Opening statement to Commonwealth Economics References Committee inquiry into Personal choice and community impacts

With Simon Breheny

It is the view of the Institute of Public Affairs that paternalism is an unstable and illiberal basis for public policy. What do we mean by ‘paternalism’? It is important to be conceptually clear, because many policies have, rightly or wrongly, been lumped under the phrase ‘nanny state’. John Kleinig defines paternalism as when ‘X acts to diminish Y’s freedom, to the end that Y’s good may be secured’. That is, an outside person—in this case, the government—prevents you from doing something that you want to do and does so in your own benefit.

Today I am going to make three arguments about paternalism. The first is that paternalism has a long history. The belief that the state should control people for their own good is arguably the oldest political philosophy. But modern paternalism leans heavily on the findings of behavioural economics, which can be summed up simply as ‘people often make bad choices’. Under this argument, we are irrational: we underestimate risk, we employ wishful thinking, we discount information that conflicts with our beliefs. Many of these cognitive errors are predictable. Paternalism therefore uses the state to remedy or mollify them. In our view, this argument for paternalism is distinctly one-sided. Policy makers are as susceptible to the cognitive errors that are commonly attributed to consumers. Policy makers deploy heuristics. They also search for evidence to confirm their beliefs, and they are biased towards action in the face of unknown risk. Behavioural economics should make us more sceptical about paternalism than we previously were. Paternalist intervention should be seen as a trade-off between error-ridden consumers and error-ridden policy makers.

My second point concerns ignorance. Values are subjective, and it is a non-trivial task to determine people’s best preferences. Not everybody shares the same tolerance of risk. Some people prefer hedonism to health. Policy makers cannot assume that they are acting on behalf of people’s best interests when those interests are diverse and even unknowable. In their book Nudge, Cass Sunstein and Richard Thaler try to deal with the subjection by asking people what they would prefer in retrospect—that is, by asking people whether their past decisions were correct according to their own values. This way, they can try to divine people’s true or unbiased preferences. Unsurprisingly, people regret a lot of their choices. But it is not clear why retrospective preferences are more true than current ones. Why should our future selves have a veto over our current selves? After all, not all regret is rational, and our future selves are subject to cognitive error as well.

The final point I would like to make today is that paternalism is fundamentally undemocratic. Paternalism treats citizens like subordinates. The paternalist’s model of irrational individual choice is starkly at odds with the democratic philosophy of individual choice. We all believe as democrats that adult Australians have a moral right to make political decisions. We believe that Australian citizens have the minimum level of rationality and autonomy to choose who to vote for, which is one of the most informationally intensive decisions an individual is asked to make. My argument is that we are exactly as rational in the voting booth as we are in the supermarket; the voter is the same as the consumer. So, what are elected policy makers suggesting when they argue that their electors are incapable of making consumption decisions without the help of bureaucrats? Or, more fundamentally, what right do elected policy makers who derive their political legitimacy from that free and competent vote have to turn around and inform the voters that they are unable to make decisions about what they eat, drink and consume?