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