Libertarian Paternalism: Eat Well, Retire Rich, and Feel the Freedom

Legal Scholar

One of the best policies in America might just have the worst name: libertarian paternalism. Fortunately it's better known as 'nudge theory', and it has saved billions of dollars, huge numbers of lives, and subtly increased the nation's standard of living. How does it do all that? Harvard Law School professor Cass Sunstein explains that libertarian paternalism uses tested behavioral science to present people with choices that could improve their lives. It's why your credit card statement has clear information about how to avoid interest charges, it's why savings plans are opt-out rather than opt-in, and it's why 11 million U.S. kids below the poverty line get free school meals without even having to ask. These nudges and automatic enrollments give Americans all the help, with none of the treading on me (hence the 'libertarian' paternalism). They are, as Sunstein explains, liberty preserving and perhaps best of all, considering the current political climate, nudge theory is met with bipartisan enthusiasm. Cass Sunstein’s research is cited in The Influential Mind: What the Brain Reveals about Our Power to Change Others byTali Sharot.

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TRANSCRIPT

Cass Sunstein: A number of years ago Richard Thaler, a terrific economist, and I were talking about public policy and also about human behavior. And the idea developed that you can have a form of paternalism that preserves freedom of choice. So, insist first and foremost on people being able to go their own way if they want, but it acknowledges that some of us maybe don’t know how to get where we want to go, or that some of us may be focused on today and not next year, or that some of us might be unrealistically optimistic or some of us might not know a whole lot, for example, about health insurance or savings plans or about how to manage our credit card. So the idea developed, which wouldn’t have sold any books but we use it anyway, called libertarian paternalism, and we change that to a simpler form, “nudge”, and the idea behind libertarian paternalism or nudge is that you have things that are like a GPS device. So a GPS device is a form of libertarian paternalism. If you don’t like the instructions you’re getting from the little voice that’s coming in your car, you can say, “I want the scenic route,” or, “I prefer a direction which is more familiar to me and I know better than you do given what I care about.” But it’s steering you in a direction which it has information suggesting is the best way to get you where you want to go.

Now, we can all use a GPS device in a lot of places and this is the idea of a libertarian paternalism. So if you get a credit card bill and it has some information about what happens if you don’t pay the full amount, meaning you’re going to start getting charged interest, or if it has information that tells you something about the cost of late fees, that is like a GPS device in the sense that it doesn’t force you to do anything, but it tells you a little bit about how to get to what is probably your preferred destination, which is saving money.

You might have also a warning on a cigarette package or a warning on medicines and those things are liberty preserving because you can do whatever you want really, but it is steering you like a GPS device in one direction rather than another. Some of the most powerful forms of libertarian paternalism, which in a way are changing the world, are using automatic enrollment in something, so that if people don’t want the thing they have to opt out rather than saying opt in if you do want to thing.

And one that’s really taken off all over the world is automatic enrollment in savings plans. The idea is that once you are working in many places you’re just in a savings plan. If you don’t want to be you can opt out, but the result of automatic enrollment has been to increase—massively—participation rates in savings plans while preserving freedom of choice and that’s going to mean that people all over the world are going to have more comfortable retirements.

Now the idea of more comfortable retirements is important, it may not be the sort of thing that gets people’s juices flowing, but when I worked in the White House between 2009 and 2012 we thought a lot about this, about things that could help people while preserving their freedom of choice. And one little example does get at least my juices flowing, which is there’s a program to allow poor kids to have free school lunches and breakfast, and it’s something that isn’t politically inflamed. Everyone thinks if you’re below a certain threshold of poverty you should get a nutritious meal at school—and it’s free, you get it. But a lot of kids haven’t signed up, maybe because the parents are scared if they get some form from the government, maybe because the form from the government is kind of daunting and complicated, maybe because the parents are busy and focused on other things rather than some bureaucratic note from the Department of Agriculture or the local school.

So what we did was basically just shifted the default. If the locality knows that you’re eligible for the meal, you are getting the meal. If you don’t want to be in the program you can opt out, but you’re automatically in. And at last count that means that about 11 million kids in the United States are getting school meals for free, to which they’re entitled, and 11 million is a statistic, but if you think of some small fraction of those kids ages 6/7/8/9 and imagine them having something that’s going to produce no hunger plus nutrition, that’s a small intervention that is having a real impact.

So one of the exciting things about the last ten years is that the interest in libertarian paternalism or nudging has been intense and strong, and it has cut across partisan lines. So when I worked in the White House there were a number of things I worked on that Democrats liked and Republicans not so much—climate change regulation, Republicans were not that excited about it, President Trump not so excited about it, and Democrats were approving.
But libertarian paternalism, we didn’t use the name, but things like information disclosure about credit cards, information disclosure about mortgages, automatic enrollment in savings plans, simplification of forms, which is a way of preserving liberty but ensuring that people aren’t just drowning in complexity, which prevents them from taking advantage of something, all of these things were able to attract bipartisan enthusiasm.

So Americans don’t like their freedom being intruded on. They don’t like the idea of public officials saying, “We know better than you do,” but so long as their freedom to go their own way is maintained they are good with things like warnings, reminders, information, switching the default role.

You could imagine some examples of those that would get people’s hackles up, but generally—and this is the kind of the excitement, I think, of the era we’re in—these ideas, informed by behavioral science for decades of testing, are changing people’s lives, saving in some cases literally billions of dollars, saving in other cases significant number of lives per year, these are things that don’t really get the salutary American antipathy to mandates from self-appointed in some cases elites, and in other cases an elected elite.

The opposition to mandates does not apply to libertarian paternalism, at least so long as the word libertarian doesn’t merely have too many syllables to be kind of the friendliest word, but at least so long as it really means freedom then we’re doing something that’s compatible with American culture.