John Cassidy on Libertarian Paternalism: Way Too Libertarian!

John Cassidy's philosophically half-baked exploration of neuroeconomics a couple years back in the New Yorker inspired me to write an essay-length reply. I suspected then that he really liked what he erroneously saw as the paternalistic upshot of behavioral and neuro- economics, and was deliberately reading the results in a way that would seem to empower our benevolent stewards in government. Now, with his new NYRB review of Sunstein and Thaler's Nudge, his command-and-control inclinations are in plain view. Cassidy is visibly annoyed that Sunstein and Thaler don't embrace full-throttle paternalism and behaviorally-enhanced Keynesian economic planning! Toward the end, he writes:

Once you concentrate on the reality that people often make poor choices, and that their actions can harm others as well as themselves, the obvious thing to do is restrict their set of choices and prohibit destructive behavior. Thaler and Sunstein, showing off their roots in the Chicago School, rule out this option a priori: “We libertarian paternalists do not favor bans,” they state blankly.

The obvious thing for whom to do? One of the great merits of Nudge is that Sunstein and Thaler grasp and largely avoid the fallacy of assymetric idealization. Cassidy obviously just doesn't get it. So here you go… It is equally obvious that we ought to restrict the choices of people in government, since those people are people, and people so often make poor choices. Moreover, the harm from error in government policy is not limited to the ones choosing it, but instead affects millions. Indeed, the most destructive behavior in history has been that of governments, and so, obviously, we must prohibit it. Cassidy can escape this bind only if making bad choices is something done only by people other than the ones that vote for politicians, appoint bureaucrats, and actually set policy. Anyway, it's pretty rich to see him slamming Sunstein and Thaler for not being as stupid as he is.

Cassidy goes on:

If you start out with the preconceptions about free choice of John Stuart Mill or Friedrich Hayek, it is difficult to get very far in the direction of endorsing active government. …

A refusal to accept that individual freedoms sometimes have to be curtailed for the general good is an extreme position even for a neoclassical economist to take, and it is alien to the traditions of the Democratic Party.

If Cassidy made it all the way to the end of Nudge, he will have noticed that the authors pretty clearly admit that they're not against all bans — not against all good old-fashioned paternalism. They really really aren't wild-eyed libertarians, which is why they forget to suggest rolling back existing paternalistic laws. But they are liberals of a certain stripe. Cassidy sounds like he just can't stand the fact that the Democratic Party stands firmly inside the liberal tradition, which just is the tradition of John Stuart Mill. If anti-paternalism is alien to the Democratic Party, then genuine liberalism is alien to the Democratic Party, which would be too bad for the Democratic Party. Pretty much everyone agrees that “individual freedoms sometimes have to be curtailed for the general good.” The argument of Nudge is precisely that that “endorsing active government” need not be the same thing as thinking, like John Cassidy, that respect for individual freedom is a load of crap that necessarily gets in the way of a better technocracy.

And I can't leave you without this:

Behavioral economics, by demonstrating how people often fall victim to confusion, myopia, and trend following, provides another convincing ratio-nale for Keynesian policies, but you wouldn't realize that from reading Thaler and Sunstein.

Anyway, the gist here is that John Cassidy is the guy Jonah Goldberg is trying to warn you about.

All Disaster, Only Part Natural

In this morning's Marketplace commentary, I argued nature needed a helping hand to wreak as much human damage as it did recently in Burma and China. The upshot:

Economic growth creates roofs that don't blow away, walls that don't crumble, hospitals to tend the sick, and generators to keep to the ventilators on. The self-dealing thugs that botch the institutions of growth don't just keep their people poor. They keep them vulnerable, exposed.

Marketplace now has a space for listener comments on the website. I thought I'd reply to a couple of them here. At the beginning of the commentary I say:

Back in the early 1950's, Burma was the wealthiest nation in Southeast Asia. But today, after a half-century of socialism and authoritarian rule, it's one of the poorest countries in the world.

Mention of socialism elicited this response from Ken Germanson of Milwaukee:

To blame these awful disasters on socialism is truly a stretch. Wilkinson, of course, is correct to say that corruption and dictatorial policies may have exacerbated these the tragic results. Corruption and dictatorships are not restricted to socialistic societies. You'd hardly see the traditionally socialistic nation of Sweden falling into such a disaster. Why indeed would Wilkinson even mention socialism as an issue other than to further the Cato Institute's goals of permitting unfettered capitalism? And, why even use Cato materials without a disclaimer as to its ongoing bias?

To not blame a good deal of the poverty in Myanmar and China in particular on socialism would be to a monstrous denial of reality. In the early 1960s the regime implemented an economic program called the “Burmese Way to Socialism,” which successfully transformed Burma from an emerging regional economic power into an economic basket case. If you can't pin the the failure of avowedly socialist economic schemes on the failure of avowedly socialist countries on socialism, then what can you pin it on? And, of course, Chinese communism — history's largest experiment in actually existing socialism — was responsible for the deaths of tens of millions through famine alone. China has begun to develop economically precisely by relaxing their adherence to socialist economic policy. For its part, Sweden is a liberal capitalist welfare state, much like the United States, and is wealthy precisely because of its relatively free-market policies. It is among the most economically free countries in the world. It is a common mistake to confuse a country's level of redistribution with its system of economic organization, but it is a mistake.

Dan Ness of Leucadia, CA writes:

Mr. Wilkinson makes his point clear that natural disasters are made worse by poor human planning, especially in corrupt self-dealing economies. It's tragic what's happened in China and Burma/Myanmar. However, I'm surprised Mr. Wilkinson didn't cite Hurricane Katrina in New Orleans. After all, in that tragedy roofs did blow away, hospitals were unprepared, and generators failed. We don't need to point afar to find examples of botched institutions or systemically vulnerable people.

I thought about this, but thought the American audience would be distracted by the domestic politics surrounding Katrina. That's why I compared the Sichuan earthquake to the 1995 Kobe earthquake. But Katrina strongly supports my general contention. The loss of life from Katrina is estimated at about 1800. But, if I understand the system for rating the intensity of hurricanes and cyclones correctly, Katrina was a more powerful storm than Nargis, which is now responsible for about over 80,000 fatalities. That's an enormous difference.

That said, I think Dan's comment raises a great point. Americans have been intensely critical of the American government's response to Hurricane Katrina, implying that government actors may be held responsible for the consequences of natural disasters. And this is true, though the policies that really matter are the policies that affect the growth of wealth, not the policies of emergency response (which are themselves largely determined by the society's wealth). But when it comes to less developed countries, the media seems far less willing to ascribe agency and responsibility to government policy, even though in these cases the ruling elites bear even more responsibility for the tragedy. I consider this a kind of ugly, morally blind condescension.

Inequality of Capability?

Lane Kenworthy kindly responds:

We should care about inequality of income not simply because it contributes to inequality of well-being, but also because it contributes to inequality of capability.

Even if consumption inequality has increased only a little, the rise in income inequality has produced a noteworthy increase in inequality of capability. The rich aren’t forced to purchase goods and services whose prices have increased more rapidly; they could switch to the same consumption bundle as the poor if they wished.

I feel like maybe we're speaking a different language or something here. I'm not sure what Kenworthy means by “inequality of capability.” It sounds to me like he is using a currently popular term to repeat the not-contested because self-evident fact that people with a bigger budget have a bigger budget. And I'm not clear on the source of Kenworthy's preference for thinking about what people can do with their money (capability) over what they do do with it (consumption), since it seems to me to come to pretty much the same thing, unless you think people really do systematically tend to act against their interests. No one disputes the fact that wealthier people have more options. That's basically what it means to be wealthier. But isn't the issue at hand the size of the difference in real quality of life once the wealthy and the poor have taken their best options? Anyway, that's what I think the question is. If the best a poor person's budget can buy improves faster than the best a rich person's budget can buy, then that means the poor person's quality of life has become more like the rich person's even if the rich person's budget expanded at a faster rate than the poor person's. The analysis applies mutatis mutandis to capabilities. Isn't this absolutely central to the question of economic inequality? Isn't this in fact the central question of economic inequality — the gap in the quality of the lived experience of the rich and poor?

Kenworthy goes on:

In my view the Broda and Romalis analysis is important for our understanding of (absolute) poverty, rather than inequality. They find that the prices of goods poor Americans tend to purchase have risen less rapidly than the overall inflation rate. I can’t assess whether they’ve accurately analyzed the data and how much measurement error the data contain. But if the finding is correct, it suggests that the trend in living standards for America’s poor was more favorable (or less unfavorable) between 1994 and 2005 than income data imply.

I don't get it. If living standards for the poor are better than we had thought, doesn't that mean that the difference in living standards between the poor and the rich is smaller than we thought?

One True Price Index?

Lane Kenworthy writes:

I’m not sure why Broda and Romalis, or Levitt and Wilkinson, think this should alter our assessment of the trend in inequality. Do they mean to suggest that the revealed preference of the poor for cheap goods is exogenous to their income? In other words, people with low incomes simply like buying inexpensive lower-quality goods, and they would continue to do so even if they had the same income as the rich. Likewise, the rich simply have a taste for better-quality but pricier goods, and they would continue to purchase them even if they suddenly became income-poor. If this is the assumption, I guess the conclusion follows. But I can’t imagine the authors, or anyone else, really believe that.

Maybe I'm missing something, but it seems as though Kenworthy's response might be based on some kind of conceptual misunderstanding. I'm not sure that this is it, but is the idea here that there is a single, standard, uniform price index, perhaps kept in a vault in Paris next to that famous platinum-iridium bar, the standard meter? But there is no standard index with which to determine the one true rate of inflation, or one true rate of change in real wages, because there is no one true standard consumption basket.

It seems that Kenworthy thinks there is something suspect about looking at the typical consumption basket of people at one part of the income distribution, looking at the typical consumption basket of people at another part of the income distribution, and then determining separately the change in rate of actually experienced inflation for people at those points in the distribution. I don't see how this requires any weird assumptions about the exogeneity of preferences to income. All it requires is that we take seriously what different kinds of people tend to buy.

Think about it this way. Suppose you've got a country with only poor people and a country with only rich people. In each country, their version of the BLS creates something like the CPI. We find that price inflation is lower in the poor country. Then the rich country annexes the poor country. Does calculating separate CPIs suddenly become a kind of mistake?

As I noted in my first post on this paper, when I talked very, very briefly to Sachs about my paper on inequality, looking at the change in price of the typical consumption baskets of the rich and poor was the one thing he suggested one might try to do to get a better sense of what's happening in terms of the trend in real consumption inequality. I said I didn't have the technical wherewithal to do that. But Broda and Romalis do. I'm not convinced that they or Sachs or Levitt is confused.

Capitalism to Egalitarians: You're Welcome!

I've posted on this paper once already, but it really, really, really deserves more attention. And people pay attention to Steven Levitt, so listen to him:

According to two of my University of Chicago colleagues, Christian Broda and John Romalis, everyone is wrong.

Inequality has not grown over the last decade — at least not very much. What we think is a rise in inequality is merely an artifact of how we measure things.

As improbable as it may seem, I believe them.

Their argument could hardly be simpler. How rich you are depends on two things: how much money you have, and how much the stuff you want to buy costs. If your income doubles, but the prices of the things you consume also double, then you are no better off.

When people talk about inequality, they tend to focus exclusively on the income part of the equation. According to all our measures, the gap in income between the rich and the poor has been growing. What Broda and Romalis quite convincingly demonstrate, however, is that the prices of goods that poor people tend to consume have fallen sharply relative to the prices of goods that rich people consume. Consequently, when you measure the true buying power of the rich and the poor, inequality grew only one-third as fast as economists previously thought it did — or maybe didn’t grow at all.

Why did the prices of the things poor people buy fall relative to the stuff rich people buy? Lefties aren’t going to like the answers one bit: globalization and Wal-Mart!

With the recent rise in food and energy prices, I wouldn't be surprised if inflation is now rising more quickly for the poor. But it's just huge if everyone has been so wrong about rising inequality over the last decade. If you think economic inequality matters, that's because you think relative economic well-being matters.  If you think economic well-being matters, then what you care about is consumption, not income. So what you're worried about, my egalitarian friend, is consumption inequality. If the trend in consumption inequality is flat, will you please make a note of it? Indeed, will you please communicate to your friends that, despite the outsized income gains of the wealthiest, America has become scarcely more unequal because capitalism has done so much of specific benefit to the poor?  Of course you will.

Jeff Sharlet on Free Will

In this week's Free Will, I chat with Jeff Sharlet, author of the shocking new book The Family: The Secret Fundamentalism at the Heart of American Power. I'm prone to skepticism about shadowy cabals, but I found this book both believable and upsetting. Jeff (a contributing editor to Harpers and Rolling Stone) was apparently a bit worried about talking to a Cato suit, but it seems to have turned out okay:

When Bloggingheads TV, the website that produces those video “diavlogs” you see these days in the fold of the online NYT, told me they'd given my new book, The Family, to Will Wilkinson of the conservative libertarian Cato Institute , I was a little concerned. The elite fundamentalists about whom I write are particularly passionate about what some call “biblical capitalism,” a literally religious devotion to free markets. Wilkinson, as you can imagine, is a big believer in free markets, too, and for that reason I thought he and I might have a very contentious conversation.

Oh me of little faith in the wisdom of Bloggingheads. Wilkinson turned out to be an ideal respondent — indeed, he may have understood aspects of the book better than I did when I wrote it. Most importantly, he recognized that biblical capitalism uses the veneer of free markets as a cover for the cronyism of the anointed. It's dishonest libertarianism, “self-interest by proxy,” in Wilkinson's brilliant phrase — the exact opposite of the responsible, transparent libertarianism championed by Wilkinson.

I'm glad that came across!

The Politics of Human Capital

At Club Troppo, Don Arthur has an excellent long post on the politics of the human capital approach to poverty and inequality. An excerpt:

These research findings on early childhood [which show the importance of the development of cognitive and emotional/self-regulatory capacities for later economic achievement] create a dilemma for egalitarians. On the one hand, the research suggests that publicly funded investments in early childhood could significantly improve the well being of children from disadvantaged families. But on the other hand, they seem to be stigmatising less educated adults — particularly those who are unable to work and depend on welfare benefits. The poor are portrayed as underdeveloped human beings — ignorant, lethargic and unable to control their impulses. Worse still, their parenting practices have been identified as an important cause of intergenerational disadvantage.

This has a familiar ring to it. In the early 19th century Alexis de Tocqueville warned that England’s system of poor relief was cultivating a class of unproductive and disorderly citizens:

The number of illegitimate children and criminals grows rapidly and continuously, the indigent population is limitless, the spirit of foresight and of saving becomes more and more alien to the poor. While throughout the rest of the nation education spreads, morals improve, tastes become more refined, manners more polished — the indigent remains motionless, or rather he goes backwards. He could be described as reverting to barbarism. Amidst the marvels of civilisation, he seems to emulate savage man in his ideas and his inclinations (pdf).

It’s a fear that’s never really gone away. Recently, the Age’s Russell Skelton spoke with a group of Indigenous elders in Walgett about the effect of the Australian government’s baby bonus:

“My daughter has four kids and she cannot read or write,” says a member of the group, who feels powerless as a parent. It will become a terrible circle, predicts another: “Kids who cannot read or write have babies that won’t be able to read or write. But nobody can tell them that. They don’t want to listen.”

Some egalitarians worry that embracing the rhetoric of human capital means joining with conservatives to slander to disadvantaged. Social welfare initiatives become less about social justice and more about social control. Instead of focusing on the obligations of the rich, the human capitalists increasingly focus on the behaviour of the poor.

I think this is a profound insight. And I think one can see the outlines of a workable third way here. On the one side are conservatives and libertarians overly attached to genetic explanations of socioeconomic achievement, who therefore see spending on early childhood development as futile. On the other side are liberals overly attached to abstract structural explanations of the reproduction of class, who therefore see a focus on state interventions in early childhood as elitist victim-blaming. I find that I actually side more with the liberal complaint than with the conservative one, though not so much for the reason that it is victim-blaming. Many poor parents are to a large extent to blame for the under-development of their children. There doesn't seem to be a way around that. But I worry very much about the social control of the poor by elites, which Don mentions. However, I worry about the harms of self-reproducing poverty even more. At this point, I'm not sure where I really stand, though I think I'm tilting in favor of Heckmanesque early childhood programs as part of the liberaltarian package, which also would include wage subsidies and beefed-up unemployment benefits together with a radical deregulation of the labor market and the economy at large.

Arthur Brooks on Religion and Happiness

In Arthur Brooks' Gross National Happiness, he makes a great deal of the effect of religiosity on happiness. And there is no disputing the data: in the United States, religious participation is positively correlated with higher levels of self-reported happiness. But he makes rather too much of it, I think, largely because he has decided not to take into account international comparisons but rather stick exclusively with evidence from the U.S. I think this is a huge mistake.

In the AEI forum Thursday, Brooks responded to my criticism by correctly pointing out that cross-country comparisons can be muddied by various cultural differences. Sure. But if you are more or less thoroughly satisfied with the general validity of survey measures, as Brooks claims to be, then there is really no principled reason not to compare results between the United States and Western Europe, which aren't all that different. Indeed, the differences that do show up in the data are very telling, and they cut strongly against both the substance and rhetoric of Brooks' strongly pro-religion argument.

I think Brooks is rather too willing to slide from local individual-level correlations — for example, that other things equal, religious folks in the United States say they are happier — to macro-level generalizations — for example, that more religious cultures are generally happier ones. At one point, Brooks implies that the ACLU is hurting national happiness by fighting against public displays of religion.

What you do not learn in the chapter on religion in Gross National Happiness is that countries with some of the lowest levels of religious participation in the world, such as Denmark, Norway, or Finland show up again and again in international rankings as some of the world's happiest places, usually ahead of the U.S. Moreover, many of the most religious places on Earth are deeply miserable.

You'd think this would be relevant. But Brooks just doesn't bring it up. He seemed to me to encourage the idea that the relationship between religiosity and happiness is deep, perhaps universal. But it just isn't. According to a 2007 paper by Lisbeth Snoep in the Journal of Happiness Studies, there is no significant individual-level correlation between religiosity and happiness in the countries she looked at: Denmark and the Netherlands — both among the happiest countries. In his concluding chapter, one of Brooks' “Happiness Lessons for our Leaders” is “America must defend it's tradition of religious faith.” But it's really hard to see why.

Please compare these two charts (click for full size):

That's from Ronald Inglehart and Pippa Norris, Sacred and Secular: Religion and Politics Worldwide.

And that's from Betsey Stevenson and Justin Wolfers, “Economic Growth and Subjective Well-Being: Reassessing the Easterlin Paradox“[pdf].

Secularization has been rapid in much of Europe over the last several decades. But according to Stevenson and Wolfers' recent paper, happiness has been steadily increasing there all the while — unlike in the U.S., where the measured trend has been flat. It doesn't take an econometric wizard to eyeball the relationship: religion down, happiness up. Doesn't this fact simply devastate Brooks' strong implication that secularization is antagonistic to national happiness? Yes it does.

Note that you don't have to believe in cross-country happiness comparisons to take this seriously. All you have to note is that average happiness rose while rates of religious participation fell here, here, here, here, and here, etc. And then, given that fact, Brooks may owe us a special story about why he doesn't think that relationship would hold in the United States, too.

So what are we left with? Brooks rightly points out that in the U.S. a great number of community organizations are anchored in religion. And sociality and community are key to happiness. So, sure, non-religiosity in the U.S. is likely to be a socially alienating and stigmatized kind of non-conformism. I'm trying to track down a paper I think is in the Diener and Suh collection, Culture and Subjective Well-Being, which I recall as saying something to the effect that a good individual fit with prevailing cultural values predicts self-reported happiness. So, for example, people with collectivist values are more likely to be happy in a collectivist society than are people with individualist values in collectivist cultures. But, overall, individualist societies tend to be happier. It seems to me that Brooks has simply found that America has a religious culture, and therefore it's less trouble to be religious in the U.S., not that religiosity has some kind of deep connection to happiness.

But Brooks writes:

You may not go to church — you may be an atheist. But if you enjoy living in a happy country, you can thank — well, you can thank your lucky stars–that so many of your American compatriots are religious.

Looking at the data, this strikes me as conservative bluster. Almost all the countries that consistently score higher than the U.S. in happiness are much less religious. While conservatives and the religious are indeed more likely to say they are happy in the U.S., it would be a simple error to infer that “gross national happiness” would be damaged were the culture to become less conservative or religious. In fact, cross-national data seem strongly to suggest the opposite. Perhaps we should thank our lucky stars for the salutary influence of Dawkins, Hitchens, and Harris!

Equality or Priority, Again

In a post titled “Inequality and Death,” Ezra Klein writes:

I guess this goes into the unsurprising category, but a new study shows that the risk of premature death plummets as you wander up the educational ladder. To make a meta-point, I post on these sorts of socio-health studies frequently for a reason: We tend to think of inequality in terms of some people having more stuff than other people. That's true, to an extent. But the poor in our society are also sicker, in more everyday pain, and have a greater chance of dying young. We're comfortable with inequality of stuff, but are we really very comfortable ignoring such gross inequality of pain, of illness, and of death? That's not to suggest that we'll ever have a society where everyone feels the same amount of pain, but it is to argue that the poor are not just different because they have less money, but because their lives are substantially worse, and worse in ways that better social policy could help alleviate.

Naturally, I share Ezra's concern for the alleviation of illness, suffering, pain, and death and think better social policy would help. (We disagree about those policies, I'm sure.) But isn't the problem here illness, suffering, pain, and death and not inequality? Don't we have reason to worry about these things just because they are bad? Because it is possible to help? I accept that our standards for adequate health and our expectations about suffering are contextual. In a decent society, the acceptable minimum rises over time. But whether people have enough stuff or experience too much illness is not therefore a question of inequality.

That said, not having looked at the study Ezra cites, it seems natural that educational attainment and health will have a common cause: time preference. The causes of differences in dispositions to act now to gain distant future rewards are unknown to me. I guess it has a great deal to do with an early sense of the stability or volatility of one's practical environment. If you come to feel that involved plans tend to be dashed and that resisting gratification leaves you with less than you could have had, you'll learn not to form involved plans or defer desire. I think having consistently enough money is a major factor in developing the sense that long-term projects can be successfully carried through. But having enough is itself largely a function of being able to carry through long-term plans. Poverty can be so pernicious precisely because it carries with it the conditions for its own reinforcement.