The new paternalism


We've all heard about this new paternalism, haven't we? You know, Cass Sunstein and "Nudge" seems to have got David Cameron all excited, there are even those calling the whole idea libertarian paternalism. We. the populace, are such confused little baa lambs that we need the wise and the good to tell us what to do. But instead of actually insisting we do something we'll just get a few nudges from taxation or regulation to get us through the right five bar gate. You know the sort of thing, maybe the collie dog will bark at us, perhaps even nip our heels, but we won't be forcibly beaten into our pens.

Glen Whitman has been looking at the holes in this argument and this particular one looks to me like a corker. One of the major thoughts about why we do make bad decisions is that we're subject to hyperbolic discounting. We're OK weighing up the pros and cons of something that's going to happen soonish but we're bad at working out the cons of things which might happen in the far future. Smoking is pleasurable now but we don't put enough weight on dying painfully of lung cancer in 40 years' time. Doughnuts are yummy but we underestimate the cost of a new wardrobe in 3 years' time. Being warm this winter is wondrous but we underestimate the costs of drowning Bangladesh in 2,500 AD. Similarly, a pension fund is nice but we underestimate the benefits of a decent pension in 40 years' time and put too little into it now.

So we should be shepherded to the right decisions by those wise enough to know what the correct, non-hyperbolic, discount rates are. That's basically the libertarian paternalism for you right there. And as Whitman points out, that's just great but who are the people who will be taking these decisions about what is the correct discount rate?

Yup, politicians. And do politicians take decisions based upon the correct discount rates or are they also subject to this hyperbolic discounting? Was that howls of laughter I could hear? Splutters of indignation perhaps? For yes, of course, when we look at how politicians actually run any of the long term schemes which they currently have power over we see that they're vastly worse at this than we little sheep are. Look at civil service pensions, roaring out of control as far as the eye can see into the future because years ago it was easier to buy political support or buy off industrial unrest by promising what could never be afforded. The untold off-balance sheet promises that have been made that will impoverish our grandchildren just to get one politico or another through a difficult election. The hocking of the future in that every few year electoral scramble to get the right bums on the right benches at Westminster.

For the failure of this libertarian paternalism, the hole in this argument about hyperbolic discounting, is that we as individual humans may well be imperfect: but those who would rule us are worse by this measure. I know of no adult who lives their life with a final horizon of only the next election and I know of no politican with a horizon of longer than that next election.

In short, we're better than the politicians but then we all knew that anyway, didn't we?