Economic Theory

Debate: Nudge economics – can paternalism ever be libertarian?

We are living in a new era of ‘Nudge’. Over the past decade, a growing number of academics and policymakers have made the moral case for the state to use its coercive power to steer our choices towards what they believe best – provided we retain the ability to opt out of the specified choice at a relatively low cost.

Yet are these sensible ideas, likely to maximise wealth and wellbeing, or is there always the danger that gentle nudges will turn into intrusive diktats or embolden the Nanny State? Can paternalism ever be libertarian?

YES, says Julian Jessop, an independent economist and member of the IEA’s Academic Advisory Council

At first sight there’s an obvious inconsistency between libertarianism and paternalism, as the latter usually involves actions which limit someone’s choices even if the intention is to promote their own good. How can it be right to limit an individual’s freedom and autonomy just because the government thinks it knows better?

Indeed, some of the arguments used to justify state intervention are pretty flimsy. One of the most common is the need to address some form of externality – the cost to the NHS of smoking or obesity, for example. As it happens, that’s not actually a paternalist point, since the aim is to protect the interests of the general public rather than the smoker or over-eater themselves. But the measures proposed, such as punitive ‘sin taxes’ or outright bans, usually go far further than those that could possibly be justified on the basis of any harm to others. If someone decides they would be happier with an unhealthy diet or riskier lifestyle, who am I to stop them? (Here I recommend the critique of ‘public health paternalism’ in Chris Snowdon’s excellent book, Killjoys.)

Nonetheless, there are areas where exceptions can be excused. In particular, even John Stuart Mill (On Liberty) allowed for the possibility that paternalism could be justified in the case of children. Would we really be happy to allow an 8-year old complete freedom to buy alcohol or fireworks? Here at least there is some basis for the presumption that the individual is not always the right person to decide what is in their own best interests. Ideally any intervention might be left to parents or guardians, but it doesn’t seem unreasonable for the state to act as backstop.

Nudge economics provides further examples. As explained by Thaler and Sunstein, “A nudge, as we will use the term, is any aspect of the choice architecture that alters people’s behaviour in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandates. Putting fruit at eye level counts as a nudge. Banning junk food does not.”

This approach can be seen as a form of ‘libertarian paternalism’. Admittedly, many of most commonly cited examples are not entirely ‘paternalistic’. The image of a housefly painted in men’s urinals (to improve their aim!) mainly benefits those tasked with cleaning up afterwards. Changing the default option for organ donation so that potential donors are automatically ‘opted in’ mainly benefits the recipients. But the wayward gentleman is also helped by having a target to hit, while people who would be happy to donate their organs might appreciate it being easier to do so.

What about more coercive measures? A good example here is the compulsory wearing of seatbelts. A purist could say that people should be free to be reckless and that banning one type of risky activity might be a slippery slope towards more interventions elsewhere. But I’d be more pragmatic. The rules on seatbelts have undoubtedly saved lives. I would be surprised if many people who have benefited from wearing them then say they wish the rules hadn’t been in place. However, it is also crucial that any intervention is properly evidence-based. It’s not clear, for instance, that requiring cyclists to wear helmets would be proportionate, or even helpful.

In short, a little light paternalism can, sometimes, be libertarian. But this should not be a green light for celebrity campaigners and health puritans to tell the rest of us what to do.

NO, says the IEA’s Chief Operating Officer Andy Mayer

Two key benefits of using behavioural nudges to improve wellbeing, in theory at least, are retaining individual choice and avoiding more coercive forms of regulation. For example, rather than outright bans on smoking, most governments prefer sin taxes, in the form of excise duties, to reduce consumption by pricing in the harm of the activity.

Most libertarians, whether they smoke or not, would regard the evident risk of self harm as being your choice, not the government’s business. They might accept that in a socialised healthcare environment, there is a case for using taxes to offset the cost of treatment. Yet they would not regard current tobacco taxes as proportionate to these costs – British smokers already subsidise non-smokers heavily. Accommodating sin taxes certainly hasn’t prevented more authoritarian restrictions alongside them, like plain packaging or restrictions on advertising and retail.

Governments have a habit of choosing the wrong issues. Some, like tobacco, are easy targets, because of the unambiguous harm caused by traditional smoking. Children shouldn’t smoke at all, and as a minority leisure pursuit it is easy to make the case for smoke-free environs over the alternative (forcing non-smokers to inhale if they wish to be sociable). Most targets for nudge-interventions are not so easy to justify.

Take plastic bags. 40 years ago we were mostly concerned with children wearing them and suffocating – today litter and marine pollution dominate the debate. Yet plastic bags are unambiguously useful. The environmental case against them is nuanced – for example, bags are not the major source of even plastic pollution and their use reduces food waste. They are many times lighter than alternative materials like hemp, which reduces the CO2 footprint of transporting them, and they can be made using biodegradable alternatives that don’t endanger photogenic fish.

In seeking to reduce their use through sin taxes, retailers have switched to ‘bags for life’ that use more plastic but are rarely used as intended, triggering calls for higher taxes, and even more heavy handed interventions. Such nudges seem more like ‘woke’ virtue signalling than attempts to promote better solutions.

Likewise, although intended to lower consumers’ energy bills and encourage them to switch to better value providers or purchase more energy efficient products, the ‘smart meter’ revolution has been patchy. Over the last few years the government has introduced legislation covering targets and supplier incentives – and now micromanages everything from the design of meters to use of consumer data. What would today be a simple technology based on a chip in a meter communicating with your phone, is instead compelled to be an already redundant box linked to meters which don’t work with other providers. By intervening, the government has hindered smart home markets, rather than encouraging them.

Meat is another recent obsession. Many believe eating less meat would be better for us and the planet – though this is contested. Some politicians have called for a meat tax, much like contemporary reasoning on tobacco and carbon.

Personally I do not want the government to be interfering with sheep. They already intervene extensively in the supply side of agriculture, with subsidies, regulations and other measures. Simultaneously nudging demand is likely to have a host of unintended consequences, e.g. paying people to graze animals we then don’t want other people to buy. It is surely better to let these matters rest with individuals, deciding for themselves whether they find veganism compelling – or would prefer a burger with extra bacon.

In a choice between bad government interventions or terrible ones, we should prefer libertarian paternalism to authoritarian diktat. We should perhaps be ‘nudging’ governments intent on making moral choices for us in that direction. Yet nudge infrastructure is merely a basket of tools – only as good as those who employ it – and its recent history is littered with examples of harmful unintended consequences.

In a free society, genuinely libertarian inspiration should lead by example – not rigged choices.

Julian Jessop is an independent economist with over thirty years of experience gained in the public sector, City and consultancy, including senior positions at HM Treasury, HSBC, Standard Chartered Bank and Capital Economics. He was Chief Economist and Head of the Brexit Unit at the IEA until December 2018 and continues to support our work, especially schools outreach, on a pro bono basis.

Andy Mayer is Chief Operating Officer, Company Secretary and Energy Analyst at the IEA. Andy is responsible for developing our people, all operations, and managing the reputation of the IEA, including for example over-turning the Charity Commission’s unlawful attempt to ban one of the IEA’s publications, and dealing with failed attempt to smear the organisation by activists at the same time. When not leading operations, Andy writes and comments on free market issues around energy and climate change, and occasionally general commentary. He was previously the Head of UK public affairs for the world’s largest chemical company and green energy advisor to the UK’s largest company. He has over 25 years of experience in strategic communications and the operations that support them in the business and think tank worlds.

4 thoughts on “Debate: Nudge economics – can paternalism ever be libertarian?”

  1. Posted 15/01/2019 at 11:59 | Permalink

    Here is an excellent example of how the State can use its coercive power to steer the choices that individuals and businesses make, which best serves the interests of citizens and communities.

    As a former real estate businessman and non-politician, President Trump may very well be having a hard time managing the federal Government enterprise, but he is a quick learner when it comes to dealing with the business community.

    As we have already seen on several occasions, Trump’s strategy for big business is to create uncertainty in the minds of corporations, so that they are provoked into doing things they would not otherwise do, like employ American workers, for instance – because, the one thing that businesses don’t like is uncertainty!

    He is using Twitter, his favoured medium for communication, to reach out to not only his own band of hard-core supporters, but whoever is listening to what he has got to say. In no more than 280 characters, he can make the Share Price of any publicly quoted company plunge overnight with a critical comment!

    In so doing, Trump is using a new weapon in the hands of the governing elite – Government by Coercion. It is nothing but threat of use of the big stick, skilfully articulated.

    And the best part is that, this type of Government intervention in the market does not cost the American taxpayer a single penny to make things happen, to satisfy the key objectives and priorities for his presidency – most notably, the America First agenda.

    It won’t be long before Governments around the world realise the value of this powerful weapon and begin to use it to force businesses to change their behaviour entirely of their own free will, for the better.

  2. Posted 16/01/2019 at 22:59 | Permalink

    Try a different label; how about Libertarian Maternalism?

  3. Posted 21/01/2019 at 10:28 | Permalink

    “British smokers already subsidise non-smokers heavily”

    I have heard this claim many times before. In fact, various studies tend to disagree and it is remarkably difficult to take all factors into account when trying to work out whether smokers subsidise non-smokers or vice versa.

  4. Posted 26/01/2019 at 20:32 | Permalink

    Sounds like more “free market” thinking which has more to do with de-regulating business than it does in promoting great freedom for the benefit of humankind.

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