Libertarian Paternalism

Jonah Goldberg has a fascinating series of posts reacting to Thaler and Sunstein’s article in the LA Times on “choice architectures”. I think his reactions get into two separate questions: (1) Does libertarianism require a set of fixed moral principles as a foundation?; and (2) Does the idea of authorities manipulating choices that face us for the purpose of making us happier really have anything to do with libertarianism, properly understood?

As per prior posts, I think that the unequivocal answer to the first question is ‘yes’. The second is a little trickier.

“Choice architectures” and “libertarian paternalism” are just fancy ways of saying that authorities make it more expensive (in the broad sense of money, time, convenience, etc.) to make some choices rather than others. Consider a widely-discussed example that the authors provide: requiring that employees opt-out of default enrollment in 401K programs. Sure, I have the choice to opt out of the 401K, but the operative issue is how hard this is to accomplish. On one extreme, as part of my first day of work I might have to go to a company intranet website to enter various information that includes my decision about 401K, and the yes/no drop-down list might default to “yes”. In this case, it would take two mouse clicks to opt-out. A more restrictive choice architecture might automatically enroll me, and then require me to make a series of appointments with uncooperative HR staff, fill out numerous paper forms and dig up all kinds of information that involves going through files buried somewhere in my garage in order to opt out. In the extreme, even if the law required me to enroll, I would still have the choice not to do so – I would simply have to be unemployed or work on the black market and risk prosecution. This is closely analogous to the concept that the power to tax is the power to destroy.

I think that at a practical level, the real question is one of how hard it is to exercise “undesirable” choices, at two levels of abstraction. First, within the specific choice architecture of a 401K plan sign-up or menu choices at a school lunch counter, how much are the dice loaded in favor of some choices relative to others, and how much additional total choice burden have the authorities added?. While there is no absolutely neutral choice architecture, defaulting to one choice on a two-item drop-down list is surely far more neutral than creating huge administrative hassles for getting out of the plan. Second, to what degree does the government mandate that all relevant choice architectures be identical? For example, does the federal government require by law that all companies have a specific opt-out method for 401K plans, or does it provide tax breaks and other economic incentives for those that do this, or does is just use the bully pulpit to encourage this?