that anymore.

missplsd said...

I join with the other commenters in hoping that your relative gets well soon, Anglachel.

Thank you for posting this article. I had a similar response to yours, as I had earlier when I read this column from libertarian scholar Dan Koffler several months ago. Some of this stuff is rather chilling.

Because I believe (a) congress is more Keynesian than this and (b) a McCain presidency would be an unmitigated clusterf*ck in terms of warmaking, judicial appointments, and social policy in addition to economic policy, I have chosen to try to remain somewhat optimistic about Obama. Yes, Goolsbee is bad; no, he's not George Stigler. As Cassidy writes:

On other issues, such as trade policy and regulation of the financial industry, Obama has recently adopted a more dirigiste tone than Thaler and Sunstein would care for. More generally, he has talked about confronting entrenched interests and giving a voice to the excluded. Doubtless, he means what he says, and his ability to attract new voters, especially young ones, suggests he could have more success in overcoming the forces of inertia and reaction than the Clintons did in 1993–1994.

(It may also be worth remembering that Sunstein, who has Obama's ear, wrote a whole book about following through on FDR's promises, endorsing rights like the rights to work and a living wage, a decent home, adequate health and medical care, protection from economic insecurity, and a good education. He may endorse nudging -- rather than regulating -- folks through the free market, but this is not entirely incompatible with big-government social spending, try as the neoliberals might to convince you otherwise.)

Incidentally, I blame law school for Obama's libertarian leanings. Legal education has been in the thrall of behavioral economics for the last couple of decades. It's terrifying how much more attention most young lawyers pay to incententives and efficiency when they should be worried about rights and justice.

cal1942 said...

Thanks very much for the link.

This is a subject near and dear to the heart of this old bread and butter Democrat.

Obama has revealed much of his 'philosophy' over the course of the campaign when responding to questions regarding emerging economic problems. His tepid solutions to significant and potentially damaging economic problems raised a serious red flag. Examining his economics policy team of Goolsbee, Cutler and Liebman drove me to call them the Milton Friedman Memorial Economics Team. His policy proposals and statements about regulations led me to conclude that he was possibly slightly to the right of the Eisenhower Administration. Activist government is certainly not Obama's objective. Incredible during a time in serious need of government activism.

It's been frustrating to read so much drivel claiming small differences between Obama and Clinton. Could it be that these characterizations are deliberately intended to deceive or are they just a sloppy examination from people who are either uninterested in policy discussion or captives of a personality narrative?

Just the fact that Obama's philosophy is so passive is enough to withhold support. In fact it's enough to engender fierce opposition.

The 'change' that Obama seems to represent is the destruction of the Democratic Party as a force for activist government.

That's why I won't vote for him if he's the nominee. I'm a Democrat and I don't want a schmuck President to carry the Democratic Party label.

Sherry said...

Let me add my best wishes for your family member, Anglachel, and thank you for the link and this post. It explains much.

Thanks, too, to your intelligent commenters.

It's an ill wind that blows nobody good, and this awful primary has led me to some blogs and blog families where informed opinion/thinking is more important than gotcha. For that, I'm grateful.

grayslady said...

Great post, Anglachel. I've said for awhile now that Obama and his followers are neo-Libertarians, not Democrats. Obama appeals to the "me generation"--the yuppies and the very young. Sadly, most of the AA community, people who truly need strong government, has been swept up in the fever, as well, due to identity politics. That's why I will be totally at peace with myself in voting for a Republican if Hillary is not the nominee, because I know that Obama doesn't offer me a Democratic alternative. I have no intention of "coming together" with people who are Libertarians. That's not what we need. Besides, only dictatorships have unity; democracies have competing interests that maintain checks and balances on each other.

gendergappers said...

Wonder of wonders, Campbell, on CNN actually did several minutes on BO's IL senate days.

Even interviews with those senators that he walked all over when he was there.

Using their hard work to go forward and forcing them out while taking the credit.

See where he got the on-the-job training?

Chinaberry Turtle said...

Anglachel, you've really helped educate me on a lot of things in this primary. To date, you have really helped explain a schism within the Democratic party that has always bothered me but I've never been able to articulate: the North vs. South divide combined with the Stevensonian vs. Jacksonian wings of the Democratic party.

And now, you've really embarked onto a whole new problematic area within the Democratic party that seems wholly separate from the above issues you've described so well. I've noticed in the past decade an influx of "Libertarians." I never knew exactly what they were all about, but I knew I was ideologically allergic to them. And now, you have perfectly explained why I've always felt this way:


The aspect of Obama's economic approach that had always bothered me was a curious absence of any philosophy of the state as a constructive force, coupled with a stance that focused on "choice" for the isolated and abstract individual of classic economic theory. In short, there is no theory of power.

...

Choice requires context, and it is the context that is wrong in Obama's economic proposals. As in health care, he appears more concerned with maintaining the illusion of choice than addressing the environment in which acceptable choices about insurance can occur.


This is really deep and insightful stuff. I keep reading this journal and just keep discovering how dissatisfied I am with the Democratic party.

Obama is the perfect candidate for the Libertarians. No other Democrat could get away with the following message: "Look all you stupid poor people - I'm not going to save you from your own dumb choices. If I lower the cost of health care a little bit and you STILL choose to pay your rent instead of health care, then that's your own stupid choice."

I think rich white liberals are eating up this message. Why? Because, in essence, Obama seems to be delivering a direct negative message toward black people, and other traditionally poor segments of society: "You are poor and powerless because you make stupid choices in your personal lives." Only a Starbucks elite liberal black candidate could possibly get away with this message. And now rich white creative class liberals finally feel safe in joining in on this chorus that they've been secretly singing in the shower.

This would be patently racist and classist "you poor people suck" dribble if it came out of the mouth of any other Democratic candidate. But Obama is the perfect vessel for this new-age Libertarian fuck-the-poor message.

gob said...

I too send best wishes for recovery. Pneumonia seems to be in season just now.

It's worth highlighting this, I think:

In short, there is no theory of power.

This is not an accidental lack. In my experience, the first thing people who have power want to do is shut off any thought or discussion of power. (Ok, I'm naive, you've all known this since you were 10 years old, right?)

To be clear, I'm not imagining some Protocols of the Elders of Obama conspiracy here - rather suspect Obama is as confused as his followers. There's an inadequate world view behind all this, unconsciously sustained by its serviceability for the "haves", but it's no more cynical than your average politician's.

Anglachel said...

Hi Turtle,

You caught me when I'm home.

Straight-up Keynsianism doesn't hack it anymore, mostly due to the increasing complexity of economic relations (globalization, growing complexity of transactions, the constraints of regulation itself, etc.), so there definitely needs to be a good amount of work done on the basic model.

However, the fundamental principle of the model, that the *purpose* of modern government is to defend the well being of the individuals in society, is what distinguishes it from almost all other economic models. It has a theory of legitimate state involvement in daily conduct of the economy. Even Marxism (which isn't nearly as scary or radical as people make it out to be) places the general society, not the individual within that construct, at the center, and does not differentiate between state and society. It is a fundamentally religious worldview. Classical and neo-classical economics places the abstract individual at the center, and has no constructive role for the state.

I don't think Obama is quite so self-consciously antagonistic to the working class and the poor. I suspect he really sees himself as a benificent force, just as he somehow believes that "untiy" is achieved through backstabbing, lies and grabbing power at all costs. Once *I'm* in charge, then I can do my good works.

However, his perspective is that of the winners, with little acknowledgement of the barriers to achievement. That's one of the reasons Bill Clinton can connect to so many classes - he started from bum fuck nowhere, with nothing, and he made a success of himself. The key to the Big Dog (and I know I've written this somewhere) is that he has never lost respect for his place of origin, has never repudiated it or regarded it as something shameful. Like too many of the Blogger Boyz, Obama gives every sign of looking down on lower classes and seeing himself as a benefactor, not a participant in that part of America.

I think you put your finger on why the libertarian paternalists rub me the wrong way. While individual measures may make a great deal of sense (I think having savings plans be opt-out instead of opt-in is a good idea), there simply is no coherent theory of state power, it's role in regulating society, what to do when conditions of choice are intractable, etc., and far too easy an out by placing choice on the shoulders of the individual without taking into account the context of the choices.

Such as health insurance mandates.

Sadly, yes, Obama is a perfect vessal for this economic theory as he has no great concern with governance. He wants to win the prize and that's about it.

Anglachel

Chinaberry Turtle said...

Thanks for the response Anglachel. I just wanted to add that there's one other thing that just horribly annoys me with these Libertarians. Hey - I'm as in love with "individual choice" as anybody else. Heck - my absolute hero of all time is Clint Eastwood in all his Spaghetti Western movies. The ultimate individual riding out and making his own individual choices despite whatever the laws of nature or man have to say about it.

True individualism is not some delicate flower. It will survive. It will cowboy up. You needn't worry about killing off Clint because he'll now be legally forced into a 401K. For god's sake you Libertarians - get a grip and cowboy up! If you really are the rugged individualists you all claim to be, you don't need all the delicate protection of your precious "choices" that you fret over so much. You'll just cowboy up and do what you need to do, live your life and make your own choices despite what the rugged desert or your government has to say about it.

The people who need help are the ones who can't even afford a goddamn horse in the first place to go ride out into the desert to play Mr. Lonesome Dove Individualist. For crying out loud I can't stand these lilly-livered Libertarians! Nobody ever taught them the absolute first rule of individualism: COWBOY UP!

desert dawg said...

Thanks for bringing this article to our attention, and thanks to all the thoughtful commenters.

Agree with all you've said, Ang, except that with Obama:there simply is no coherent theory of state power.

Yes, there is. It's why he said Reagan and the Republicans had the good ideas. His idea is, to twist a line from the Big Dog to support the power of the government, so long as it is safe, legal, and rare. At bottom, he agrees with Reagan: government is not the solution to the problem, it is the problem.

Reagan's triumph was that he threw the New Deal to the ground. Bush's triumph is that he drove a stake through its heart. Obama has accepted that fact, as have all those who support the ideas of Thaler and Sunstein--or Goolsbee, Cutler and Liebman.

The most telling line in the nudge book was that regulation is not a fundamental aspect of the Democratic Party--I guess that's true, if you're Andrew Jackson. And if you don't count the New Deal.

Obama was once called a left libertarian, which, as Thaler and Sunstein say, is just as much an oxymoron as libertarian paternalism (compassionate conservatism, anyone?). A libertarian is simply a Republican who doesn't bash gays and blacks.

Missplsd is onto something. The law and economics programs in all the law schools are a direct outgrowth of tort reform: as missplsd stated above, incentives and efficiency vs. fairness and justice. It's how you screw people out of their homes. Not surprising that Obama voted for tort reform when he went for the Class Action Bill.

Obama's view of the subprime crisis is another perfect example: his "fund" for mortgages will simply go into the hands of bankers. "Disclosure" is what the insurance companies want. I wasn't surprised to hear that Obama was supporting a Chris Dodd proposal--along with Ben Nelson from Nebraska, Dodd is the biggest advocate for insurance interests in the country. Obama's health care plan is of a piece with this attitude.

The split in the Democratic Party today is not racial--it is between two radically different views of society. One that sees government as a defender of society, another that sees it as a clearinghouse for market-based solutions. (Unfortunately, Bill Clinton started us down this road with the DLC.)

Donna Brazile was articulating this fundamental difference when she announced the New Democratic Party coalition on CNN a few weeks back. I guess she thinks that her ass is covered so long as BO is prez, and that government programs for AA's will continue. But that's all that will continue. The eggheads don't need government help. And all those Archie Bunkers who need health care and access to the courts and a retirement system that works can go take a hike.

She was just giving them a nudge.

desert dawg said...

correction: disclosure is what the financial companies want.

Other Lisa said...

Adding my best wishes to your relative, Anglachel.

This is a great post and a lot of really smart comments as well.

For me, one of the early red flags on Obama were his economic advisors and what they represent. I tend to believe the theory that Obama is the candidate of Wall St. and that his entire candidacy is about creating an illusion of progressive change. Behind the scenes, it will be business as usual.