Abstract
Sunstein and Thaler’s proposal for ‘libertarian paternalism’ in their paper titled “Libertarian Paternalism is not an Oxymoron” (LPNO from here on) is based on the contention that paternalism is sometimes (1) inevitable and (2) non coercive, and (3) that individuals do not always make ‘rational’ decisions. The first two contentions are untrue, and the question of whether individuals make ‘rational’ decisions as judged by the axiomatic definition of neo-classical economic theory is vestigial to the ideas and policy prescriptions of classical liberal and libertarian political economy. The paper, fraught with definitional confusions and methodological difficulties, is a superior example of how correct empirical observations and laudable advancements in identifying cognitive characteristics that may be relevant to economic analysis can lead to unsound theories due to methodological deficiencies. Policy prescriptions in the long run must take an institutional form; the greatest deception of the paper lies in its omission of any discussion on such an institution, which, I believe by logical necessity would be a Platonist autocratic bureaucracy. A consistent application of libertarian paternalism is the ‘road to serfdom’.
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Notes
According to LPNO this is the first of the two misconceptions on which the anti-paternalistic position is based.
According to LPNO this is the second of the two misconceptions on which the anti-paternalistic position is based.
The arguments of LPNO are relevant only with respect to the role of State or government planners, not to private actors. The concept of ‘libertarian pateranlism’ for a private actor is meaningless. The criterion for decision making in private orgnaisations is profit. The only way to implement any of the recommendations of LPNO is for the State to regulate individual decisions directly or indirectly by regulating profit-making organisations. Of course, private organisations make use of advancements in behavorial economics while structuring the remuneration packages of their employees, schemes for shareholders, etc. However, their ultimate concern is profit, whereas that of LPNO is ‘optimality’; where the two coincide there is no disagreement, where the two part ways, LPNO would recommend State regulation. It is in this sense that the argument in favor of ‘libertarian paternalism’ becomes meaningful. Hence our discussion is entirely focused on the ‘libertarian paternalistic’ role of the State.
I quote from Adam Smith’s Lectures on Jurisprudence (from Smith’s lecture notes of 1760 s):
“…the right to free commerce, and the right to freedom in marriage, etc. when infringed are all evidently encroachments on right one has to free use of his person and in a word to do what he has a mind when it does not prove detrimental to any other person” (italics added, Smith 1978, p. 8).
Bastiat’s essay titled “Purpose of Law in Society” is entirely devoted to this matter.
In the trilogy Law, Legislation and Liberty, Hayek discusses the categorical distinction between ‘taxis’ (order which is a result of human design) and ‘komos’ (order which emerges spontaneously).
No part of the aim of normal science is to call forth new sorts of phenomena; indeed those that will not fit the box are often not seen at all. Nor do scientists normally aim to invent new theories and they are often intolerant of those invented by others. Instead, normal science research is directed to the articulation of those phenomena and theories that the paradigm already supplies (italics added, Khun 1970, p. 24).
In mainstream microeconomic theory a rational consumer is one whose preferences are:
Complete: Either Apple is preferred to Orange or Orange is preferred to Apple or she is indifferent between Apple and Orange. Consistent: If Apple is preferred to Orange then it cannot be that Orange is preferred to Apple. Transitive: If Apple is preferred to Orange and Orange is preferred to Banana then Apple is preferred to Banana.
If minimal consistency really is a necessary condition of rationality, a whole tradition of liberal thought must be grounded on logical error…when rights are involved, it maybe wrong to impose conventional consistency requirements on social choices (Sugden 1985, p. 181).
Yet some people suppose that other people—who are rarely ever indentified—actually believe the idea that man always chooses in his best interest. The canard probably arises from the journal-article practice among Neoclassical economists of treating the human being as a mathematical apparatus (Klein 2004, p. 264).
First, it must be emphasized that whatever role ‘rationality’ may play in Professor Machlup’s theory, it plays no role whatever for Professor Mises. Hutchison charges that Mises claims ‘all economic action was (or must be) rational. This is flatly incorrect. Mises assumes nothing whatever about the rationality of human action (in fact, Mises does not use the concept at all). He assumes nothing about the wisdom of man’s ends or about the correctness of his means. He ‘assumes’ only that men act, that is, that they have some ends, and use some means to try to attain them. This is Mises’s Fundamental Axiom, and it is this axiom that gives the whole praxeological structure of economic theory build upon it its absolute and apodictic certainty (Rothbard 1957, p. 318).
The starting point of our reasoning is not behaviour, but action, or, as it is redundantly designated, rational action (Mises 1960, p. 23).
We are endowed with the faculty of comparing, of judging, of choosing, and of acting accordingly. This implies that we can arrive at a good or a bad judgment, make a good or a bad choice—a fact that is never idle to remind men of when we speak to them of liberty (Bastiat 1998, p. 28).
Hayek on liberty transcends the rationalistic fallacies which disfigure Mill’s liberalism and gives us a defense of individual freedom without equal in modern thought (Gray 1998, p. x).
How should sensible planners choose among possible systems, given that some choice is necessary? We suggest two approaches to this problem. If feasible, a comparison of possible rules should be done using a form of cost-benefit analysis, one that pays serious attention to welfare effects…The goal of cost-benefit study would be to measure the full ramifications of any design choice (Sunstein and Thaler 2003, p. 1190).
It is also, for instance, Kant’s central practical doctrine (‘always recognize that human individuals are ends, and do not use them as mere means to your ends’). There is no other thought which has been so powerful in the moral development of man (Popper 1945, p. 89).
Hayek’s work is to be viewed and understood as a whole. Though his work has developed over six decades and has crossed many disciplinary boundaries, it has throughout exemplified a distinctive conception of the powers of the mind and of the character of human knowledge (Gray 1998, p. 116).
What is distinctive in Hayek’s Kantian ethics is his insight that the demands of justice need not be competitive with the claims of general welfare: rather, a framework of justice is an indispensable condition of the successful achievement of general welfare. This insight of Hayek’s was indeed nourished by his study of Hume, who always saw clearly that the utility of the rules of justice depended on their not being liable to abridgement for the sake of an apparent gain in welfare (Gray 1998, p. 60).
In social theory, Hayek’s devastating critique of Cartesian rationalism entails that, whatever else it might be, social order cannot be the product of a directing intelligence (Gray 1998, p. 25).
The spontaneous order arises from each element balancing all the various factors operating on it and by adjusting all its various actions to each other, a balance which will be destroyed if some of the actions are determined by another agency on the basis of different knowledge and in the service of different ends (Hayek 1973, p. 51).
By order we shall throughout describe a state of affairs in which a multiplicity of elements of various kinds are so related to each other that we may learn from out acquaintance with some spatial or temporal part of the whole to form correct expectations concerning the rest, or at least expectations which have a good chance of proving correct (Hayek 1973, p. 36).
Learning is intricately linked to spontaneous order through Hayek’s conception of ‘phenomenal order’ expounded in the book «Sensory Order: An Inquiry into the Foundation of Theoretical Psychology» . Following are some quotes from the book:
There exist now, in fact, at least two different orders in which we arrange or classify the objects of the world around us: one is the order of our sense experiences in which events are classified according to their sensory properties such as colors, sounds, odors, feeling of touch, etc.; the other is an order which includes both these same and other events but which them as similar or different according as, in conjunction with other events, they produce similar or different other external events (p. 3).
What we call ‘mind’ is thus a particular order of a set of events taking place in some organism and in some manner related to but not identical with, the physical order of events in the environment. The problem which the existence of mental phenomena raises is therefore how in a part of the physical order (namely an organism) a sub-system can be formed which in some sense maybe said to reflect some features of the physical order as a whole, and which thereby enables the organism which contains such partial reproduction of the environmental order to behave appropriately towards its surrounding environment (p. 16).
“It would appear that not only are the events of the world, if defined in terms of their sensory attributes, not subject to invariable laws, so that situations presenting the same appearance to our sense may produce different results; but also that the phenomenal world it itself not constant but variable, and that it will in some measure change its appearance as a result of that very process of reclassification which we must perform in order to explain it (p. 174).
If freedom were not treated as the supreme principal, the fact that the promises which a free society has to offer can always be only chances and not certainties, only opportunities and not definite gifts to particular individuals, would inevitably prove a fatal weakness and lead to its slow erosion (Hayek, p. 68).
What Plato demands therefore, is the rule of learnedness—sophocracy, if I may say so (Popper, 1945, 127).
He (Plato) believes that the model original of his perfect state can be found in the distant past, in the dawn of history; for if the world decays in time, then we must find increasing perfection the further we go back into the past. The perfect state is something like the first ancestor, the primogenitor, of the later states, which are, as it were, the degenerate offspring of this perfect, or best, or ‘ideal’ state; an idea state which is not a mere phantasm, nor a dream, but which is in stability more real indeed than all those decaying societies which are in flux, and liable to pass away at any moment (Popper 1945, p. 19).
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Acknowledgments
I wish to extend my sincere gratitude to Ms. Varuna Mohite for the much needed language editing. Many thanks to Prof. Elisabeth Krecke and Mr. Lucas Leger for having read and commented on an early draft of this paper in May 2008. I was then an Erasmus Master in Law & Economics student at University of Aix-Marseilles III. Many of the ideas expressed in this paper were first introduced to me by Mr. Sauvik Chakraverti, to whom I shall forever be indebted.
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Veetil, V.P. Libertarian paternalism is an oxymoron: an essay in defence of liberty. Eur J Law Econ 31, 321–334 (2011). https://doi.org/10.1007/s10657-010-9193-8
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DOI: https://doi.org/10.1007/s10657-010-9193-8