I would like to respond to Professor Rajan’s recent article entitled The Trouble with Libertarian Paternalism, published at Project Sydicate.
I take Professor Rajan not to be criticizing libertarian paternalism itself, but just those forms of it where the free choice offered “leaves paternalism largely unconstrained.” Indeed, Rajan asks at the end of his article, “Would it not be far better to force conscious choice in order to limit the consequences of paternalistic mistakes?” But what, I ask, would be left if we were to force a so-called conscious choice?
One part of the Thaler/Sunstein thesis in Nudge that I find very compelling is the concept of “choice architecture.” The backdrop to this concept is the idea that all choices are made in context and that sometimes the context of the choice has as much to do with the choice as the substance. Nudge highlights many examples of this phenomenon, from the placement of groceries in a store, to the size of a container of food, to (as Rajan notes) the default option in a financial savings plan. If we accept this phenomenon, Nudge argues, then we can realize that we may implement paternalistic policies in a softer, less coercive manner by constructing the context that may lead to, rather than force, a particular choice. This construction of context is “choice architecture.”
With this in mind, Rajan’s complaint about certain forms of libertarian paternalism is that the choice architecture manifested therein is too overbearing and thus dangerous because of the inevitable blunders of the government’s reliance on conventional wisdom. For example, let’s say that people are overwhelmingly likely to choose a default option investment plan, regardless of its substance (and for whatever reason). Rather than going through each option and weighing its pros and cons against his or her particular preferences, people can, and tend to, rely on the judgment of the government. But why, Rajan argues, is the government’s judgment any better than the individual’s? The government typically tries to enforce conventional wisdom and conventional wisdom is often sorely wrong. So why don’t we try to avoid the government’s debilitating adherence to the prevailing fad and have no default option? Force conscious choice and the individual will emerge like a phoenix from the morass of the government’s paternalistic mistakes!
Alas, the picture is compelling, but upon closer examination, we see that Rajan’s phoenix traverses the morass only to find itself in an equally icky muck.
Perhaps a key point worth noting is that the absence of choice architecture is not the same as the absence of context. Indeed, there can never be an absence of context as we do not make choices in a vacuum. Maybe a person did not construct the context of the choice. Nevertheless, there is still, at least in its barest form, a natural context, such as weather and time and other factors, that may have nothing to do with the choice, but still have a (sometimes substantial) effect on it.
But more importantly, the government is not the only potential choice architect. On the contrary, in our modern globalized society we constantly suffer an onslaught of solicitation from legions of would-be choice architects. Turn on the television, perform a Google search, or simply drive down the highway and you will see (and be pushed rather than nudged by!) the work of sometimes pathetic but often brilliant choice architects. Quite tellingly, Nudge is often sold in the business section of bookstores.
If we remove a default option investment plan, therefore, we are only removing the work of one choice architect, the government. In embracing this path, Rajan fears the ability of the individual to resist the hidden and thus sinister paternalism of the government. But why, I ask, should this fear stop at the pillars of congress? Are people more likely to unearth and not be fooled by the sinister paternalism of, say, Apple, Walmart or Blue Cross Blue Shield? Or are the overtures of the free market somehow less sinister than those of the fumbling dolts in government? A choice made under government-originated choice architecture is no more a “semblance of choice” than a choice made under any other choice architecture.
Now, certainly the government holds a unique position, with coercive power unlike that of any for-profit corporation. But to highlight only this aspect of government is to ignore an equally important distinction, that government is uniquely accountable to those over whom it wields its coercive power. We elect our government and in so doing hold it accountable for its failings (and its successes). By contrast, a for-profit corporation is accountable only to its shareholders. Succeeding in business is not tantamount to promoting the general welfare. If it were, then perhaps the work of choice architecture for choices affecting the general welfare would be best left to the free market. But even Professor Rajan acknowledges the need for some choices to be coerced by government. Indeed, he argues that social security, a forced savings plan (more than just a coerced choice!), is “necessary in civilized societies.” I whole-hearted agree with this assertion and I question why this context should be any different than any other context having to do with the general welfare.
As much as we may like to embrace the notion of free choice or choices unaffected by outside factors, our choices will always be made in context and thus may be susceptible to context-driven behavioral phenomena. So if we must choose a choice architect, let us choose one with proper incentives and accountability. For all its failings, government is uniquely suited to matters of the general welfare and thus uniquely suited as a choice architect in such matters. The answer to a government failing is not to hand over its responsibilities to the craftiest bidder, but to rework government so that it may get it right the next time.