Tuesday, September 28, 2010

Libertarianism and Paternalism

I am putting up some descriptions of discussions from the undergraduate lectures to facilitate wider discussion. The tension between libertarian and paternalist solutions to regulating the world is coming up more in the lectures on behavioural economics. Behavioural economics as applied to policy is viewed by some as a corrective to policies based on unrealistic assumptions about human behaviour and viewed by others as a threat to human liberty, potentially enabling extra government powers to be assumed on the basis of arguments about the fallibility of individual decision making.

Libertarianism is a very broad term encapsulating a wide range of schools of thought. I give some definitions in the course of the class but, by and large, I equate libertarianism with the belief that individual freedom is the core value that should underpin law and policy. Individuals must be free to pursue their own course of action, subject to them not harming others or infringing on their property rights. To the extent that people are concerned with distributional or other ethical issues, they should pursue action in the form of voluntary associational membership. Social problems, such as poverty, should be addressed by charitable groups rather than through tax-financed public action. When it comes to areas such as income insurance, pension provisions, health-care provision and related core services, these should be taken up voluntarily by individuals and provided by private companies. Thinkers such as Robert Nozick have made the point that enforcing redistributive policies and other form of reallocations engenders a form of slavery in that the government forcibly seizes the incomes of some in order to fund its projects.

Milton Friedman, as well as being one of the foremost economists of the 20th century, was also one of the staunchest political advocates for libertarianism. In this video clip, he responds to a question from Phil Donahue about whether he ever becomes disillusioned by the greed underlying capitalism. His response is a classic (downloaded now a million times on youtube). "The great achievements of civilisation have not come from government bureaus.....in the only cases in which the masses have escaped from grinding poverty...are where they have capitalism and largely free trade". Here he argues the libertarian case on why drugs should be legalised. Here he argues against government regulation in most (though not precisely all) areas of life. Friedman and similar thinkers argue that governments do not have the incentives or the information to improve our lives through centralised action. I would advise anyone starting to read Hayek's The Road to Serfdom. If you want a five minute cartoon version, it is available here.

Libertarianism and Rationality have many different links. One line that we have started to draw in the class is the equation of believe in rationality with the belief that governments should not intervene in people's individual decisions. There is some sense in this argument as most of the students in the class will already be aware of the efficiency properties of markets and that these properties depend on rational actors. Though, most libertarians would still argue against intervention even in the case of widespread evidence of irrational individual behavioural dispositions. Throughout the rest of the course, we will examine the idea of libertarian paternalism advocated by Thaler and Sunstein in a number of works over the last ten years.

I have only one real piece of advice to students encountering the debate between libertarians and those advocating more centralist solutions to economic problems and that it is to keep your mind open and consider the arguments coming from the different sides.


Martin Ryan said...

Nozick has some other interesting ideas such as the "utility monster" and the "experience machine":



Rob Gillanders said...

You missed out on "the freedom to make mistakes" and learn from them - or not. Thats my big worry with BE being picked up by governments...or even worse, by civil servants!