Paternalism is Still a Problem

By Megan McArdle

Ilya Somin sums up the core problem with the "new paternalism":

In recent years, advocates of paternalistic policies, such as economist Richard Thaler, argue that government-appointed experts should limit the choices available to consumers in order to prevent them from making poor decisions because of ignorance or cognitive bias. After all, they claim, experts are likely to know better than ordinary consumers which products are too risky for us to use. This kind of "new paternalism" (also known as "libertarian paternalism") has had a lot of influence in the academic world. It has also caught on in the Obama Administration, which has based major policy initiatives on it such as the proposed Consumer Financial Protection Agency.

In this recent essay, New Zealand economist Eric Crampton points out a serious flaw in the logic underlying the new paternalism. Experts may be better than consumers at figuring out the health risks posed by various products. But they usually have no reliable way to estimate the benefits the consumers get from them. Paternalism can only be justified, if at all, in cases where the risks posed by the product outweigh the benefit purchasers derive from it. Experts who have no way of estimating those benefits are in no position to determine which products should be regulated or banned

This article available online at:

http://www.theatlantic.com/business/archive/2009/10/paternalism-is-still-a-problem/28387/