The False Allure of Libertarian Paternalism

 

Prof. Richard Thayler.

One of the great academic debates of our time revolves around how people make choices. On the one side, neoclassical theory assumes that individuals generally act in sensible ways in order to advance their individual self-interest. They are motivated to control aggression and monopoly, and to let private parties in competitive markets strike what bargains they like. In recent years, this neoclassical approach has come under attack from the field of behavioral economics. Its proponents argue that the neoclassical model of behavior, premised on the fact that human beings are rational decision-makers, does not sufficiently account for the many false heuristics and biases that lead people astray as they make decisions.

The two most prominent leaders in this movement are Richard Thaler of the University of Chicago, winner of the 2017 Nobel Prize in economics, and the Harvard Law Professor Cass Sunstein, who have advanced—most notably in their book Nudge–what they problematically call Libertarian Paternalism. This involves using both public and private institutions to “nudge” people to improve their lives without forcing them to do so, supposedly preserving their personal liberty. Resting on the foundational scholarship of Daniel Kahneman and the late Amos Tversky, Thaler and Sunstein deny that individuals are as rational as neoclassical theory holds: People often operate under the influence of systematic cognitive biases that prevent them from making sound decisions. In order to nudge people in the right direction, Thaler and Sunstein propose that the legal system set its “default” rules to induce them, without coercion, to act in ways that better advance their own welfare. In some cases, the switch is as simple as a move from “opting in” to “opting out.” People are permitted to reverse the default position if they prefer, so that their freedom of choice is thereby preserved.

In principle, libertarian paternalism consciously hopes to preserve freedom of contract by eschewing mandatory rules and relying instead on a framework of default rules. In practice, however, its approach is deeply flawed for both conceptual and practical reasons. Its initial conceptual mistake is to interpret paternalism far too broadly. In some cases, paternalism is absolutely necessary. Consider parenting. Parents, of course, nudge children to say “thank you” when they receive a present. But such nudges are only a small part of any legitimate system of parental control. Parents also defend their children against outsiders and impose highly coercive sanctions against children who misbehave. The logic in favor of this paternalism is that there is no superior alternative. Children cannot fend for themselves, and, for good biological reasons, parents are more invested in the well-being of their children than any stranger. Accordingly, in a free society, the state intervenes in parent-child relationships only in cases of abuse or neglect—when it is clear that the parents’ interests are no longer aligned with those of the child. That same level of state intervention may also make sense in extreme cases of suicidal and self-destructive behavior. But as libertarians of all stripes recognize, it is a dangerous premise for the decisions of everyday life—like where to work, how to save money, whom to marry, whether to have children, and how to raise them.

The first error of libertarian paternalism is its failure to vindicate its libertarian piece—namely a full-fledged endorsement of freedom of contract. Before fixing default rules, libertarian paternalism should work actively to dismantle the vast set of coercive legislation that hangs over competitive labor markets, including key bodies of law banning age, race, and sex discrimination in employment, or those imposing minimum wage and maximum hour regulations, or rules that otherwise ban unjust dismissal. But Nudge is silent on minimum wage laws, and it contains only this fleeting reference to employment discrimination based on race, sex, and religion: “These various prohibitions are not in any sense libertarian, but perhaps some of them can be defended by reference to the kinds of Human errors that we have explored here.”

No way. Generally speaking, the correct justification for antidiscrimination laws is that they serve as a counterweight to monopoly power—people have nowhere else to go. It is for that reason that monopoly unions should be (if allowed to exist) subject to duties of fair representation. In competitive markets, these laws chiefly undermine labor mobility by creating a massive administrative apparatus. If some vague reference to “Human errors” overcomes the libertarian opposition to antidiscrimination law in labor markets, authoritarian paternalism has found an all too comfortable home. Needless to say, Thaler and Sunstein do not advocate an antidiscrimination norm as a default rule that employers can explicitly override.

Unfortunately, libertarian paternalism does no better with its soft forms of intervention. In some instances, they conflate sensible market forms of innovation with paternalism. No private party can walk away from government regulation, even if he or she can quit a job if the terms are too onerous. Conceptually, it is a simple mistake for Thaler and Sunstein to count giving advice to clients and friends as a form of paternalism, libertarian or otherwise, when it is in fact one of the most powerful market mechanisms for correcting error. No one is omni-competent, so advice-giving allows voluntary markets to flourish without state coercion: People will eagerly pay for personalized advice that improves decisions even after they are bombarded with warnings and disclosures. Indeed, in virtually all contexts, any system of joint decision-making reduces error rates, so that the object of a legal regime should be to ease the path to advice-giving by removing onerous rules. This was done recently in Chamber of Commerce v. U.S. Department of Labor, when Judge Edith Jones struck down elaborate and misguided Obama administration regulations that would have prevented traditional brokerage houses from offering much-needed advice over their retirement programs and annuities.

In keeping with its general approach, however, libertarian paternalism obsesses about setting the appropriate default rules for retirement decisions. These rules can address the minimum amounts that should be set aside or the allocation of resources across different classes of stocks and bonds. Those default rules are best understood as implicit recommendations on how to proceed, but this overconfident agenda is subject to serious risks in implementation. First, the single default will not be suitable for everyone. The amount to save in retirement plans depends in part on how long a person expects to work and live, family obligations to spouse and children, assets accumulated in other forms, such as home equity, and current needs for the same income. It is a rash overgeneralization to assume otherwise.

In addition, the preoccupation with default rules misses an important distinction in libertarian theory: who sets the default rules? When employers introduce auto-enrollment plans, those are part of an employment contract. Any ostensible paternalist element disappears, just as it does when an employer mandates employee participation as a condition of employment. The key feature of these plans is that the distribution takes place with funds that are exclusively allocated to each individual employee. The plans are designed to keep workers satisfied.

Public retirement plans, in contrast, deeply offend libertarian principles. The pension plan disasters in states like California arise because the legislature, with a stroke of the pen, can increase pension benefits while leaving taxpayers holding a very expensive bill. Social Security, for its part, flunks on every conceivable standard. Its disclosure forms make it impossible for any person to figure out the present value of their plan benefits, or the rate of return on their individual contributions. The government wishes to conceal that information so that it can engage in massive forms of redistribution without facing political heat. The traditional economic theories of public choice help explain these serious risks of government misbehavior, to which behavioral economics adds nothing. This is a blind spot in libertarian paternalism which emboldens some of its critics to throw the individual retirees further into the fire by strengthening government mandates—and perhaps private retirement plans as well.

The same preoccupation with default rules threatens to derail the central freedom of contract principle in employment contracts—the employment at will that allows an employer to fire (or an employee to quit) for any reason at all. This principle (which is violated by the anti-discrimination and labor laws) is essential to preserve labor mobility. But Sunstein in particular thinks that it is advisable to set the default provision in favor of a for-cause dismissal rule, which is found virtually nowhere in unregulated private markets. The rule is supposed to protect employees who underestimate the risk of dismissal.

But again, it is a mistake to concentrate on one side of the labor market while ignoring the other. It is an even bigger mistake to overlook the common employment practice of offering a severance pay package to workers who are dismissed. That fixed sum serves several functions: it reduces the probability of a dismissal; it cushions the employee’s blow from a dismissal; it reduces administrative costs from separation; and it gives workers the right incentives to minimize their losses after dismissal while looking for new work. At this point, yet another vice of libertarian paternalism asserts itself. By focusing on cognitive glitches, it ignores all the other relevant features of an employment contract that are only mastered by taking a close look at each institutional arrangement that libertarian paternalists seek to tweak by default rules. By overlooking these issues, the theory has led to much misguided paternalism, and too little libertarian thinking. Both public policy and private markets would profit by junking this supposed behavioral approach and sticking with more traditional economic models.

© 2018 by the Board of Trustees of Leland Stanford Junior University

Published in Economics, Education
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  1. RufusRJones Member
    RufusRJones
    @RufusRJones

    Epic. Well done. 

    • #1
  2. David Foster Member
    David Foster
    @DavidFoster

    (proponents of behavioral economics) argue that the neoclassical model of behavior, premised on the fact that human beings are rational decision-makers, does not sufficiently account for the many false heuristics and biases that lead people astray as they make decisions.

    But what they tend to ignore is the fact that the people who would be setting default rules to induce them, without coercion, to act in ways that better advance their own welfare are themselves subject to false heuristics and biases…not to mention the other fact, which is that the default-rule-setters have interests of their own.   

    • #2
  3. I Walton Member
    I Walton
    @IWalton

    Economists should be ashamed that one of the best economic thinkers of our day is a lawyer.   Kass Sustein uses the term libertarian as a ruse, he’s just a new kind of totalitarian appropriate for an existing administrative state.  

    I’m totally unconvinced by experimental economics.  No worse, I don’t trust them to be honest and they don’t understand economics. The first time I was exposed to this was a sociologies study showing that the majority of people who bought gasoline didn’t know what they had just paid, but of course that’s irrelevant, if a gas station charges less it sells more gas than it would if charged more.  

    I think it’s English and American economist’s fault in resting economics on rationality.  First they used utility to have something to maximize so they could use calculus, then indifference curves but it’s all still based on rational decisions.  The math is powerfully  useful and generates relationships that looking back we can see actually reflect the real world and help us sort out those relationships and to have confidence in them.  But it’s not a rational process, it’s iterative, it’s an organic interaction of thousands, sometimes millions of people making millions of binary decisions, get up don’t get up, go shopping don’t go shopping, shop on line don’t shop on line, buy this not that.  Some of those decisions are affected by reason and calculation, others are impulse, or even self destructive, shoot up don’t shoot up, but every decision is affected by and affects prices and these prices coordinate hundreds of millions of decisions and lead to outcomes that appear rational.  Moreover since it’s an emergent system most of it can’t be known a priori so government and Sustein’s nudgers will always either operate in the dark or with nefarious goals. 

    • #3
  4. David Foster Member
    David Foster
    @DavidFoster

    I critiqued Sunstein here, also in my post The Scribes and the Idea of Freedom.

    • #4
  5. Old Bathos Member
    Old Bathos
    @OldBathos

    Some form of paternalism (mandated savings/investment) is preferable to the alternative:  An ever-increasing percentage of the population that is unprepared and unprotected combined with an invincible political reluctance to leave such persons to their own devices leads inevitably toward France-like expansion of government dependency.  Once at a critical mass of participation, such a political order is irreversible.

    An economy that sheds jobs in favor of automation, a boomer population that lived for the moment (think grasshopper not ant) and a political ethos where “compassion” (government largesse) rules will all work to guarantee that the ratchet will move leftward unless there is some intermediate means to preserve (compel) constructive participation in a market-based society. I don’t endorse much of the Thayler-Sunstein model but I think that some form of mandated savings (save it or the IRS takes it) is probably worth considering.  Other ideas like depositing a fixed amount in a savings account for each newborn  ($20,000? $50,000?) as a buyout from Social Security ought to be considered in a broad rethinking of where we need to be.

    It is illusory to think that a purely voluntary market-based private system of social welfare will ever again be the politically chosen norm.  The only way to avoid the inevitable leftward turns of the ratchet is is give people an investment (“nudge”?) into prudent private programs for social insurance and retirement.

    • #5
  6. Hoyacon Member
    Hoyacon
    @Hoyacon

    David Foster (View Comment):

    (proponents of behavioral economics) argue that the neoclassical model of behavior, premised on the fact that human beings are rational decision-makers, does not sufficiently account for the many false heuristics and biases that lead people astray as they make decisions.

    But what they tend to ignore is the fact that the people who would be setting default rules to induce them, without coercion, to act in ways that better advance their own welfare are themselves subject to false heuristics and biases…not to mention the other fact, which is that the default-rule-setters have interests of their own.

    Well said.  And I would even go a step further, even assuming the premise — so what if people aren’t always rational decision makers.  The mere act of occasionally being “led astray” by a bias should have a correct effect if negative consequences actually occur.

     

    • #6
  7. RufusRJones Member
    RufusRJones
    @RufusRJones

    Old Bathos (View Comment):
    It is illusory to think that a purely voluntary market-based private system of social welfare will ever again be the politically chosen norm. The only way to avoid the inevitable leftward turns of the ratchet is is give people an investment (“nudge”?) into prudent private programs for social insurance and retirement.

    I’m not going to get into a big argument about it, but I think the reason we keep going left is because we run with too much inflation.  

    The whole thing is a racket to empower government and Big Finance instead of people. 

    • #7
  8. RufusRJones Member
    RufusRJones
    @RufusRJones

    Hoyacon (View Comment):

    David Foster (View Comment):

    (proponents of behavioral economics) argue that the neoclassical model of behavior, premised on the fact that human beings are rational decision-makers, does not sufficiently account for the many false heuristics and biases that lead people astray as they make decisions.

    But what they tend to ignore is the fact that the people who would be setting default rules to induce them, without coercion, to act in ways that better advance their own welfare are themselves subject to false heuristics and biases…not to mention the other fact, which is that the default-rule-setters have interests of their own.

    Well said. And I would even go a step further, even assuming the premise — so what if people aren’t always rational decision makers. The mere act of occasionally being “led astray” by a bias should have a correct effect if negative consequences actually occur.

     

    Being rational doesn’t pay in a world of fake interest rates. 

     

    • #8
  9. genferei Member
    genferei
    @genferei

    I Walton (View Comment):
    I’m totally unconvinced by experimental economics. No worse, I don’t trust them to be honest and they don’t understand economics.

    Indeed. As for the systematic cognitive biases, how many giant theories have been woven out of unreproducible experiments performed on a handful of Ivy League college students? I’m no fan of the extremes of pseudo-mathematical neoclassical theory, but the foundations of behavioural economics in no way support the farrago of conclusions they are asked to.

    • #9
  10. I Walton Member
    I Walton
    @IWalton

    Old Bathos (View Comment):

    Some form of paternalism (mandated savings/investment) is preferable to the alternative: An ever-increasing percentage of the population that is unprepared and unprotected combined with an invincible political reluctance to leave such persons to their own devices leads inevitably toward France-like expansion of government dependency. Once at a critical mass of participation, such a political order is irreversible.

    An economy that sheds jobs in favor of automation, a boomer population that lived for the moment (think grasshopper not ant) and a political ethos where “compassion” (government largesse) rules will all work to guarantee that the ratchet will move leftward unless there is some intermediate means to preserve (compel) constructive participation in a market-based society. I don’t endorse much of the Thayler-Sunstein model but I think that some form of mandated savings (save it or the IRS takes it) is probably worth considering. Other ideas like depositing a fixed amount in a savings account for each newborn ($20,000? $50,000?) as a buyout from Social Security ought to be considered in a broad rethinking of where we need to be.

    It is illusory to think that a purely voluntary market-based private system of social welfare will ever again be the politically chosen norm. The only way to avoid the inevitable leftward turns of the ratchet is is give people an investment (“nudge”?) into prudent private programs for social insurance and retirement.

    It doesn’t have to be government pretend savings, it could be real savings, owned by the saver like Singapore or Chile.

    • #10
  11. Gumby Mark Coolidge
    Gumby Mark
    @GumbyMark

    David Foster (View Comment):

    (proponents of behavioral economics) argue that the neoclassical model of behavior, premised on the fact that human beings are rational decision-makers, does not sufficiently account for the many false heuristics and biases that lead people astray as they make decisions.

    But what they tend to ignore is the fact that the people who would be setting default rules to induce them, without coercion, to act in ways that better advance their own welfare are themselves subject to false heuristics and biases…not to mention the other fact, which is that the default-rule-setters have interests of their own.

    Much simpler and better said summary of the problem.  I’m adopting it as my personal default position on government sponsored nudging.

    • #11
  12. Bob Thompson Member
    Bob Thompson
    @BobThompson

    There may be a lot more to this issue than just how people make choices. The number and the complexity of choices in given situations is a likely influence. There may be more than a single rational basis for a choice in many situations.

    I have no academic credentials to support my expounding on this topic but, nevertheless, I have spent some thought time on how American individuals make choices within our society. This includes choices about education, work, personal relationships including intimate relationships, food, leisure, etc. All this is happening in a societal structure than purportedly is based on free market concepts that support freedom of choice among individuals who it is announced will act in their own self-interest. Any truth in this? Some, maybe, but not likely all.

    I’m old school so I acquired during my developmental period some values related to decision-making that have had profound influences on my behavior. When I was a young man, I made choices that satisfied my desires of the moment. Is that not rational? As I became more settled I made choices that reflected more the concept of delayed gratification. Is this more rational?

    Is our American consumer-oriented economic system rational? Much time and effort is spent on advertising and promotion to induce consumption. We have become very indulgent. We have excess consumption in many parts of our lives. We overeat, watch too much television and if we have given that up we over-indulge in something else. We over-produce to an extent that results in very serviceable goods being discarded in favor of slightly improved products. Is all this process a good or bad thing?  Should government be in control of our behaviors? Now we over-produce information to such an extent we have to label some of it fake news. We have new roles for people we call fact checkers.

    It’s like taking a sealed finite material body and filling it with something infinitely until it explodes. Maybe we are just seeing these little explosions all around us. 

    • #12
  13. Dan Hanson Thatcher
    Dan Hanson
    @DanHanson

    Yep, the main flaw here is the idea that central planners have the ability to know how everyone should be nudged.  They don’t.  They don’t have the information, they don’t understand why people do the things they do, and they have absolutely no way to tell how all of these things work together in a complex system.  Hayek would say they are guilty of the Fatal Conceit.

    The book should have been titled, “How to call yourself a libertarian while engaging in the desire to control other people’s lives.”

    • #13
  14. RufusRJones Member
    RufusRJones
    @RufusRJones

    Bob Thompson (View Comment):
    I have no academic credentials to support my expounding on this topic but, nevertheless, I have spent some thought time on how American individuals make choices within our society. This includes choices about education, work, personal relationships including intimate relationships, food, leisure, etc. All this is happening in a societal structure than purportedly is based on free market concepts that support freedom of choice among individuals who it is announced will act in their own self-interest. Any truth in this? Some, maybe, but not likely all.

    Keynesianism forces overconsumption and short term thinking. Time preferences and all of that. 

     

    • #14
  15. Bob Thompson Member
    Bob Thompson
    @BobThompson

    RufusRJones (View Comment):

    Bob Thompson (View Comment):
    I have no academic credentials to support my expounding on this topic but, nevertheless, I have spent some thought time on how American individuals make choices within our society. This includes choices about education, work, personal relationships including intimate relationships, food, leisure, etc. All this is happening in a societal structure than purportedly is based on free market concepts that support freedom of choice among individuals who it is announced will act in their own self-interest. Any truth in this? Some, maybe, but not likely all.

    Keynesianism forces overconsumption and short term thinking. Time preferences and all of that.

     

    Arn’t we dealing with the same people who favor Keynesianism?

    • #15
  16. RufusRJones Member
    RufusRJones
    @RufusRJones

    Bob Thompson (View Comment):

    RufusRJones (View Comment):

    Bob Thompson (View Comment):
    I have no academic credentials to support my expounding on this topic but, nevertheless, I have spent some thought time on how American individuals make choices within our society. This includes choices about education, work, personal relationships including intimate relationships, food, leisure, etc. All this is happening in a societal structure than purportedly is based on free market concepts that support freedom of choice among individuals who it is announced will act in their own self-interest. Any truth in this? Some, maybe, but not likely all.

    Keynesianism forces overconsumption and short term thinking. Time preferences and all of that.

     

    Arn’t we dealing with the same people who favor Keynesianism?

    What I’m saying is, the system either changes people’s behavior negatively or it makes honesty and genuine productivity not really pay all too often. It only looked like it worked before NAFTA, China, and robots. 

    • #16
  17. Bob Thompson Member
    Bob Thompson
    @BobThompson

    RufusRJones (View Comment):

    Bob Thompson (View Comment):

    RufusRJones (View Comment):

    Bob Thompson (View Comment):
    I have no academic credentials to support my expounding on this topic but, nevertheless, I have spent some thought time on how American individuals make choices within our society. This includes choices about education, work, personal relationships including intimate relationships, food, leisure, etc. All this is happening in a societal structure than purportedly is based on free market concepts that support freedom of choice among individuals who it is announced will act in their own self-interest. Any truth in this? Some, maybe, but not likely all.

    Keynesianism forces overconsumption and short term thinking. Time preferences and all of that.

     

    Arn’t we dealing with the same people who favor Keynesianism?

    What I’m saying is, the system either changes people’s behavior negatively or it makes honesty and genuine productivity not really pay all too often. It only looked like it worked before NAFTA, China, and robots.

    I think we lost our way when corporatism rose in the last half of the 19th century and then the Federal Reserve was established in the early 20th.

    • #17
  18. RufusRJones Member
    RufusRJones
    @RufusRJones

    Bob Thompson (View Comment):

    RufusRJones (View Comment):

    Bob Thompson (View Comment):

    RufusRJones (View Comment):

    Bob Thompson (View Comment):
    I have no academic credentials to support my expounding on this topic but, nevertheless, I have spent some thought time on how American individuals make choices within our society. This includes choices about education, work, personal relationships including intimate relationships, food, leisure, etc. All this is happening in a societal structure than purportedly is based on free market concepts that support freedom of choice among individuals who it is announced will act in their own self-interest. Any truth in this? Some, maybe, but not likely all.

    Keynesianism forces overconsumption and short term thinking. Time preferences and all of that.

     

    Arn’t we dealing with the same people who favor Keynesianism?

    What I’m saying is, the system either changes people’s behavior negatively or it makes honesty and genuine productivity not really pay all too often. It only looked like it worked before NAFTA, China, and robots.

    I think we lost our way when corporatism rose in the last half of the 19th century and then the Federal Reserve was established in the early 20th.

    Then we act like voting and “democracy” can equalize it. It can’t. No one gets it. Centralization is killing us now. 

    Mises.org is right about everything.

    #MAGA 

    • #18
  19. RufusRJones Member
    RufusRJones
    @RufusRJones

    When the ten year hits 4%, the USA is broke. 

    Be sure to vote. 

    • #19
  20. RufusRJones Member
    RufusRJones
    @RufusRJones

    Bob Thompson (View Comment):

    RufusRJones (View Comment):

    Bob Thompson (View Comment):

    RufusRJones (View Comment):

    Bob Thompson (View Comment):
    I have no academic credentials to support my expounding on this topic but, nevertheless, I have spent some thought time on how American individuals make choices within our society. This includes choices about education, work, personal relationships including intimate relationships, food, leisure, etc. All this is happening in a societal structure than purportedly is based on free market concepts that support freedom of choice among individuals who it is announced will act in their own self-interest. Any truth in this? Some, maybe, but not likely all.

    Keynesianism forces overconsumption and short term thinking. Time preferences and all of that.

     

    Arn’t we dealing with the same people who favor Keynesianism?

    What I’m saying is, the system either changes people’s behavior negatively or it makes honesty and genuine productivity not really pay all too often. It only looked like it worked before NAFTA, China, and robots.

    I think we lost our way when corporatism rose in the last half of the 19th century and then the Federal Reserve was established in the early 20th.

    FWIW: Ep. 1140 The Progressive Era Was a Scam

     

    • #20
  21. HankMorgan Inactive
    HankMorgan
    @HankMorgan

    RufusRJones (View Comment):

    Hoyacon (View Comment):

    David Foster (View Comment):

    (proponents of behavioral economics) argue that the neoclassical model of behavior, premised on the fact that human beings are rational decision-makers, does not sufficiently account for the many false heuristics and biases that lead people astray as they make decisions.

    But what they tend to ignore is the fact that the people who would be setting default rules to induce them, without coercion, to act in ways that better advance their own welfare are themselves subject to false heuristics and biases…not to mention the other fact, which is that the default-rule-setters have interests of their own.

    Well said. And I would even go a step further, even assuming the premise — so what if people aren’t always rational decision makers. The mere act of occasionally being “led astray” by a bias should have a correct effect if negative consequences actually occur.

     

    Being rational doesn’t pay in a world of fake interest rates.

    But if we used real interest rates the Fed couldn’t set rates to achieve “full employment” and massive mal-investment bubbles.

    • #21
  22. Bob Thompson Member
    Bob Thompson
    @BobThompson

    HankMorgan (View Comment):

    RufusRJones (View Comment):

    Hoyacon (View Comment):

    David Foster (View Comment):

    (proponents of behavioral economics) argue that the neoclassical model of behavior, premised on the fact that human beings are rational decision-makers, does not sufficiently account for the many false heuristics and biases that lead people astray as they make decisions.

    But what they tend to ignore is the fact that the people who would be setting default rules to induce them, without coercion, to act in ways that better advance their own welfare are themselves subject to false heuristics and biases…not to mention the other fact, which is that the default-rule-setters have interests of their own.

    Well said. And I would even go a step further, even assuming the premise — so what if people aren’t always rational decision makers. The mere act of occasionally being “led astray” by a bias should have a correct effect if negative consequences actually occur.

     

    Being rational doesn’t pay in a world of fake interest rates.

    But if we used real interest rates the Fed couldn’t set rates to achieve “full employment” and massive mal-investment bubbles.

    Fake interest rates enable focus on fake issues to work on solving fake problems.

    • #22
  23. RufusRJones Member
    RufusRJones
    @RufusRJones

    Bob Thompson (View Comment):
    Fake interest rates enable focus on fake issues to work on solving fake problems.

    That is exactly right. People have no idea. The GOP and the libertarians will never get any traction because of this.

    • #23
  24. Bob Thompson Member
    Bob Thompson
    @BobThompson

    Richard Epstein: Neoclassical theory assumes that individuals generally act in sensible ways in order to advance their individual self-interest. They are motivated to control aggression and monopoly, and to let private parties in competitive markets strike what bargains they like. In recent years, this neoclassical approach has come under attack from the field of behavioral economics.

    Professor Epstein addresses this debate about libertarian paternalism as if neoclassical theory has been our common practice or experience. The previous comments here, I think, reflect views that this is not the case, rather that we are far from anything resembling free markets. So, the Nudge is just another form of corruption in approaching rational choice.

     

    • #24
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