Whitman on Thaler

Who will nudge the nudgers?

Libertarian paternalism seems to aim to take paternalism and give it choice. For instance, the 70s Democrat solution to this problem would be to mandate that only one type of "plain vanilla" loan can be given out by all loan offerers. Now it's just that the plain vanilla loan must be offered as a choice.

Understanding why the "plain vanilla" loan should be mandated requires going back to a bunch of market failure, adverse selection, human myopia arguments that left leaners have made for a long time. Of course, hard core libertarians reject these arguments, one objection is hayekian -- the market failures may exist, but denying the information from markets is even worse. So in many ways, this is a concession to hayek. Left-leaning economists want to fix their market failures without heavy handedly destroying markets.

I find it hard to fault Thaler for not using more gov't anecdotes, because not that many exist. Taxes, tax credits, and subsidies have long been recognized as better ways to achieve public goals than top down regulation. Such as carbon tax > technology regulation, tax free IRA > mandating people save, school voucher > direct school spending. All these are libertarian paternalistic policies. They aim to achieve public goals without destroying choice.

It's a shame too, because there seems to be an on going war between 70s style Dems and post-Clinton "market Dems" or "Chicago Dems" (like Sunstein and Goolsbee). If the right-leaners side more with the "market Dems," they'd have a huge influence pulling policy to the center. If they just keep going after the president, they'll keep pushing policy to the left.

Whitman brilliantly exposes Thaler's shameless shuck-and-jive sophistry. The damage that can be done by such economic snake oil vendors should not be underestimated; look at the damage Keynes's fear mongering about "animal spirits", "paradox of thrift", and "money hoarding" are still doing to mislead about what causes recessions/depressions.

I had a great semester with professor Whitman a few years ago. He taught Economics and the Law and it was my first upper division Econ class and I was struck by how rigorous and dynamic the class was. He, along with associate profsesor Tontz at CSU, Northrdige, is the reason why I decided to major in Economics.

It was exciting to be in a class where the nuances of property rights regimes, risk and insurance, strategic behavior, game theory, liability rules were allowed to become exciting. He even had us looking forward to a few of his up coming lectures on externalities and Coasian bargaining versus Pigouvian taxation. He really brought us undergrads into the world of the professional economist, showed us how economists think and since taking his class, I have been able to see the economics that is at work in every form of social interaction.

It was also great to see how professor Whitman can aggressively advocate very extreme and even radically libertarian ideas yet always remain on solid intellectual ground. Even if some of his statements initially seem radical, they could always be explained and after a minute or two he could have you at least giving serious consideration to an idea that, just 60 seconds ago, seemed simply too radical if not absurd. Give it a semester and what initially was extreme becomes common sense and what was conventional wisodom often times begins to seem absurd and on less than solid ground.

Even after finishing my semester long class with him, I have talked with him a few times since than and in 2007, we spoke about his paper, which was a rebuke to Sustein and Thaler. Professor Whitman had some very harsh words about them and my initial, tentative opinion was that this was bordering on extremism, a desire for ideological purity, and example of someone being harder on what sound like moderate libertarians, then he was when speaking about those who openly advocate paternalist policies. The more he explained and the more I have read on the subject, have shown me why "Libertarian-Paternalists" are potentially more damaging to our liberty and prosperity than someone who is openly in favor of a powerful and activist government.

Russell -- thank you for the link.

Colin -- thank you for the kind words.

Charlie -- I thought your comment was deserving of an extended response, which is posted here: http://agoraphilia.blogspot.com/2009/07/liberta...>