I swear I have thoughts on libertarianism besides just the economic ones.
Anyway! Last time we were here, we were talking about how libertarianism only works if people make rational choices – and that most of the time, the choices people make are irrational. But what do we mean by this?
A study was done in 2007 with a company called Thaler, wherein the employees were given the opportunity to sign up for a pension plan. They contribute a small amount of money each month, the company also contributes some money, and overall it ends up as a pretty great deal for the employees involved, providing an excellent retirement. Only a small portion of the employees sign up for it, though.
A libertarian would say that this is perfectly fine. The employees know their own finances, after all, and while you might have some outsider condescendingly declaring it to be “a really good deal”, they may have a better pension plan elsewhere. Or maybe they don’t trust the company, or don’t expect to need that much money in their old age, or what have you. Any number of reasonable answers.
For some outside force to declare they are wrong to avoid the pension plan, or worse, force them into it for their own good, would be a horrific kind of arrogant paternalism, attacking the employees very dignity as rational human beings.
But then, the company decides to switch tactics. This time, it automatically signs up the employees for the pension plan, and gives them the opportunity to opt out. And only a small portion of the employees do.
This makes it quite hard to spin the first condition as the employees rationally preferring not to get in on the pension plan, since the second condition seems to show the opposite. To me, it just seems as though people in general can’t be bothered to devote the mental energy to signing up (or in the latter case, signing out). Employees rationally deciding something is all well and good, but if they are blatantly not choosing things based on self-interest, but out of mere laziness, then clearly having someone who has better considered the issue is preferable.
You might well ask what IS going on, in that case.
Old-school economic theory presents the idea of “revealed preference” in choice, that an individual’s choices reveal all there is to see about their actual preferences. Imposing other preferences on them will result in less choices being truly satisfied
Economists have sadly gone to absurd lengths to defend this model. Noted economist Bryan Caplan once argued that when drug addicts say they wish they could quit, they must be lying. After all, if they really wanted to, they would have already done so. Seemingly unsuccessful attempts to quit must be nothing but an elaborate deception, convincing people to keep supporting them while they enjoy their drugs as they ever did.
The past fifty years of cognitive science, to put it lightly, disagrees – and this disagreement is practically the foundation of the field of behavioral economics. This research relates to our current topic because it says that people don’t always make the best choice according to their preferences – they may make the easiest or most superficially attractive choice instead. And further, it means that while people’s decisions may be irrational, they are often irrational in predictable ways, following patterns of irrationality. If people who are aware of these irrationalities may be able to do better in fields where these irrationalities are common, then paternalism could sometimes be justified.
Why should the government protect people from their own irrationalities, though?
Well, most people will have their preferences satisfied and will generally be happier if they do not make irrational decisions. By free market principles, the economy will improve as people make more rational decisions.
If this question is meant in a moral sense, as in “How dare the government presume to defend me from my own irrational choices!” then I am afraid you must wait until I manage to get to the update on Moral Issues.
What significance does predictably irrational behavior have?
It justifies some consumer safety and labor regulations, government-mandated pensions, public health promotions, concerns about addictive drugs, and advertising relations, among other things.
And finally, we manage to get to the last part of my economic concerns: lack of information.
What I mean by this is that many theories of economics start off with the assumption that everyone has perfect information about everything. If a company’s products are unsafe, for instance, the consumer will become aware of this and so buy less of it.
Now, no economist literally believes this. But still, many ideas revolve around consumers being motivated to get information on things that are important to them. If you care about product safety, for example, you will fund investigations into product safety, or only buy products that have been certified to be safe by some credible third party. The only time a consumer would buy something with no information on it is if the consumer doesn’t care about having that information, or wasn’t willing to pay as much for said information as it would cost – both of which would be a success, not a failure, of the market. In libertarian thought, if people really care about efficiency, ethics, and product safety, the market will ensure them itself. And if they don’t care? That’s okay too.
The next section I’m planning on doing has something to do with some of the irrational choices we can predict in people. You know one of the big ones? That people don’t spend as much time or effort as they should into investigating what they’re buying. So the non-libertarians are right: people who care a lot about safety and efficiency would be stuck buying unsafe and inefficient products, were it not for government regulation, and the market simply would not correct these failures.
You may doubt this, so below is a list of facts about products. Some are real and some are made up, and I encourage you to guess which are which without Googling them.
- Commonly used US-manufactured wood products, including almost all plywood, contain formaldehyde, a compound known to cause cancer. This has been known in scientific circles for years, but was only officially reported in recent times due to a concerted effort by lobbying by the chemical industry to keep it a secret. Formaldehyde-wood products are illegal in the EU and most developing nations.
- Some processed food items, including most Kraft cheese products, contain methylaracinate, an additive which causes a dangerous anaphylactic reaction in 1/31000 people after consumption. They have been banned in Canada, but continue to be used in the United States after intense lobbying efforts from food industry interests.
- Total S.A., an oil company that owns filling stations around the world, uses slave labor in repressive third-world countries to build its pipelines and wells. Laborers are shot or tortured if they refuse, and the company helps pay for the military muscle needed to keep these juntas in power.
- Microsoft has cooperated with the Chinese government to turn over records from the Chinese equivalent of Bing and its hotmail service, despite knowing these records would be used for the express purpose of arresting and silencing dissidents. At least three dissidents were arrested using the information, and are currently believed to be in jail or “re-education” centers.
- Wellpoint, the second-largest US healthcare company, has a long record of refusing to provide expensive healthcare treatments promised in some of its plans by arguing that their customers have violated the “small print” of the terms of agreement. They make it so technical that almost ALL customers unknowingly violate them, and then proceed to only cite the ones who need expensive treatment. It has been sued for these practices at least twice, and both times has used its legal muscle to tie up the cases in court for so long that the patients were forced to settle for a fraction of the original benefits promised.
- Ultrasonic mosquito repellents like those made by GSI, which claim to mimic frequencies used by natural mosquito predators such as the bat, do not actually repel mosquitoes. Studies have shown that exactly as many mosquitoes inhabit the vicinity of the mosquito repellent as they do anywhere else.
Now, you probably aren’t sure of most of these (although if you’d like to, you can Google them now).
And we live in a country that guarantees we’re probably in the top 10 percent in the world, in terms of intelligence and education.
And we live in a world where there are many organizations, both private and governmental, that exist to evaluate products and disseminate information about their safety.
And all the companies and products listed are popular ones that most American consumers have encountered and had to make purchasing decisions about. When I selected those, I tried to choose safety issues that were extremely serious and carried risks of death, and ethical issues involving slavery and communism, which would be of particular importance to libertarians.
If this was at all challenging, it means that some of the best-educated people in a world full of consumer safety and education organizations don’t bother to look up important life-or-death facts specifically tailored to be relevant to them about the most popular products and companies that they use.
And if that’s the case, why would you believe that less well-educated people in a world with less consumer safety information trying to draw finer distinctions between more obscure products will seek out the information needed to ensure they avoid unsafe, unethical, or ineffective products?
You may perhaps say that of course people don’t look up consumer information now, because the government regulates that for them. But of the true items listed, they were true in spite of government regulation. Clearly, even in a regulated environment, there are significant issues. And if you honestly believe that you have no incentive to look up product information because you trust the government to take care of that, you’re more statist than I – and I’m the guy writing anti-libertarian essays.
Other effects of no consumer regulation might be that small businesses suffer.
Think about it.
In the absence of consumer regulation, you’d have to trust corporate self-interest for quality assurance. To some degree you can do that. Wal-Mart and Target are both big enough that if they sold tainted products, it would make it into the news, there would be massive pushback, and they would be forced to stop. In a libertarian environment, one would (ironically) feel quite safe shopping at Wal-Mart.
But the interesting-looking mom-and-pop store around the corner, well, you don’t know anything about that. If they sold tainted or defective products, it would be unlikely to make the news – for a small enough store, it might not even make the Internet. You might assume the CEO of Wal-Mart to be a reasonable man who understands his own self-interest, but you have no idea whether the owner of the mom-and-pop store is stupid, lazy, or (with justification) assumes that people aren’t going to bother to check on his misdeeds. You avoid the unknown and head to Wal-Mart, which you know is safe.
Repeated across the country, big businesses get bigger, and small ones get smaller.
Lack of information justifies some consumer and safety regulations, and the taxes needed to pay them.
When we return, we’ll be talking about social/moral issues and the related arguments.
So treat yourself on having made your way through this, and get a Starbucks or something.