Why I have reservations about the “Nudge” philosophy

I have various reservations about the Nudge philosophy that has been embraced by David Cameron. It is clearly attractive to the Conservatives because it seems novel without appearing to smack of market fundamentalism – and the Conservatives seem unable or unwilling to make the case for liberating the market economy directly.

One reservation that I have about “Nudge” is not about the basic underlying idea, but about the likely flaws in implementation. The authors of “Nudge” clearly intend that their proposals should be an alternative to state regulation, but it is difficult to see them being implemented that way in practice. For example, in the pensions field, auto-enrolment into personal accounts is going to be used in addition to all the current government interference in the provision of pensions: we will still have a government-provided state pension, a “second state pension”, continued regulation and tax relief. In addition to all this, people will be auto-enrolled into saving through personal accounts.

A second problem is that of who decides the direction in which to nudge people. The political elite, for example, wish to nudge the young to take out pensions but this risks making pension mis-selling compulsory. Young people will be saving in a pension whilst paying off a mortgage or even paying off credit card bills: saving and borrowing with two different financial institutions at the same time is an expensive business. Of course, the people who will lose out most are those who are not sufficiently sophisticated to shoulder barge the nudger and do their own thing.

The best way is to allow paternalism to evolve naturally in society without the interference of government. That is genuine “libertarian-paternalism” to use the phrase that Nudge’s authors use. People generally know when they are not the best judges of their own interests and they often choose to devolve decisions to others.

Read the full article on ConservativeHome.

The ‘philosophy’ still seems to be: ‘The gentleman in Whitehall really does know better …’. The argument is over how to get people to do what the politicians want.I still think Mises hit on the essential point: if the public at large is really so feckless that people can’t be trusted to look after their own lives, why bother to allow them to vote? Especially when, a la EU, if they vote the ‘wrong’ way, you just tell them to have another go until they get it right. (Assuming that, unlike the Labour party, when you promise to allow a referendum in your election manifesto, you keep your promise.)No wonder we don’t trust politicians!

Spot on, Philip. The very interesting field of behavioural economics is being mined to provide yet more reasons for government interference. The same has been attempted with the “happiness” literature.

**** nudging, just represent us.Look, we now need to be moving towards attacking the conservative party for being an anti-free market party instead of trying to find common ground.

The problem with their idea of ‘libertarian paternalism’ is that they refuse to define it, which is absolutely bizarre bearing in mind the huge literature on both concepts. Of course, this virtue of no definition is that no one is offended and the idea can be taken up by anyone. Philip is right that the real issue is who does the nudging and why.

I now realise that Cameron was quoting from the same California studies that are quoted in the NBER Digest. At best, it produces a small change in behaviour.

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