Social Market Foundation

Via the Devil's Kitchen I find that the Social Market Foundation thinks we are all such soppy little baa lambs that we need to be told what to do. Specifically:

Much of the detail of the report is taken up by the advancement of the idea that people aren't 'rational' enough to make the sorts of decisions the Government wants them to make. I guess the people who make up the Government are, however, rational enough to make them for us?

Indeed, that is a fine retort. Behavioural economics does indeed throw up examples of when people are not acting rationally (note that I don't mean the way Government would like to mean "rationally", but truly not rationally) but to then make the leap that government, that entity run for the benefit of those that run it (as public choice economics tells us), can make the right choices for us is absurd.

There is also the point that any and every intervention into either markets or behaviour has unintended consequences: it's not just absurd, but an almost insuperable obstacle, that assumption that not only will they encourage us to do the right thing but also pick the tools which do so without such side effects.

However, the real problem here (other than the intense desire to tell Nanny ro sod off) is that those proposing the use of these results from behavioural economics don't in fact understand the lessons of the subject itself.

Yes, we do indeed find that at times, people act irrationally. However, these times are when people are doing something that they do rarely. I'm not hugely averse to a little bit of paternalism when it comes to saving for pensions for example: perhaps a tax break to encourage such savings, maybe a modest mandatory scheme through the tax system, as we do. Similarly, I'm not averse to a bit of regulation on how people buy and sell houses....after their pensions (or in front of sometimes) the largest purchase most people ever make...an insistence that there's a survey, this sort of thing.

For these are indeed the sorts of things where that behavioural economics shows that people (sometimes) do make bad decisions, ones against their own interests. Not because they are fools, or because they're getting screwed, but just because human beings aren't in fact all that good at evaluating decisions that they take only a few times in a lifetime. The reason being that they don't get much practice at evaluating them, for they only make them a few times in a lifetime.

So if I believe this, why aren't I wholeheartedly behind this libertarian paternalism idea? Well, it's because of this other thing that behavioural economics tells us. That when people do make a larger number of such decisions in a lifetime, they don't act irrationally: yes, really, practice does make perfect.

The SMF uses two examples, the smoking ban and the desirability of parenting classes, as interventions that should be made. But smoking and parenting (not the decision to start either, but the continuing practice of) are exactly, given that they are things done continually and consistently, things which humans become very good at evaluating, precisely because they are done continually and consistently.

Which means that, if anyone had actually been paying attention when behavioural economics was being explained, these are exactly the things which behavioural economics says we don't need help with.

So, can I tell Nanny to sod off now?

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