Economics, Literature and Scepticism

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I am a PhD student in Economics. I am originally from South Africa and plan to return there after my PhD. I completed my M. Comm in Economics and my MA In Creative Writing (Poetry) at the University of Cape Town, where I worked as a lecturer before starting my PhD.

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Thursday, July 17, 2008

Thaler, Libertarian Paternalism & Ed Glaeser

Posted by Simon Halliday | Thursday, July 17, 2008 | Category: |

Mike suggested I take a look at this Guardian article on Richard Thaler. So hat-tip to him. I am still quite undecided about the issues that Thaler and Cass Sunstein have uncovered in terms of using human behavioural characteristics 'for their own good'. Though I am not a libertarian, I share the profoundly libertarian scepticism of the ability of government to decide what should be 'the good'. If the good remains democratically decided then I am all for it, if the decisions around it and the methods used to manipulate it become subservient to malign intentions then I am definitely not in favour of it.

Russ Roberts, at EconTalk, has had a show with Richard Thaler (here) and one with one of Thaler's chief critics, Edward Glaeser (here). You can read Sunstein and Thaler's two articles, the first for the AER and the second for the University of Chicago Law Review. Here you can access three of Glaeser's critiques, the first for Regulation, the second is for the Harvard Institute of Economic Research as is the third. Russ Roberts also recommends that we should take a look at John Stuart Mill's On Liberty, specifically Chapter IV in order to contemplate the limits of authority of society over the in

Anyway, as long as the good is maintained under democratic control. As long as people realise that which is better for them and instruct government to implement policy in order to '
Nudge' them then I am all for it. As I said previously though, I am definitely not in favour of nudges by government when we don't even know what government, or politicians trying to be elected, might be doing. I suppose this is the Orwellian side of my thinking when I worry about government controlling aspects of our lives, abusing our psychological predispositions and using them to control us.

Glaeser makes the point well when he says, "if humans make mistakes in market transactions then they will make at least as many mistakes when electing representatives, and those representatives will make mistakes when policymaking." (Glaeser, 2006:1) Glaeser refers to differences in levels of 'indoctrination' by governments using the US and Europe as two case studies. In work with Alberto Alesina, they find that:
60 percent of Americans believe that the poor are lazy, but only 26 percent of Europeans share that view. By contrast, 60 percent of Europeans think that the poor are trapped in poverty, but only 29 percent of Americans share that opinion. In reality, the American poor generally work harder than their European counterparts and have a lower probability of exiting from poverty.
(Glaeser, 2006:33)
This may seem a bit conspiracy nuttish, but I believe that it is probably a fairly accurate portrayal of the political mentalities in these two different areas generally.

What I don't agree with though are the conclusions that Glaeser draws from these insights into human nature. He argues that conservatism is the way forward - marginal adjustments to already existing policy give voters a better basis of for understanding new policy. My problem with this is that it doesn't acknowledge the work of people like Dan Ariely (on whom I blogged recently). Specifically, what I call the 'ugly buddy' effect. If you're going out to a bar and you want someone to be attracted to you, you should take someone who looks similar to you, but who you know is ranked below you in terms of 'attractiveness'. I don't see why we shouldn't have an analog of this in terms of how we relate to policy. Conservatives could then basically make the existing policy the 'ugly buddy' and ensure that the new policy is similar, but just that bit more attractive when what we as voters might really want, but not realise we want, is some other policy entirely that looks like neither the 'ugly' or the more attractively dressed-up old policy.
Either way, taking note of this work across the whole range of behavioural economics and using it to gain broader insights into how we operate is a good idea. Taking the work of only one economist and only one critic however, is not, in my mind, a great idea and I hope that the Obamas and the Camerons of the political world take this to heart and don't go too 'Guru' on us. I expect Obama won't. I am more sceptical of Cameron (these are my Labour Party roots talking - my grandmother was a staunch labour supporter & my aunt works for the Labour party). Anyway, be sceptical. Use the insights. Don't take the politicians too seriously. Wait... that's a bit cynical...

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