Categories:
Public Choice Theory
Public Goods
My latest essay is on these topics.
There are three layers to the argument against paternalism. The first layer is purely libertarian, which says that government compulsion of individuals is always wrong. The second layer is utilitarian, which says that, contrary to the intuition of Steven Weinberg and others on the left, we are better off with a larger private sector and a smaller public sector. The final layer is what in economics is known as Public Choice Theory, which says that it is unrealistic to expect government officials to be wise and benevolent, given that they themselves are mere mortals with human desires and human flaws.
For Discussion. When is paternalism most justified?
READER COMMENTS
Walker
Apr 16 2004 at 5:13pm
One example that I am sure Weinburg would agree with is investment in basic science and areas of applied science that are of vital public interest but too risky or costly for private parties to bear. One easy example is R&D in technologies that increase energy efficiency — the benefit per public dollar spent is much greater than the cost, and this benefit is also very well distributed.
Boonton
Apr 17 2004 at 12:09pm
Let us peal back the layers of the arguments against government paternalism.
The first is the straw man argument. This is the argument that having government ‘run’ the economy is wrong for any of the reasons that Arnold lists. No one, at least in recent times, has argued that the government should run the entire economy or even most of the economy. This discussion began with social security, which is large but is hardly the entire economy. As I pointed out, even tax favored retirement accounts (such as 401K’s) are a form of government paternalism. I’ll go a step further and assert that 401K’s are no less paternalistic than Social Security.
Libertarianism – This is the most respectable argument because it is the most consistent. But we know what people say about a foolish consistency. To live in society is to submit to some forms of compulsion whether they are abstract forms created by the market or legal forms issued by a government. Just like accepting a job, though, giving up some freedom is rational if it allows you to gain more freedom. While working a 40-hour a week job has limited what I can do, my paycheck has allowed me to do more things with my free hours than I would have otherwise been able to do.
Utilitarian – The problem is that this works only against the straw man argument. Just because individuals are generally able to make better choices than large organizations doesn’t mean this is always the case. Just because it is better to let the market set the prices of bread, milk, cars, and CD’s does not mean that there are cases where collective action yield better results. ‘Public goods’ are a textbook example. Everyone benefits from National Defense being paid for by a collective basis rather than purchased privately (which probably wouldn’t even be possible).
Most market choices have very short-term consequences. The kid who calls out sick from his job too often will get fired and he will learn to take his next job more seriously. It’s unlikely his youthful hijinks will be haunting him 60 years later. One of the reasons why the market functions very well is that it provides instant feedback and allows most decisions to be constantly tweaked in the never-ending search for the optimal result. Some decisions, though, have consequences that are so long term that it is impossible for individuals to learn from their mistakes. The failure to save fore retirement, for example, is not like failing to set aside enough money to pay for the cable bill at the end of the month. By the time the individual has ‘learned’ his lesson it is too late for him to work again. He is now a burden on society (unless you want to stomach the harsh libertarian / Ayn Rand prescription of letting such people starve on the streets unless they can get private charity).
Public Choice Theory – Sometimes economics has unexpected insights that are not obvious (such as when a foreign nations gives its exporters subsidies to ‘beat’ domestic companies, the real winner is the nation that is being ‘victimized’ by such protectionism). This, though, was common knowledge to the founders. They knew that government officials were not benevolent, but they did feel their self interest could be checked somewhat by a code of honor. They also knew that what is popular is not always the best policy. Hence they set up a government with checks and balances where policies would have to be created and enforced through a ‘virtual market’ where different interest groups could stop or hinder a new policy but would have a difficult time getting their own policies passed.
In the case of Social Security, it was not thought up by some government official. It was proposed as a law, debated and argued before it was passed, signed by the President and tested in the courts. It’s a gross distortion to pretend that SSI is how some individual government official thinks Americans should provide for old age. It represents how the entire society has come to a consensus for how to provide for old age (401K’s, IRAs, Roth IRAs and even, IMO, the tax favored status of homeownership are other ways society has decided to allocate for old age).
Now does it follow that this system is the best way of making all the decisions in the economy? I don’t think so. I think the market has a lot to say for itself. But unless you want to assert the market should always be used (rather than mostly used), then you haven’t really made an argument against paternalism…only an argument for limiting paternalism.
Tomorrowist
Apr 17 2004 at 8:33pm
Three quickies:
Bernard Yomtov
Apr 17 2004 at 9:13pm
“Government compulsion is always wrong?”
You mean we don’t need speed limits? No taxes to support even minimal government functions?
Sounds silly to me.
“We are better off with a larger private sector and a smaller public sector.”
Pretty broad statement. In the limit it says we should not have a public sector at all.
Sounds silly to me.
“it is unrealistic to expect government officials to be wise and benevolent, given that they themselves are mere mortals with human desires and human flaws.”
True. Government officials are not divine. But no one thinks they are. Private individuals are not divine either, and often do foolish things.
So that’s a pretty silly argument also.
If your idea of a just universe is one where every individual absolutely bears the consequences of his own decisions, then say so, and then explain how you reconcile such a view with the realities of the world we live in. Don’t forget to discuss matters such as health, inherited wealth, luck, educational opportunities, etc.
Mcwop
Apr 18 2004 at 9:27am
We need Government. I feel this is an easy argument to make. While we need Government, government often poorly executes its responsibilities, and delves into areas that it should stay out of.
Take schools for example. Why should schools be run in command and control style? Why can’t government give tuition checks to families and let them choose the school? In Baltimore $9,000 plus dollars is spent per student. Have a tax financed “progressive” (rich familes get smaller checks) system, with private/public (the government could compete with its own schools) provided schools. Schools could choose areas of focus (music), utilize different teaching styles, or choose whether to offer sports or not. This would be similar to the public/private university system. There would be rules and minimum standards – but I am sure the system would allow greater flexibility in teaching to a diverse population.
Bernard Yomtov
Apr 18 2004 at 2:31pm
McWop,
Your comment is a good illustration of what I’m getting at. The world is a complicated place, and there is room for both government action and individual decision-making.
If someone wants to argue for less govt involvement in schools, OK, but they should recognize, as you do, that there is still a legitimate reason for a government role in setting minimum standards, etc. After all, even making school mandatory is “government compulsion.” It may be heresy, but it is true that parents will sometimes make very bad choices about their childrens’ education. Trying to minimize that may be “paternalism,” but I think it’s just fine.
So the debate should not center on some “principle” about government always being bad, but rather on what the most beneficial way to structure the schools is.
Mcwop
Apr 19 2004 at 7:12am
…and here is an example of government hindering economic progress with a form of paternalism:
Story Here
Eric Krieg
Apr 19 2004 at 8:07am
>>True. Government officials are not divine. But no one thinks they are. Private individuals are not divine either, and often do foolish things.
If I can speak for Arnold, I think his point wasn’t that private citizens are any smarter than bureaucrats. His point is that market forces keep the private sector in check. The same strong feedback mechanism isn’t available to the bureaucrat. Of course, the political process is a feedback mechanism, but not nearly as strong as the market.
Bernard Yomtov
Apr 19 2004 at 9:14am
“…market forces keep the private sector in check. The same strong feedback mechanism isn’t available to the bureaucrat. Of course, the political process is a feedback mechanism, but not nearly as strong as the market.”
Sometimes.
Eric Krieg
Apr 19 2004 at 9:30am
>>Sometimes.
Can you think of any government program that has been ended because a) it was a failure or b) it solved the problem?
But then on the other hand you have welfare reform, which was a spectacular success. The political process can work, it just doesn’t often work, and the timeframe is waaaaaaaaaaay too long.
Boonton
Apr 19 2004 at 12:08pm
Off hand there aren’t nearly enough. Clinton did end farm subsidies but the victory was short lived since Bush brought them back. There are many programs that while still in existence are a fraction of their former importance. The Rural Electrificiation Commission comes to mind. There used to be intense regulation of interstate trucking rates…while the administrative body may still exist the market is now able to set those rates.
Programs evolve & what they do. Welfare, for example, was intended to keep single mothers out of the workforce. When it was created the person receiving the benefit was thought to be a young widow with children. Since people at the time thought women should not be working the program was thought of as a way to ‘save’ them from such dire straits.
Don’t call it a failure just because it accomplished a goal that is now outdated and no longer subscribed to by many Americans. (An aside here, the religious right still takes issue with working mothers & often tax reform proposals that would typically benefit a two-income family are often shot down by them in favor of proposals that more often benefit the traditional family).
Welfare still exists in modified form today. In 40 years, if nanotech & increased longetivity create a utopia, we may find the program helplessly broken again.
Eric Krieg
Apr 19 2004 at 12:44pm
>>An aside here, the religious right still takes issue with working mothers & often tax reform proposals that would typically benefit a two-income family are often shot down by them in favor of proposals that more often benefit the traditional family
That’s one explanation. But I make the same argument that you made against 401(k)s. If a program (say universal day care) helps working mothers, then by definition I and my non-working spouse are subsidizing those who have chosen to make decisions different than those we have made. The sacrificers are subsidizing those unwilling to make the sacrifice (staying at home to raise your children).
Not to mention that I now have to compete in an expaned workforce, or that its just one more pressure on non-working women to enter the workforce.
That’s an economic argument, not just a moral one.
I wait to see how you conform this argument to apply to 401(k)s.
Boonton
Apr 19 2004 at 1:54pm
If you take the anti-paternalism argument seriously then it would apply against a universal daycare policy. You would have to argue that if Bob has an income of $50K his taxes should be no different than Mary whose income is also $50K…even if Bob puts his money into daycare center fees, retirement accounts or health insurance.
I think Arnold’s anti-paternalism arguments work better on issues like universal daycare. In those cases the individuals are closest to the situation and therefore better able to measure what works for them. Government does show some support for children (who are properly the subject of some paternalsim) with tax credits & deductions for their parents. How that money is spent should generally be the parents decision.
In such small scale situtations the market is best able to work. A family who finds nearly all of one person’s paycheck is going to daycare can consider becoming a single-income family. If a job is not daycare friendly, a person can seek out a company that is. If the wrong decision is made, there are bad consquences but usually nothing that is all that horrible. The result is that people learn to make better decisions thru trial and error…
Social Security & 401K’s address a longer term problem; People appear to overestimate their ability to work in their old age & fail to correctly allocate for it. How are the circumstances for this issue different from a ‘micro’ policy like gov’t provided daycare?
1. The lesson of making the wrong call can take a lifetime to be known. By the time the person understands he has saved to little, it will likely be too late.
2. The options for people who made mistakes to take corrective action are limited. The older you get, the harder it is to produce the necessary savings, even with SSI acting as an anuity.
3. Unlike a micro-daycare policy, the action taken by gov’t does not require a lot of tiny judgement calls. SSI & 401K are broad based policies written into law. Gov’t officials that administer them have few judgement calls to make. This is why SSI is very much free of red tape considering how big it is. On the other hand, a daycare policy will require minor gov’t officials making all types of calls…such as what qualifies as a daycare center, how much can they charge the gov’t, and so on. When gov’t has to make so many mico-decisions the efficiency drag of the Public Choice Theory effects becomes greater.
What is being presented is a false choice, IMO. Only a strict libertarian would reject all gov’t paternalism. This is the reason I’ve been showing how 401K’s are about as paternalistic as SSI; most people who reject SSI as paternalistic are all for 401K’s or even 401K’s with min. contributions mandated by law!
I believe the arguments should be a continuem. On one side, there are valid reasons to oppose gov’t paternalism. On the other side, there are reasons to sometimes reject the decisions made by the market. In order to justify a paternlistic policy one should argue two things. First, that the market outcome should be rejected. Second, that the ‘side effects’ of paternalism are minimal.
rvman
Apr 20 2004 at 9:00am
Clinton didn’t “end” farm subsidies – he reconfigured them. What Clinton did was substitute fixed payments for price supports, and reduce the subsidies to rich farmers. Bush’s bill was bad, but it isn’t to blame for ALL farm subsidies – it was to blame for about $47 billion of $125 billion over ten years. The rest was held over from Clinton.
Boonton
Apr 20 2004 at 12:37pm
Wouldn’t that change have resulted in the prices of the goods being based on the market? Yes, fixed payments to farmers may have kept some in the business longer than they otherwise would have been but considering non-rich farmers probably produce a small portion of the output would the policy have resulted in large surpluses?
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