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Wednesday, February 23, 2011

The Consequences of Libertarian Paternalism

Many of you are probably familiar with Thaler and Sunstein's breakthrough book, "Nudge", a behavioral economics book that caught fire a couple of years back with a philosophy they coined, "Libertarian Paternalism".

Yeah, that philosophy didn't come across too well in the libertarian community. But, not all of their recommendations are as creepy as they sound. And from a behavioral economics standpoint, it's simply fascinating material.

For instance, economists recently tried to determine why certain countries had such high rates of organ donation, and some had such small rates? Especially when the countries with such disparate ratios seemed to have so many other similarities?

The answer? If, when renewing your driver's license, your form says "check this box if you would like to opt-in to your state's organ donation program." Most people don't.

But when your form says, "check this box if you would like to opt-OUT of your state's organ donation program." Most people also don't.

What's going on here? Laziness. And that's the idea behind "Nudge". The government making the default choice the subjective "best" one. Knowing that your laziness will default you into the "best" choice. For instance, they theorize that 10% of your salary should automatically go into your savings account. Unless you opt-out of course. Their theory is that most people are too lazy to do so. And so they get to experience the effectual benefits of saving.

As a libertarian, you should rightly be concerned with the possible extents of this philosophy. But "Nudge" led me to a thought the other day, that someone quickly characterized as paternalistic. And I wanted your feedback.

I have alcoholics on both sides of my family. I see the devastating effects firsthand. These people who, in their best moments, deeply desire to be free from this burden.

Here was my idea. A recovering alcoholic could willingly go to the DMV, and have a small stamp put on their license. A "do not serve me alcohol" stamp.

My friend called this "big brother". I defended it by claiming this was a willing process. There would be no mandate. And he countered that I was depending on state law that requires establishments to card people.

And at that point, I turn to you. How often is pragmatism un-libertarian?

Eric Olsen,
Regular Columnist, THL
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