New Book: ESCAPING PATERNALISM

by Mario J. Rizzo and Glen Whitman

Book description

The burgeoning field of behavioral economics has produced a new set of justifications for paternalism. This book challenges behavioral paternalism on multiple levels, from the abstract and conceptual to the pragmatic and applied.

Behavioral paternalism relies on a needlessly restrictive definition of rational behavior. It neglects nonstandard preferences, experimentation, and self-discovery. It relies on behavioral research that is often incomplete and unreliable. It demands a level of knowledge from policymakers that they cannot reasonably obtain. It assumes a political process largely immune to the effects of ignorance, irrationality, and the influence of special interests and moralists.

Overall, behavioral paternalism underestimates the capacity of people to solve their own problems, while overestimating the ability of experts and policymakers to design beneficial interventions. The authors argue instead for a more inclusive theory of rationality in economic policymaking.

 

Reviews

Gerd Gigerenzer (Director of the Harding Center for Risk Literacy, Max-Planck-Institut für Bildungsforschung, Berlin):

Taking issue with the narrow norms of rationality in much of behavioral economics, this remarkable book argues in favor of an inclusive concept of rationality and is one of the first to cover the full range of relevant empirical evidence from psychology. Escaping Paternalism promotes a serious attempt to understand why people do what they do.

Richard Epstein (Laurence A. Tisch Professor of Law, New York University):

Mario J. Rizzo and Glen Whitman have written an incisive yet accessible critique of the dominant strain of behavioral economics associated with Daniel Kahneman, Richard Thaler and Cass Sunstein. Rizzo and Whitman are wise enough to know that human beings, with quirks and practices, are ‘people, not puppets’. Yet they show how classical liberal principles of governance do far better in organizing social arrangements than the various forms of soft paternalism now in vogue with so many behavioral economists.

Robert Sugden (University of East Anglia):

Mario J. Rizzo and Glen Whitman present a powerful and well-documented critique of behavioural economists’ justifications of paternalism. They argue convincingly that these justifications illegitimately presuppose that rational-choice theory is a normative standard. Inspired by the psychology of Gerd Gigerenzer, they offer a more pragmatic and ‘ecological’ understanding of human rationality.

Tyler Cowen (George Mason University) via Marginal Revolution:

The authors are Mario Rizzo and Glen Whitman, and the subtitle is Rationality, Behavioral Economics, and Public Policy.  This is the most comprehensive, definitive attempt to respond to paternalism and nudge that I have seen, written from a (mostly) libertarian and partially Austrian perspective.

 

The Geneva School and its Ordoglobalists

by Stefan Kolev

Four cities are usually considered the birthplaces of neoliberalism: Vienna, London, Chicago, and Freiburg. In his new book, “Globalists. The End of Empire and the Birth of Neoliberalism” (Harvard University Press, Cambridge, MA, 2018, 393 pages), historian Quinn Slobodian points out that an important place is missing in this series: Geneva. The Genevan melting pot of neoliberal ideas in the immediate vicinity of major international institutions was formative in the various attempts to establish an order for the global economy over the past nine decades.

The Virtues of the Market: Wilhelm Röpke as a Cultural Economist

Patricia Commun / Stefan Kolev (eds.): Wilhelm Röpke (1899-1966). A Liberal Political Economist and Conservative Social Philosopher, Springer, Cham 2018, 272 pages, 123 Euro.

by Erwin Dekker

Neo-liberalism is often associated with an excessive focus on the market at the expense of both the state and society. This new book, which is the outcome of a conference held to commemorate the fiftieth anniversary of Röpke’s death, demonstrates that precisely this imbalance was one of the main worries of many ordoliberals, and in particular of Wilhelm Röpke.

THE TYRANNY OF METRICS, Jerry Muller, Princeton, 220 pp.

by Edward Chancellor*

Once upon a time, there was a factory in the Soviet Union that made nails. Moscow set quotas on nail production. When the quotas involved quantity, the factory churned out many small, useless nails. When Moscow realised its error and set a quota by weight instead, the factory produced big, equally useless nails that weighed a pound each.

This much repeated tale of Soviet industrial inefficiency is an urban legend. But it contains a large grain of truth. Communism failed in large measure because central planners had inadequate knowledge of conditions on the ground and their attempts at control were generally thwarted. It would be nice to think that we have learnt from the mistakes of Stalin’s Russia. This is not the case as Jerry Muller explains in his book, “The Tyranny of Metrics.” The world remains in thrall to what Muller calls “metric mania.”

China’s Great Wall of Debt, Dinny McMahon, Houghton Mifflin Harcourt, 288 pp.

by Edward Chancellor*

China’s economy has long defied the doom-mongers. In place of their ominous critique, a more constructive view of economic management in the People’s Republic has surfaced. Beijing, we are told, has found the right balance between state and market forces, and is best positioned to exploit exciting new technologies, such as big data and artificial intelligence. Politically fractured and economically sclerotic Western nations can only look on in envy.

Dinny McMahon, a former financial journalist and mandarin speaker who spent many years reporting on the Middle Kingdom, doesn’t buy this line. In his view, China’s economy has spent years locked in continuous stimulus mode, accumulating bad debts and generating great economic imbalances along the way. This is not an original thesis. But it’s a welcome reality check on the current China hype. Of the many books that have observed the fragility and contradictions of China’s economic model, “China’s Great Wall of Debt” is the best. McMahon writes well, has a fine eye for detail and finds original stories to illustrate his argument.

The Viennese culture of conversation: Understanding and defending fragile orders

by Stefan Kolev*

For a better understanding of the turbulences of our time, studying those earlier politico-economic debates which focused on fragile orders of economy and society can certainly prove insightful. In The Viennese Students of Civilization, Erwin Dekker addresses such an age and interprets the works and impact of economists often labeled as the “Austrian School” – economists who are both the research object for historians of economics and the source of inspiration for today’s “Austrian Economists”.

The Fed’s Institutional Design

by Gerald P. O’Driscoll, Jr.[1]

I have been reading Central Bank Governance & Oversight Reform, edited by John H. Cochrane and John B. Taylor. It is a conference volume of unusually high quality with all the discussions of presentations included.

I plan to write more about the book later, but to highlight one chapter here. It goes beyond the usual topics, covered well in the book, on rules versus discretion, credible commitments, policy legislation, and the historical record.

Krugman Redistribution or Ponzi Scheme

by Chidem Kurdas

A nice thing about Paul Krugman, he does not mince his words. Thus his new book, End This Depression Now!, repeats as boldly as possible the central point he’s repeatedly made in his New York Times columns and blogs for years. Namely, governments have to spend a lot more. They have to run gigantic deficits, much more than they’re doing now. His penchant for going straight for the jugular means that the full implications of the scheme he advocates are crystal clear.

Libraries Linking Past to Future

by Chidem Kurdas

A trustee of the New York Public Library, Robert Darnton, defends in the New York Review of Books the controversial plan to revamp the library’s Fifth Avenue building.  The issue goes beyond one building – however iconic – and one institution.

“National Competitiveness”

by Mario Rizzo

A new book has been published, Institutional Economics and National Competitiveness,  edited by long-time colloquium member — Professor Young Back Choi of St. John’s University. Here is the publisher’s description. Please ask your library to order it.

This book offers a strong contribution to the growing field of institutional economics, going beyond the question of why institutions matter and examines the ways in which different types of institutions are conducive to the enhancement of competitiveness and economic development. Adopting a variety of approaches, ranging from New Institutional Economics, Public Choice, Constitutional Political Economy and Austrian Economics, to more traditional economic approaches, contributors examine the important issues of interest to development economics.

This book asks whether democracy is a pre-condition for economic development, what the proper role of government is in the age of globalization and whether successful government led policies were the cause of South Korea’s economic development. As well as these key questions, the book covers the issues of whether the government should rely on the market process to encourage economic development or must they interfere, and by what criteria one can judge a proposal for policies for economic prosperity. The book tries to make a contribution by introducing a variety of perspective, some argue in favour of industrial policies while others argue for a lesser role for the government and a greater entrepreneurial freedom. Some question the wisdom of promoting democracy as a necessary condition for economic development while others argue that political liberalization is the basis of lasting competitive edge of an economy

Check out the details here at the Routledge site. This book is in their series, “Frontiers of Political Economy.”

Predictably Rational: A Brilliant Book by Richard B. McKenzie

by Mario Rizzo 

This is the time of the year that various publications recommend Christmas books or the best books of 2010. (I have never known what a Christmas — or summer — book is. Are they supposed to be light reading? I don’t believe in reading “light.” When I am in the mood for that, I watch TV.)  In any event, I have a serious book to recommend.

Every so often a brilliant book comes out on a topic of great academic importance that is in danger of not getting the attention it deserves. I am thinking about Predictably Rational: In Search of Defenses for Rational Behavior in Economics by Richard B. McKenzie.