New Paternalism on the Slippery Slopes, Part 10: Rejoinder to Objections

by Glen Whitman

Some new paternalists have recognized the slippery-slope objections to their approach, and they have made some effort to respond. But we find the responses insufficient (p. 735-737):

In their book Nudge, Sunstein and Thaler recognize the slippery-slope objections to their policies, and offer three responses. We reply to their responses here.Sunstein and Thaler’s first response is that the slippery-slope argument “ducks the question of whether our proposals have merit in and of themselves.” They say if the initial interventions are worthwhile, then we should “make progress on those, and do whatever it takes to pour sand on the slope.”

Our claim is not that slippery slopes are the only objection to the new paternalism. Various other objections have also been made (and referenced in the introduction to this Article). The slippery slope is an additional argument against the new paternalism.

The idea that we should “make progress” on the initial interventions, and then do what we can to “pour sand” on the slope, is a variant of the usual (and, we think, hackneyed) response to all slippery-slope arguments: that we can simply “do the right thing now, and resist doing the wrong thing later.” But if the slope argument is correct, there is a causal (albeit probabilistic) connection between initial interventions and later ones. Saying we should move forward on those initial interventions is akin to saying we should do something because it promises present benefits, while ignoring the potential costs in the future. Ironically, it is just this sort of error in private decision-making that most new paternalists think cries out for correction. The slope risk must be counted among the costs of the initial intervention.

Robert Barro and His Black Box

by Mario Rizzo

I am both intrigued and annoyed by Robert Barro’s recent opinion piece in the Wall Street Journal. He adduces empirical (econometric) evidence to support the view that the fiscal stimulus package has done very little good in the short run and will do harm in the long run. I do not want here to discuss technical data or identification problems. Instead, I want to discuss something both more elementary and more profound.

The world of econometric estimation is a world shrouded in mystery, even for some econometricians like Edward Leamer of UCLA, for example.

New Paternalism on the Slippery Slopes, Part 9: Framing in Public Policy

by Glen Whitman

And after another long interruption, I’m finally going to finish my series of excerpts from Mario Rizzo’s and my article, “Little Brother Is Watching You: New Paternalism on the Slippery Slopes.” There are three more posts, including this one.

As discussed in an earlier post, the new paternalists use the notion of framing — that is, the idea that people’s choices respond to seemingly irrelevant differences in how the choice situation is presented — to justify a variety of policy interventions. But what happens when we apply the notion of framing to the choices of the policymakers themselves? There is a natural human tendency to frame decisions narrowly “because immediate and concrete effects are more psychologically accessible than remote and abstract ones” (p. 726), and this tendency has worrisome implications for public policy. Specifically, paternalist policy-makers will tend to ignore the indirect and longer-term and implications of their policy choices (p. 726-727):

Narrow framing leads decisionmakers to consider choice-options simply as they arise, framed by present circumstances, the crisis of the moment, and perhaps the activities of rent-seekers. Their actions will often be ad hoc solutions to particular problems, and the narrow framing produces a tendency not to see important interrelationships. In Kahneman’s words again, “[t]he decision of whether or not to accept a gamble is normally considered as a response to a single opportunity, not as an occasion to apply a general policy.” For example, the interaction of biases may be ignored. This means the problem is not simply one of discounting long-term effects, but also of discounting effects that occur through longer and more complex chains of causality.

Out of Death Spiral, Into the Fire

by Chidem Kurdas

A big rate hike by an insurance company in California’s market for individually purchased health insurance provided a rationale for the new Obama care proposal. As Paul Krugman explains, the key issue is adverse selection: people who retain coverage tend to be those with high medical expenses.

Those with low expenses tend to drop out in hard times. That increases costs, causing premiums to rise, so even more  people drop out—an insurance death spiral.

The solution proposed in the administration bill – as in previous Congressional bills – is to make insurance mandatory.  With healthy people in the pool to share the costs, presumably premiums can be kept down. But even passionate proponents of compulsory insurance don’t really believe this,  so the President  proposes a new federal agency, the Health Insurance Rate Authority, to control price increases.

At this week’s NYU Market Institutions and Economic Processes colloquium, Gene Callahan made a comment that’s the best descriptor I’ve heard for the health insurance situation, though he was speaking of another topic: “However bad our current situation may seem, there is always some reform available that could make it even worse.”

Gene’s adage should be emblazoned on the walls of the room where the President’s health summit will take place this Thursday.

France’s Foolish Idea

by Mario Rizzo  

After having written about “Germany’s Foolish Idea,” I see that the French are not immune either.  

First, I apologize to the many French (and Germans) who do not share their governments’ ideas or agree with their policies. It has, unfortunately, become a habit in journalism and even in the professional writing of historians to refer to actions by states as if “France or Germany did this or that.” More correctly, we should say the “French or German government did this or said that.”  

This is not just a semantic issue. It goes to the root of a major ideological problem: the confusion between society and the state. 

The Financial Times reports that many French politicians are upset about a private restaurant chain, “Quick,” deciding to serve exclusively halal beef-burgers in a few of its stores to attract Muslim customers. (Halal refers to food that is “lawful” according to Islamic law. There are restrictions on the kind of food, the method of slaughtering the animals, and the processes of food preparation.)  

The Knowledge Problem of New Paternalism

by Mario Rizzo

Glen Whitman’s and my article, “The Knowledge Problem of New Paternalism” has been published in The Brigham Young University Law Review,  2009, no. 4. The theme is that the project of the new/soft/libertarian paternalists to make us better off by our own standards fails because the paternalists lack sufficient knowledge of the circumstances of time and place that affect the welfare and decisions of agents. The analysis is quite comprehensive and should be of interest to many of our readers here.

This article should be viewed as a companion piece to our “Little Brother is Watching You: New Paternalism on the Slippery Slopes” published in the Arizona Law Review a few months ago. It was also summarized in eight posts at TM by Glen Whitman. The latest one can be found here.

Keynes on the Bismuth — Castor Oil Cycle

by Jerry O’Driscoll     J. M. Keynes was well-aware of the problems of conducting counter-cyclical policy to stabilize employment.   The problem is when to add stimulus, when to withdraw it, and not to overdo it.    In Keynes’ Treatise on Money (1930), Keynes analogizes it to a family taking care of a sick child with doses of castor oil, a laxative. “It is as though different members of the family were to give successive doses to the child, each in ignorance of the doses given by the others. The child will be very ill.  Bismuth [an antidiarrheal] will then be administered on the same principle.

ThinkMarkets Goes National

by Mario Rizzo

I am happy to report that the Christian Science Monitor has agreed to pick up TM as one of the highlighted-blogs on its Money page (down the middle). This will be a regular feature. I am not sure if every posting will be carried but, in any event, this will be a big opportunity for us to gain more exposure.

Soon, of course, we shall be influencing economic policy both here and abroad. So watch out!

Inflation as a Solution?

by Andreas Hoffmann*  

The Wall Street Journal Online recently quoted an IMF paper (written by Oliver Blanchard), that a higher inflation may help to give leeway to monetary policy in times of crisis. What is this about?  

Blanchard argues that if inflation rates are targeted at 4 percent rather than 2 percent, this would not make much difference. Following Blanchard, the ‘2 percent target’ is chosen ad hoc. Further, two additional percentage points of inflation would not do any/much damage (by e.g. increasing the volatility of an economy). On the other hand, as inflation adds to nominal interest rates, these would increase with higher inflation. Thus, the room for interest rate cuts will be larger potentially to stimulate the economy in times of crisis.  

Money and Banking in a Free Society

by Jerry O’Driscoll    At the Coordination Problem, Pete Boettke drew our attention to James M. Buchanan’s paper, “Economists Have No Clothes”. It’s a short piece, chock full of insights.  I want to draw on some not raised by Pete.   Buchanan observes that protagonists are prone to claim “that ‘the market’ (or ‘capitalism’) either works or does not work without constraints, a claim that is demonstrably unsupportable…”  He reminds us that Adam Smith’s “whole effort” was aimed at identifying the right laws and institutions, so that self-interested behavior would lead to outcomes that were generally beneficial.