Government coercion has many forms

In the comments section of the previous post the discussion got interesting regarding the “benefit” over-estimating forecasts from the government point of view. Here is an article (highlights are my own) showing that any form of government manipulation has negative implications for an economy.

‘Nudge’ policies are another name for coercion

WE HAVE all cringed watching friends and family make terrible decisions, and been tempted by visions of the pain spared if we could only make them follow our advice. The same feeling motivates well-intentioned technocrats to take charge of the public: people are plainly making sad blunders they will regret.

Economist Richard Thaler and legal scholar Cass Sunstein (now a senior policy-maker in the Obama administration) present the latest, and subtlest, version of this temptation in their influential work on “nudging” people into making wiser choices. They argue that wise decision-makers should tweak the options and information available so that the easiest choice is the right one. For example, this can guide people to donate their organs if they die unexpectedly by making organ donation an opt-out rather than an opt-in choice. And it can encourage people to plan for their pensions by making pension contributions automatic for everyone who does not explicitly opt out of the system.

“Nudging” is appealing because it provides many of the benefits of top-down regulation while avoiding many of the drawbacks. Bureaucrats and leaders of organisations can guide choices without dictating them. Thaler and Sunstein call the approach “libertarian paternalism”: it lets people “decide” what they want to do, while guiding them in the “right” direction.

Much criticism of this approach comes, in fact, from libertarians, who see little difference between guiding a person’s choices and eliminating them. A nudge is like a shove, they argue, only more disreputable because it pretends otherwise. The real problem, though, is that Thaler and Sunstein’s ideas presume good technocrats can use statistical and experimental results to guide people to make choices that serve their real interests. This is a natural belief for scientists and intellectuals, especially those who see the awful ways scientific knowledge is abused politically, and think life would be better if scientists had more authority.

However natural, though, this won’t work because libertarian paternalists are often wrong on the underlying social science. For example, Thaler and Sunstein’s claims about the benefits of opt-out schemes are belied by little evidence it increases donations. According to Kieran Healy, a sociologist at Duke University, North Carolina, differences in donation rates are better explained by differences in organisational effectiveness than differences in opt-in/opt-out. It is not clear that opt-out would increase donations; unsexy but crucial reforms to regional schemes would almost certainly work better.

This points to the key problem with “nudge” style paternalism: presuming that technocrats understand what ordinary people want better than the people themselves. There is no reason to think technocrats know better, especially since Thaler and Sunstein offer no means for ordinary people to comment on, let alone correct, the technocrats’ prescriptions. This leaves the technocrats with no systematic way of detecting their own errors, correcting them, or learning from them. And technocracy is bound to blunder, especially when it is not democratically accountable.

As political scientist Suzanne Mettler, from Cornell University in Ithaca, New York, argues, libertarian paternalism treats people as consumers rather than citizens. It either fails to tell people why choices are set up in particular ways, or actively seeks to conceal the rationale. When, for example, Obama’s administration temporarily cut taxes to stimulate the economy, it did so semi-surreptitiously to encourage people to spend rather than save.

Mettler uses experiments to show how ordinary people can understand complicated policy questions and reach considered conclusions, as long as they get enough information. This suggests a far stronger role for democratic decision-making than libertarian paternalism allows. People should be given information, and allowed to reach conclusions about their own interests, and how to structure choices to protect those interests. By all means consult experts, but the dialogue should go both ways.

Results from agent-based modelling, evolutionary theory, network theory and experiments in group decision-making also support Mettler. Take the “diversity trumps ability” theorem of Scott E. Page, from the University of Michigan at Ann Arbor: groups of agents with diverse understandings of the world will solve difficult problems better than narrowly focused groups with higher expertise.

And models of evolutionary search, starting with the “genetic algorithms” of John Holland, also at Michigan, suggest higher diversity per se makes it easier to find paths to new fitness peaks. Research into the sociology of networks also finds innovation is most likely at points where different views intersect.

All this suggests democratic arrangements, which foster diversity, are better at solving problems than technocratic ones. Libertarian paternalism is seductive because democratic politics is a cumbersome and messy business. Even so, democracy is far better than even the best-intentioned technocracy at discovering people’s real interests and how to advance them. It is also, obviously, better at defending those interests when bureaucrats do not mean well.

While democratic institutions need reform to build in dialogue between citizens and experts, they should not be bypassed. By cutting dialogue and diversity for concealed and unaccountable decision-making, “nudge” politics attacks democracy’s core. We should not give in to temptation – and save our benevolent meddling for family reunions.


6 thoughts on “Government coercion has many forms

  1. I totally agree with: “groups of agents with diverse understandings of the world will solve difficult problems better than narrowly focused groups with higher expertise.”

    It’s just this is not realistic under the way the modern state functions. It is true, but in other areas.

  2. Then. Look what is my point
    “People should be given information, and allowed to reach conclusions about their own interests, and how to structure choices to protect those interests. By all means consult experts, but the dialogue should go both ways.

    Here is where the problem comes.

    What is information, if we think about the romanian gov and the GDP forecasts, all of them being biased upward?

    So, actually, we could say that this is what the gov is doing, giving an information to the people. Than people use it like they want.

    Then some other people come an say: but they are lying us. Then I come and say: don’t listen to them, don’t take the forecasts into consideration, if you consider they are unrealistic.

    Then somebody else come ans say: no, but they should tell this to us, and tell us the truth. Then somebody else come and say: but anyway they are too stupid to forecast correctly.

    And so on and so forth.

    So … in the end, we are in a circle without an end :))))))). Of course all of us are trying all sort of freak explanations, as long as we find ourselves moving in a circle.

    This is why the only solution I see is that people should get the data, and should process alone the information from it. And not the final information, which is the GDP forecast.

    But the people want to be free to chose and think, and in the same time, but they don’t want to process the data themselves, what the gov to tell them the information, which is the result of data processing. And here we come again: they are lying, why are they doing this to us?, or they are too stupid to make it right, or so on …! :)))

    We will never really find a solution to this debate, because what people actually want is a divergent :).

    Of course, if you put the problem in another light, and find a correlation between stupid gov decision and stupid forecast, is another, totally different story. Which would actually be hard for me to agree, as I am convinced they made mistakes, both in the gov and the NBR, because they are stupid, not because bad forecasts. They don;t get some points. Don’t understand how some things work. They are too inside theories. And so on. But, again, this is a different story from that of: look, they are lying to us! As long as we are waiting for their information, we assume the risk of receiving a bad information.

    *Disclaimer: I never follow forecasts. Not macro, not micro, not in Romania, not anywhere. I actually don;t care if they are lying to the people, because they aren’t lying me also :))).

    I don;t say is good to manipulate the masses, I just say it happens, and that sometimes it may work. The self-fulfilling phenomenon sometimes exists. And probably sometimes they are trying this, otherwise I don’t understand why all the time is biased on the upward. 🙂

  3. If you make decisions in the place of other people, most of them become less responsible and involved. And this dynamic leads to a helplessness and lack of responsibility. It creates more problems in the long term.

    1. This is true. But to solve it we should abolish the state. I don’t think that is realistic in our times 🙂 And I can bet more than 50% of the population will ask for a new form of Big Brother, because they will find it hard to live on their own :). Because this is why most of the people do actually want a Big Brother around, to exist a culpable for the failure. Is in the human nature to consider that he did everything right, it must be something else around who did something wrong, and this is why things got messy. :).

  4. Look, at the end of the 2009 the romanian employment was bellow the 2006. What did they do to help the economy? This was a reality, not a forecast. We were actually living it, disregarding any forecast. Trust me, Florin, they are retarded and they don’t care about the economy. Is not the forecast which is our problem, in this GREAT country. Unfortunately they could have the best forecast, they would still be unable to use it correctly.Mostly the NBR. Because I can understand a politician to be stupid, I don’t expect anything beside this from him. But not the NBR. 🙂 And still, they actually did nothing.

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