Libertarian paternalism seems to aim to take paternalism and give it choice.The key word here is “seems.” The advocates of libertarian paternalism have taken great pains to present their position as one that does not foreclose choice, and indeed even adds choice. But this is entirely a matter of presentation. They always begin with non-coercive and privately adopted measures, such as the ski-slope markings in Thaler’s NY Times article. And when challenged, they resolutely stick to these innocuous examples (see this debate between Thaler and Mario Rizzo, for example). But if you read Sunstein & Thaler’s actual publications carefully, you will find that they go far beyond non-coercive and private measures. They consciously construct a spectrum of “libertarian paternalist” policies, and at one end of this spectrum lies an absolutely ban on certain activities, such as motorcycling without a helmet. I’m not making this up! See these two previous posts for details, with direct quotes and page citations. (In a forthcoming article, Mario and I examine the “libertarian paternalist” spectrum in greater detail.)
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.This is actually an excellent example of Sunstein & Thaler’s rhetorical approach. Yes, it’s true, this policy offers the consumer greater choice than a more restrictive policy. BUT! Notice, first, that the more restrictive policy is no longer in place, which means the actual change advocated here would constitute a greater restriction than the status quo. And notice, second, that the policy in question most certainly does restrict the freedom of the other party – the bank – by requiring it to offer a certain kind of mortgage. Now, there might be great arguments for this approach; as I’ve said, I’m not a finance guy. But can we please not pretend this is a policy that fully respects freedom of choice?
Furthermore, as Sunstein & Thaler’s published work clearly indicates, this kind of policy is the thin end of the wedge. The next step, as outlined in their articles, is to raise the cost of choosing other options. In this case, the government could impose more and more onerous requirements for opting out of the “plain vanilla” mortgage: you must fill out extra paperwork, you must get an outside accountant, you must have a lawyer present, you must endure a waiting period, etc., etc. Again, this is not my paranoid imagination at work. S&T have said explicitly that restrictions like these would count as “libertarian paternalism” by their definition.
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.Most libertarians, myself included, are quite willing to say that some interventions are worse than others – and when our favored policies are off the table, we will choose the second best. For instance, most libertarians I know prefer mandatory savings to government-run Social Security. Most libertarians I know prefer education vouchers or tax credits to the public school monopoly. Most libertarians I know prefer medical-marijuana-by-prescription to a total ban on marijuana.
The problem is that S&T’s “libertarian paternalism” is used almost exclusively to advocate greater intervention, not less. I have never, for instance, seen S&T push for privatization of Social Security or vouchers in education. I have never seen them advocate repealing a blanket smoking ban and replacing it with a special licensing system for restaurants that want to allow their customers to smoke. If they have, I would love to see it.
In their articles, S&T pay lip service to the idea that libertarian paternalism lies between hard paternalism and laissez faire, and thus that it could in principle be used to expand choice. But look at the actual list of policies they’ve advocated on libertarian paternalist grounds, and see where their real priorities lie.