TCS Daily


What's Wrong With Paternalism?

By Arnold Kling - April 16, 2004 12:00 AM

"My training is in physics, so I hesitate to make pronouncements about economics; but it seems obvious to me that for the government to spend a dollar on public goods affects total economic activity and employment in just about the same way as for government to cut taxes by a dollar that will then be spent on private goods. The chief difference is in the kind of goods produced by the economy -- public or private. The question of what kind of goods we most need is not one of economic science but of value judgments, which anyone is competent to make. In my view the worst problem facing our society is not that there is a scarcity of private goods -- food or clothing or SUVs or consumer electronics -- but rather that there are sick people who cannot get health care, drug addicts who cannot get into rehabilitation programs, ports vulnerable to terrorist attack, insufficient resources to deal with Afghanistan and Iraq, and American children who are being left behind."

--Steven Weinberg

This is a powerful challenge that is commonly issued by people on the left. How can we justify leaving wealth in private hands, where it is used to buy SUVs and electronic gadgets, instead of raising taxes and spending more on health care and education? Looking at it this way, what's wrong with paternalism?

There are three layers to the argument against paternalism. The first layer is purely libertarian, which says that government compulsion of individuals is always wrong. The second layer is utilitarian, which says that, contrary to the intuition of Steven Weinberg and others on the left, we are better off with a larger private sector and a smaller public sector. The final layer is what in economics is known as Public Choice Theory, which says that it is unrealistic to expect government officials to be wise and benevolent, given that they themselves are mere mortals with human desires and human flaws.

Pure Libertarianism

Pure libertarianism argues that freedom and dignity of the individual is of paramount importance. Pure libertarians would say that it is wrong to tax the rich to pay for health care for the poor. If Bill Gates and Warren Buffet want to contribute to charities that help the poor, that is fine. But if they want to spend their wealth on other goods and services, who are we to compel them to do otherwise? What gives "society" the right to redistribute wealth? What gives one citizen a right to goods and services that are paid for by someone else? It is not up to me to override my neighbor's choice to buy an SUV. Who am I to claim that I know better than he what is in his interest, or what is in "society's" best interest?

I personally find pure libertarianism hard to swallow. I believe that there are instances in which individual behavior ought to be regulated. For example, a pure libertarian might argue that I should have the right to sell you meat that is packed under unsanitary conditions. It should be your responsibility to choose a reputable meat-seller.

If there were no government meat inspectors, then perhaps a private-sector alternative would emerge. Inspection firms could provide certificates to meat packers whose plants are found to be sanitary. However, what would stop an unscrupulous meat packer from labeling meat with a phony certificate of approval? What would stop the private-sector certification company from issuing approvals without really conducting inspections?

At some point, a government authority needs to enter the picture. It is not necessarily the case that government must inspect meat plants. However, government must have some enforcement power to ensure that meat labels are honest. As Todd Seavey wrote for Reason about the Food and Drug Administration, "There is no avoiding some sort of legal constraint on food and drug sales, unless we want a modern version of the 19th-century free-for-all that poured mislabeled opium and disguised wood chips down the gullets of the ignorant. That's not freedom. That's fraud."

All that having been said, I believe that it is good to have a strong presumption in favor of individual liberty and for keeping regulation to a minimum. In the case of the FDA, there may be a middle ground between 19th-century lawlessness and contemporary regulation. For example, the FDA might not have to be the decision-maker concerning which drugs are allowed in the market. It might be sufficient to require that all drugs be labeled accurately. It would then be up to consumers to select drugs whose labels indicated that they have been tested well for safety and efficacy. It would be legal to sell ineffective drugs; the crime would be falsely labeling drugs concerning test results.

Utilitarianism

The utilitarian argument for a minimal public sector is that markets lead to better outcomes. For example, in The High-Cost Producer, I listed the various ways in which public education is inefficient. It uses wasteful methods, because there is no competitive pressure to do otherwise. It eliminates the wisdom and discipline that come from consumer choice. Finally, the taxes collected to fund public education cause economic friction, reducing the level of overall output.

Friedrich Hayek would say that government officials are missing the local knowledge of consumers and educators. Local knowledge, mediated by the mechanism of the market, outperforms central planning.

Steven Weinberg seems to be confident that people do not need SUV's or electronic gadgets, and that the government is the best provider of education. What about a nurse who needs to get to work during a snowstorm? What about a freelance journalist who needs to get out a story with a photo? What about the many liberals, including school teachers, who choose private schools for their own children? Perhaps Weinberg's intuition is not always superior to individuals' local knowledge.

Joseph Schumpeter would point to the process of "creative destruction" as a source of progress. Private firms go out of business when they fail to meet consumer expectations for results and economy. Government-run schools, which are insulated from market signals, can be ineffective indefinitely.

Government has a very difficult time shutting down obsolete programs. In this context, it is interesting that Weinberg denies that food is a scarce good. If that is the case, then why does government maintain the food-stamp program?

In my local grocery store, I began noticing a few years ago that the people who pay with food stamps did not appear to lack for food. Since I began to pay attention, I have not seen a single person use food stamps who was not severely obese.

I am not denying the poverty of people on food stamps or suggesting that we cut off their assistance. However, I am raising the possibility that subsidizing their food consumption may be a misguided priority. Perhaps if they were given cash instead of food stamps they would make bad spending choices. But my guess is that many of them would actually make better decisions.

Public Choice Theory

Earlier this month, the Washington Post happened to juxtapose two op-ed columns on the same page. One piece, by Robert Novak, detailed some of the "pork" contained in the latest highway spending legislation: "Construction of 'Renaissance Square' in Rochester, N.Y., including a performing arts center. $7 million...A new parking building in Oak Lawn, Ill. $4 million...A series of improvements for the Blue Ridge Music Center in Galax, Va. $2.5 million..." Novak concluded that "it's becoming clear the erstwhile Republican reformers are also super-sizing what they once condemned."

The other piece, by Sebastian Mallaby, described the way that the Bill Gates Foundation had filled a gap in vaccine production for Africa: "Because of governmental unreliability, vaccine companies stopped making long-term investments in production facilities, and manufacturing capacity dried up...In 1999 the Gates Foundation plunked down $750 million to buy vaccines, enough to tell manufacturers that if they invested in production there would be a buyer. Manufacturers have duly responded: Now, when UNICEF puts out a tender for hepatitis B vaccine, for example, there are 12 firms ready to bid, up from three in 2000. In a little over four years, the Gates-backed vaccine fund has reached 35 million children, saving perhaps 300,000 lives."

What these two stories illustrate is that private individuals sometimes spend money on public goods, while public officials sometimes direct public money toward private goods. This would come as no surprise to economists familiar with what we call Public Choice Theory.

Human beings are human beings. Just because you move from the private sector to the government does not mean that you instantly lose your self interest and become a benevolent social engineer. A friend of ours who works for the Food and Drug Administration just returned from a conference in Japan. Obviously, attending the conference was not a pure act of sacrifice on his part. He saw it in part as an opportunity to visit a country he had never seen. So did his wife.

My friend, like most government workers I know, is in fact a very conscientious worker. I have written before that we are extremely fortunate to have a government in which a strong public service ethic prevails. I am not particularly outraged by occasionally combining personal and business travel, or by pork-barrel spending, for that matter. Those government abuses are much less costly than what one finds in many other countries.

The point to keep in mind is that there is no automatic mechanism to ensure that tax revenues are funneled to such worthy objectives as providing health care to the poor or aid to Afghanistan, as Weinberg idealistically assumes. In the real world, Congress finds it much easier to spend more on the already-affluent and well-subsidized than for the goals that Weinberg exalts. It is difficult to imagine Congress voting for a program with the target beneficiaries and effectiveness of the Gates Foundation's vaccine effort.

The Case Against Paternalism

I have listed three types of arguments against paternalism. They are the libertarian argument, the utilitarian argument, and the public choice argument.

Steven Weinberg's statement that "The question of what kind of goods we most need is not one of economic science but of value judgments, which anyone is competent to make" could be used to reinforce the pure libertarian argument. By implication, a rich person is as competent to make value judgments about how his or her money could be used to benefit society as is Steven Weinberg. The fact that all of us are competent to make value judgments is a justification for liberty, not paternalism.

Weinberg is correct that both government and private spending can generate employment. However, the utilitarian argument is that the private sector is more productive and economical. The government suffers from inefficiency, a disconnect from consumer choice, lack of local knowledge, and the absence of innovation and trial-and-error learning as disciplined by "creative destruction."

I might share some of Weinberg's spending priorities. However, there is no assurance that our priorities are correct. Even if the correctness of our priorities can be verified in some way, public choice theory reminds us that the incentives of government officials are not aligned with those priorities. First and foremost, the incentive of government officials is to maintain and expand power.

Individually, none of these arguments is decisive. However, together, they undermine the left's presumption that those of us with a moral outlook should be rooting for more taxes and bigger government. Under close examination, the case for more paternalism is not nearly as strong as it might first appear.


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