limited government

Another (Big) Problem with “Nudging”

I’ve written recently about Richard Thaler’s Nobel prize and my objections to his (and Cass Sunstein’s) cheerleading for “nudging”. That’s a polite term for the use of business and government power to get people to make the “right” decisions. (“Right” according to Thaler, at least.) It’s the government part that really bothers me. Ilya Somin of The Volokh Conspiracy is of the same mind:

Thaler and many other behavioral economics scholars argue that government should intervene to protect people against their cognitive biases, by various forms of paternalistic policies. In the best-case scenario, government regulators can “nudge” us into correcting our cognitive errors, thereby enhancing our welfare without significantly curtailing freedom.

But can we trust government to be less prone to cognitive error than the private-sector consumers whose mistakes we want to correct? If not, paternalistic policies might just replace one form of cognitive bias with another, perhaps even worse one. Unfortunately, a recent study suggests that politicians are prone to severe cognitive biases too – especially when they consider ideologically charged issues….

Even when presented additional evidence to help them correct their mistakes, Dahlmann and Petersen found that the politicians tended to double down on their errors rather than admit they might have been wrong….

Politicians aren’t just biased in their evaluation of political issues. Many of them are ignorant, as well. For example, famed political journalist Robert Kaiser found that most members of Congress know little about policy and “both know and care more about politics than about substance.”….

But perhaps voters can incentivize politicians to evaluate evidence more carefully. They can screen out candidates who are biased and ill-informed, and elect knowledgeable and objective decision-makers. Sadly, that is unlikely to happen, because the voters themselves also suffer from massive political ignorance, often being unaware of even very basic facts about public policy.

Of course, the Framers of the Constitution understood all of this in 1787. And they wisely acted on it by placing definite limits on the power of the central government. The removal of those limits, especially during and since the New Deal, is a constitutional tragedy.

Institutional Bias

Arnold Kling:

On the question of whether Federal workers are overpaid relative to private sector workers, [Justin Fox] writes,

The Federal Salary Council, a government advisory body composed of labor experts and government-employee representatives, regularly finds that federal employees make about a third less than people doing similar work in the private sector. The conservative American Enterprise Institute and Heritage Foundation, on the other hand, have estimated that federal employees make 14 percent and 22 percent more, respectively, than comparable private-sector workers….

… Could you have predicted ahead of time which organization’s “research” would find a result favorable to Federal workers and which organization would find unfavorable results? Of course you could. So how do you sustain the belief that normative economics and positive economics are distinct from one another, that economic research cleanly separates facts from values?

I saw institutional bias at work many times in my career as an analyst at a tax-funded think-tank. My first experience with it came in the first project to which I was assigned. The issue at hand was a hot one on those days: whether the defense budget should be altered to increase the size of the Air Force’s land-based tactical air (tacair)  forces while reducing the size of Navy’s carrier-based counterpart. The Air Force’s think-tank had issued a report favorable to land-based tacair (surprise!), so the Navy turned to its think-tank (where I worked). Our report favored carrier-based tacair (surprise!).

How could two supposedly objective institutions study the same issue and come to opposite conclusions? Analytical fraud abetted by overt bias? No, that would be too obvious to the “neutral” referees in the Office of the Secretary of Defense. (Why “neutral”? Read this.)

Subtle bias is easily introduced when the issue is complex, as the tacair issue was. Where would tacair forces be required? What payloads would fighters and bombers carry? How easy would it be to set up land bases? How vulnerable would they be to an enemy’s land and air forces? How vulnerable would carriers be to enemy submarines and long-range bombers? How close to shore could carriers approach? How much would new aircraft, bases, and carriers cost to buy and maintain? What kinds of logistical support would they need, and how much would it cost? And on and on.

Hundreds, if not thousands, of assumptions underlay the results of the studies. Analysts at the Air Force’s think-tank chose those assumptions that favored the Air Force; analysts at the Navy’s think-tank chose those assumptions that favored the Navy.

Why? Not because analysts’ jobs were at stake; they weren’t. Not because the Air Force and Navy directed the outcomes of the studies; they didn’t. They didn’t have to because “objective” analysts are human beings who want “their side” to win. When you work for an institution you tend to identify with it; its success becomes your success, and its failure becomes your failure.

The same was true of the “neutral” analysts in the Office of the Secretary of Defense. They knew which way Mr. McNamara leaned on any issue, and they found themselves drawn to the assumptions that would justify his biases.

And so it goes. Bias is a rampant and ineradicable aspect of human striving. It’s ever-present in the political arena The current state of affairs in Washington, D.C., is just the tip of the proverbial iceberg.

The prevalence and influence of bias in matters that affect hundreds of millions of Americans is yet another good reason to limit the power of government.

What Happened to the Permanent Democrat Majority?

The election returns on November 2 tell a bigger story than massive disaffection with big government. They also point to a rising Republican majority. Consider, for example, the trend in the GOP’s percentage of House seats since the post-Depression lows of 1964 and 1974-76:

The 1964 low was an aberration, caused by LBJ’s landslide win over Barry Goldwater — a candidate whose then-“extreme” views went mainstream only 16 years later, with the election of Ronald Reagan. The backlash from Watergate led to the routs of 1974-76. And my trained eye tells me that 2008 was another aberration — a pause in a swing toward the GOP that began in the 1950s. So much for the “permanent Democratic majority” of which reality-based “progressives” love to boast.

Will the GOP’s fortunes rise indefinitely? Of course not — only a reality-based “progressive” would make that kind of claim. But the GOP will do well if it truly becomes — and remains — the party of limited government. It is the promise of government-light that propelled the GOP to a majority in 1994 and kept it there most of the time since.

That is the message of November 2. I urge Republican members of Congress to heed it.

Our Miss Brooks

Some time back, Tom Smith referred to the NYT columnist and pseudo-conservative David Brooks as “prissy little Miss Brooks.” Smith’s recycling of the appellation has not diminished its satirical effect — or its substantive accuracy.

Miss Brooks recently cringed when she contemplated an America without government, in the aftermath of a victorious Tea Party movement. Miss Brooks, it seems, is besotted with the manliness of limited-but-energetic governments

that used aggressive [emphasis added] federal power to promote growth and social mobility. George Washington used industrial policy, trade policy and federal research dollars to build a manufacturing economy alongside the agricultural one. The Whig Party used federal dollars to promote a development project called the American System.

Abraham Lincoln supported state-sponsored banks to encourage development, lavish infrastructure projects, increased spending on public education. Franklin Roosevelt provided basic security so people were freer to move and dare. The Republican sponsors of welfare reform increased regulations and government spending — demanding work in exchange for dollars.

Throughout American history, in other words, there have been leaders who regarded government like fire — a useful tool when used judiciously and a dangerous menace when it gets out of control. They didn’t build their political philosophy on whether government was big or not. Government is a means, not an end. They built their philosophy on making America virtuous, dynamic and great. They supported government action when it furthered those ends and opposed it when it didn’t.

I am surprised that Miss Brooks was able to recover from her swoon and finish writing the column in question. I am less surprised that Miss Brooks omitted to mention Thomas “Louisiana Purchase” Jefferson and Theodore “I Can Do Whatever I Please” Roosevelt, given that Jefferson was an effete Francophile and Roosevelt was a squeaky-voiced nutcase.

Other than that, there are only two problems with Brooks’s prescription for beneficent government: The first is the impossibility of electing only those leaders who know how to use government power judiciously. The second problem is the assumption that the things wrought by Washington, Lincoln, et al. were judicious uses of government power.

As to the first problem, all I can do is note the number of times that a majority of Americans has been convinced of the goodness of a candidate, only to be disappointed — when not outraged — by his performance in office. Take LBJ, Nixon, Carter, G.H.W. Bush, Clinton, G.W. Bush, and Obama — please take them! –not to mention myriad Congress-critters and State and local office-holders.

The second problem is a problem for reasons that are evidentlybeyond Miss Brooks’s comprehension:

  • Government action isn’t cost-less. It absorbs resources that the private sector could have put to use.
  • Government officials, despite their (occasional) great deeds, are not gifted with superior knowledge about how to put those resources to use.
  • Private firms — when not shielded from competition and failure by governments — put resources to uses that satisfy the actual needs of consumers, as opposed to the whims (however high-minded) of politicians.
  • Private firms — when not shielded from competition and failure by government — use resources more efficiently than government.

In short, Miss Brooks, Washington may have been a great man for having led a rag-tag army to victory over the British, and Lincoln may have been a great man for having preserved the Union and (incidentally) freed the slaves, but neither man — and certainly no other man or collection of men exercising the arbitrary power of government — was or ever will be equal to the task of simulating the irreproducibly complex set of signals and decisions that are embedded in free markets.

In the end, Miss Brooks works herself into hysterics at the prospect of less government:

The social fabric is fraying. Human capital is being squandered. Society is segmenting. The labor markets are ill. Wages are lagging. Inequality is increasing. The nation is overconsuming and underinnovating. China and India are surging. Not all of these challenges can be addressed by the spontaneous healing powers of the market.

The social fabric is fraying precisely because government has pushed social institutions aside and made millions of Americans its dependents. Society is segmenting for the same reason, and also because millions of Americans are fed up with government and its dominance of their lives. Labor markets are ill and wages are lagging (compared to what?) because of various government actions that have slowed economic growth and caused (not for the first time) a deep recession. The nation is overconsuming (i.e., underinvesting) and underinnovating because of the aforesaid government-caused economic malaise, which (among other things) has reduced the demand for money (seen in the form of low interest rates) and the potential returns on innovative investments. That China and India are surging is no skin off our teeth; the more productive they are the less Americans have to pay for the goods and services they produce, and the more Americans can produce of other things — if government will only get off the back of American business.

None of these “challenges” would be challenges were it not for governmental interference in private social institutions and markets. As Ronald Reagan said in his first inaugural address, “In this present crisis, government is not the solution to our problem, government is the problem.” Amen.

So, Miss Brooks, I advise you to take two Valium and read Friedrich Hayek’s Nobel Prize lecture, “The Pretence of Knowledge.” Then pass it on to your politician friends.

Related posts:
Columnist, Heal Thyself
The Economic and Social Consequences of Government