New Paternalism on the Slippery Slopes, Part 3: Hyperbolic Discounting

by Glen Whitman

New paternalists often rely on the phenomenon of “hyperbolic discounting” to justify their policies. Hyperbolic discounting is difficult to define in a non-mathematical way. It is sometimes summarized as excessive impatience, but that’s an over-simplification. A person with a high-but-consistent rate of time discounting would not be a hyperbolic discounter. What hyperbolic discounting really means is having inconsistent rates of time-discounting. One consequence is that a hyperbolic discounter may exhibit “time inconsistency,” a tendency to make choices and then reverse them. After explaining hyperbolic discounting (in more technical terms that I have here), Mario and I explain how paternalists have made unjustified leaps in their use of the concept (pp. 699-700):

In short, hyperbolic discounting means that people at first make long-term plans for saving or dieting but then, when the time comes to implement these plans, they succumb to the desire for short-term gratification. For the new paternalists, this type of behavior suggests an opening for paternalist intervention or correction. Examples include the previously mentioned proposal to automatically enroll people in savings plans, and to impose a sin tax (on unhealthy foods, cigarettes, and so forth) to provide additional incentive for impatient people to resist their temptations.

New Paternalism on the Slippery Slopes, Part 1

by Glen Whitman

As Mario has already announced, we’ve just published a new article, “Little Brother Is Watching You: New Paternalism on the Slippery Slopes,” in Arizona Law Review. You can find the full text here.

The article is quite long. As a result, I expect few people will read the whole thing. I’ve therefore decided to excerpt the article in a series of blog posts. I won’t be covering all of our arguments in the paper, but I’ll be pulling out some passages that I particularly like — and that might otherwise be missed.

Too Big to Fail Red Herring

by Chidem Kurdas

The Obama administration has perfected the fine art of taking a real issue and using it to justify a policy that will almost certainly make the problem worse. Claim to control medical costs, add another trillion dollar medical entitlement to truly break the bank—that sort of thing. Looks like we have another example coming.

The Treasury and House Financial Services chief Barney Frank are apparently cooking up legislation that will allow the government to wreck havoc with the creditors of large financial companies. This is in the name of imposing “market discipline” on institutions that may have to be rescued because they could endanger the system.

“The measure would make it easier for the government to seize control of troubled financial institutions, throw out management, wipe out the shareholders and change the terms of existing loans held by the institution,” according to the New York Times report.

Scroll back to September 2008. Lehman Brothers files for bankruptcy, the credit market seizes up and stocks tank. What difference would the proposed law make in that situation? Lehman management is out and shareholders are wiped out anyway. Instead of regular bankruptcy, where the creditors exert influence, government directly takes over.

So the difference is that lenders will no longer be able to enforce their contractual claims. Oh yes, that will  be just the right remedy for a fragile credit market. You’ll tell lenders they’re toast! That will really get credit flowing.

We Have Come A Long Way

by Mario Rizzo  

This is more an intellectual experiment than a normal post. What I am asking you to do is to clear your mind of its cobwebs. Just “marvel” at the contrast between the classic statements of the limits of the federal government and the recent report in the Wall Street Journal:   

“The U.S. pay czar will cut in half the average compensation for 175 employees at firms receiving large sums of government aid, with the vast majority of salaries coming in under $500,000, according to people familiar with the government’s plans.

As expected, the biggest cut will be to salaries, which will drop by 90% on average. Kenneth Feinberg, the Treasury Department’s special master for compensation, also intends to demand a host of corporate governance changes at those firms.”

I am not here concerned with whether this is a good idea but I am simply in a state of naïve wonderment that we got to the point where this is legally possible.

The Knowledge Problem of New Paternalism

by Mario Rizzo 

Glen Whitman’s and my long-awaited (by us!) paper on the knowledge problem of the new paternalism is finally appearing in The Brigham Young University Law Review this fall. The interested reader can access the final version here. (You may download the paper when you reach The Berkeley Electronic Press page linked.)

There have been many critiques of the new paternalism but none, to our knowledge, that applies an aspect of the Hayekian knowledge problem to its policies. This Article deals with both theoretical and policy-oriented issues. We hope it launches a new line of criticism of paternalistic policies.  

Here is the Abstract:  

Ted Kennedy’s contributions to freedom

by Roger Koppl

Friends of liberty should be kinder and gentler toward the memory of Edward Kennedy. He was the poster boy for the American “liberalism” that exaggerates the power of government to act in socially beneficial ways. He has thus drawn acerbic commentary from some liberals in the old fashioned sense of free exchange and individual liberty. Some conservatives have been unkind as well. I suppose the conservatives have nothing to thank Kennedy for beyond being a convenient target of vituperation. But liberals in the good old fashioned sense have a few things to thank Kennedy for and they should therefore be kinder and gentler to his memory. I wouldn’t comment on Kennedy’s overall legacy, but I would like to point to some important ways in which he helped to increase liberty in America and the world.

Neither Truth Nor Charity, Part 2: Globalization and the Pope’s Discontents

by Mario Rizzo  

Throughout Pope Benedict XVI’s enclyclical (“Caritas in Veritate”) he stresses that scientific knowledge is not enough when trying to determine appropriate government policies or even individual actions. This is quite true.  

He fails, however, to appreciate in many specific instances and arguments the importance of the fact that that moral or ethical knowledge is also insufficient to determine appropriate government policy or individual actions. He pays lip service to this idea (Sec. 9, 30) but it rarely constrains him in practice, as we shall see. 

Now consider a specific issue.  

The pope is worried about the effect of globalization on the traditional welfare state. (Sec. 25)

Another Blog Post On Gates-Gate

by Roger Koppl

One comment on Gene’s recent post on the Beer Summit blasts “Obama’s PREjudice, his knee-jerk observationless, evidenceless accusation at Crowley.”  I think we need to remember that the police are monopoly representatives of state power.

Many serious people believe 1) that municipal police officers tend to be too eager to arrest people for, essentially, being disrespectful and 2) that black people, especially black men, are disproportionately at risk of inappropriate, arbitrary, or false arrest. 

We Are All Fascists Now

by Roger Koppl  

We are all fascists now.  That is true in an empty sort of way I suppose.  Unfortunately, it is also true in a more historically accurate way.  When I was in college “fascist” meant, “You are to the right of me and therefore bad.”  Today, “fascists” in that old fashioned sense have turned the tables on the left.  Now, “fascist” may also mean, “Your are to the left of me and therefore bad.”  That pretty much covers the ground.  By linguistic fiat all Americans are now “fascists.”  Nothing could be less important.  What matters is the other sense in which we have become, all of us, perfect fascists.

Market Regulation

by Jerry O’Driscoll  

Benjamin M. Friedman wrote a review essay for the New York Review of Books on the crisis of the economy and the economics profession.   In an otherwise very good piece, he took an obligatory swipe at deregulators: “There is a long arc from Roosevelt’s acceptance of a useful role for government institutions and government regulation to the conviction of Reagan and Thatcher that the government is never the solution but actually the problem” (p. 43).  That is a straw man all around, but one promoted by textbook presentation of markets and the equilibrating role of prices.