New Paternalism Meets Older Wisdom: Looking to Smith and Hume on Rationality, Welfare and Behavioural Economics
‘Nudge’ policies impose the preferences of politicians onto unsuspecting individuals.
Policies aimed at ‘nudging’ lifestyle decisions make paternalistic assumptions on behalf of citizens.
It’s difficult, if not impossible, for policymakers to judge what is in each individual’s best interest.
Human preferences are not static but an ongoing process of growth, learning and change.
A free society maximises opportunities for people to develop their values and choices independently.
Britain’s increasingly zealous ‘nanny state’ policies are manipulating citizens’ personal decisions under the guise of ‘nudging’ them towards healthier choices, according to a new book from the free market think tank the Institute of Economic Affairs (IEA).
New Paternalism Meets Older Wisdom argues that modern interventionist tactics, such as cigarette packet warnings, auto-enrolment into workplace pensions, and other ‘nudges’ often cross the line by imposing politicians’ lifestyle preferences on the public while ignoring people’s rights to make their own free choices.
“Whereas classical paternalism uses coercion to override agents’ preferences for the sake of the agents’ own good, the new paternalism proposes to… help agents do what the agents themselves want to do,” writes author Erik Matson, a Senior Research Fellow at the Mercatus Center.
New paternalistic policies change how choices are presented, encouraging individuals to make better decisions based on their real preferences. But in reality, making individuals better off as ‘judged by their own standards’ is extremely difficult, if not impossible, and can lead to manipulative policies.
Matson warns that policymakers “are not simply helping individuals do what the individuals themselves want, for that is too difficult; they are simply attempting to make individuals do something that they (the regulators) believe will improve their lives, irrespective of the individuals’ own consent.”
Matson harnesses the work of ‘the Father of Economics’ Adam Smith to illustrate that people’s preferences are not a static mathematical equation but rather an ever-evolving process of trial, error, and change. He asks, “How can someone nudge us into a course of action that will make us better off by our own standards if we ourselves are unsure what those standards are?”
Matson emphasises the complexity of human choice by applying the ideas of the influential philosopher David Hume. Hume’s key insight was that choices are not always made with a predetermined preference in mind. “When going to a restaurant, we sometimes have a well-formed sense of what we’d like but other times we make in-time decisions when the server is at the table”, Matson illustrates.
New Paternalism Meets Older Wisdom calls into question the modern nanny state’s claim to be enabling individuals to make the choices they want to make. It demonstrates that new paternalism still seeks to restrict choices for individuals and impose the preferences of politicians.
Erik Matson, author and Senior Research Fellow at the Mercatus Center, said:
“The ideas of two giants in the history of economic thought—Adam Smith and David Hume—highlight practical and ethical challenges involved in paternalistic efforts to help people become better off ‘by their own standards’.
“Rationality is a much wider concept than is sometimes assumed by behavioural scientists, and people’s decisions may well be in their best interests as they understand them, even if they do not appeal to observers. Policymakers who are committed to the notion that all citizens are equals should prioritise persuasion over paternalistic interventions.”
Read a copy of New Paternalism Meets Older Wisdom.
New paternalism is heavily influenced by ‘behavioural economics’, a school of thought which uses psychological and neuroscientific analysis to understand peoples’ preferences and decisions.
Chapters
Chapter 1: Economics, psychology and the new paternalism by Erik W. Matson.
Chapter 2: Our dynamic being within: Smithian challenges to the new paternalism by Erik W. Matson.
Chapter 3: Satisfaction in action: Hume’s endogenous theory of preferences and the virtues of commerce by Erik W. Matson.
Chapter 4: The behavioural economist in society by Erik W. Matson and Malte Dold.
About the author
Erik W. Matson is a Senior Research Fellow at the Mercatus Center at George Mason University and a Lecturer in Political Economy in the Busch School of Business at The Catholic University of America. He serves as Deputy Director of the Adam Smith Program in the Department of Economics at George Mason. Focusing on the intellectual history and philosophy of early modern political economy, his research has been widely published in academic journals and edited volumes.
The mission of the Institute of Economic Affairs is to improve understanding of the fundamental institutions of a free society by analysing and expounding the role of markets in solving economic and social problems. The IEA is a registered educational charity and independent of all political parties.
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