How was the miracle [of rapid economic growth in China since the 1980s] accomplished? The short story is that it was done simply by letting individual incentives work, by allowing people to try and get rich on the market. Deng Xiapeng, on of the main Chinese political leaders from 1978 to the early 1990s, had a mantra: “getting rich is glorious.” “[L]et some people get rich first,” he also famously said. Nian Guangjiu, an illiterate man who had been twice convicted of street peddling, took the idea seriously and, four years after Mao’s death, had become one of the first Chinese millionaires, amassing his fortune by selling watermelon seeds. It is fascinating that this simple idea apparently escaped the development economists who spent much of the 20th century devising economic models, foreign assistance proposals, and government schemes to kick-start economic growth in underdeveloped countries.
My colleague over at GMU Law (and newly appointed FTC commissioner) Josh Wright, along with Judge Doug Ginsburg, explore the origins, limits, and implications for liberty of behavioral economics . (HT Peter Van Doren) Here’s the abstract:
Behavioral economics combines economics and psychology to produce a body of evidence that individual choice behavior departs from that predicted by neoclassical economics in a number of decision-making situations. Emerging close on the heels of behavioral economics over the past thirty years has been the “behavioral law and economics” movement and its philosophical foundation — so-called “libertarian paternalism.” Even the least paternalistic version of behavioral law and economics makes two central claims about government regulation of seemingly irrational behavior: (1) the behavioral regulatory approach, by manipulating the way in which choices are framed for consumers, will increase welfare as measured by each individual’s own preferences and (2) a central planner can and will implement the behavioral law and economics policy program in a manner that respects liberty and does not limit the choices available to individuals. This Article draws attention to the second and less scrutinized of the behaviorists’ claims, viz., that behavioral law and economics poses no significant threat to liberty and individual autonomy. The behaviorists’ libertarian claims fail on their own terms. So long as behavioral law and economics continues to ignore the value to economic welfare and individual liberty of leaving individuals the freedom to choose and hence to err in making important decisions, “libertarian paternalism” will not only fail to fulfill its promise of increasing welfare while doing no harm to liberty, it will pose a significant risk of reducing both.
Pete Boettke reminds us of George Stigler’s positive assessment  of the work of Carl Menger .
A famous analogy for how people lose their freedom bit by bit and (hence) unawares is the one about boiling a frog slowly. Bob Higgs has a different, and I think even better, analogy .