The fire and ultimately the sinking of Transocean’s Deepwater Horizon offshore oil rig in the Gulf of Mexico has all appearances of becoming an ecological and economic disaster of monumental proportions. How did we get so lulled into complacency about the risks of deep sea drilling? Our memories are so short. I wonder if we will be as surprised by the next nuclear accident?
Fear of Falling
There are a lot of things out there to be afraid of, and there seem to be phobias named for each one. For example, you may not be familiar with bathmophobia, which is an abnormal and persistent fear of stairs or steep slopes, or a fear of falling. Less well known is “nudgephobia,” also known as the Whitman-Rizzo syndrome, which is the fear of being gently nudged down a slope while standing on a completely flat surface. This phobia is sometimes associated with other disorders such as the fear of being given helpful directions when lost; the fear of obtaining reliable medical advice when sick; and, in rare cases, some have even suffered from a fear of having someone recommend a book or movie that you will really like.
It is presumably bathmophobia that has led Professor Whitman (and his co-author Mario Rizzo) to be so afraid that the policies that Cass Sunstein and I call libertarian paternalism will eventually lead to society falling down a steep cliff. I attribute this critique to an irrational phobia because I cannot make any other sense of it.
First, let’s be clear about what Sunstein and I mean by libertarian paternalism. We use the word libertarian (small “l”) as an adjective to modify paternalism, and it implies that we advocate policies that maintain people’s freedom to choose at as low a cost as possible. As for paternalism, we say on page five of our book, and repeat ad nauseam, that we call a policy paternalistic “if it tries to influence choices in a way that makes choosers better off, as judged by themselves.” (The emphasis is in the original.) Nonetheless, Whitman accuses us (and some of our fellow behavioral economics travelers) of wanting to push people in the directions that we ourselves prefer. I am not sure how we could have been any clearer that this is precisely not our intent, and I am not sure how we would have decided what to push for since Sunstein and I do not agree ourselves. I am a lover of fine wines; Cass prefers Diet Coke. With fundamental philosophical differences such as these, we wouldn’t get very far in pushing in the directions we prefer! This applies to the rest of our gang as well. Matthew Rabin prefers to dress in tie-dyed T-shirts, but I have never known him to lobby for a subsidy for this article of clothing.
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Another basic point that Whitman does not recognize is that paternalism of some sort is inevitable. Consider the following common problem. Most firms have an open enrollment period in November when employees can elect their benefit package for the following year. At my employer, the University of Chicago, you have a few weeks to log on to the appropriate web site and make your selections. The question is, what should the employer do for those employees who forget to log on? (Professors’ reputations for absent-mindedness are well deserved.) For each of the choices the employee has, the employer needs to select a default option for those who do not log on, and normally the default is either “same choice as last year” or “back to zero” (meaning, decline this option). At Chicago the default option for the health insurance plan is the same as last year.
Of course it is possible to criticize this choice of the default option, but it is essential to understand that the employer must choose something. Some employers use “back to zero,” which minimizes the costs to the employer; somewhat less drastic would be to default employees into the plan that is cheapest for the employer; one could even choose a default plan at random (don’t laugh — this is the strategy used for some participants in the Medicare Part D prescription drug coverage implemented by the Bush administration); or the employer could somehow force employees to make a choice. The Nudge philosophy here is that the person who designs the plan, whom we call the choice architect, should choose the default that she thinks, all things considered, will make the participants best off. Does Professor Whitman have a better suggestion?
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In short, the risk of the slippery slope appears to be a figment of Professor Whitman’s imagination, and clear evidence of his bathmophobia. To be fair to him, this phobia is hardly unique to him and Professor Rizzo. Slope-mongering is a well-worn political tool used by all sides in the political debate to debunk any idea they oppose. For example, when the proposal was made to replace the draft with an all-volunteer army, the opponents said this would inevitably lead to all kinds of disastrous consequences because we were turning our military into a band of mercenaries. The argument is perfectly versatile. If we allow (blacks, women, gays. . . .) into the military then (fill in the awful but inevitable consequence here). If we allow free speech then we will give voice to the next Hitler. “Allowing a partial privatization of Social Security will destroy the moral fabric of our society.” Never mind that Sweden did it a decade ago. You get the idea.
Instead of slope-mongering we should evaluate proposals on their merits. (We devote a chapter of Nudge to an evaluation of the choice architecture used in Sweden’s social security experience.) Helping people make better choices, as judged by themselves, is really not a controversial goal, is it?
As an employer, I often wrestle with questions around whether or note a particular policy or practice encourages “informed choice” or could be considered “paternalistic.” As usual, Thaler places the rhetorical labels into context by explaining the reasoning behind many employers’ default options in a way that reduces the labels to a petty debate.
Producer responsibility is still a relatively radical concept in the United States: generally, we expect consumers to take care of the products they buy at their end of life (which usually means throwing them away). While 19 states have laws on the books assigning responsibility to producers for electronic products, none have passed more comprehensive regulations… until yesterday.
According to the Product Policy Institute, yesterday’s signing of LD 1631 (”An Act to Provide Leadership Regarding the Responsible Recycling of Consumer Products”) by Maine Governor John Balducci represented the first broad-scale effort by a state to assign end-of-life responsibility for products to the companies that made them.
Some will certainly see this as onerous regulation on business, but the combined support of both political and business interests in Maine demonstrates that such laws can provide opportunity for companies to research and develop products that can be easily recycled or reused (perhaps with some refurbishing), and that have longer useful lives.
I’m interested to hear what you think. This probably won’t be the last law we’ll see like this… numerous legislators across the country have introduced similar bills.
Way to go Maine! Think of the positive impact such a law could have if implemented across the country. As a business owner who has been roundly criticized for working to bring such accountability to Vermont, I can imagine the traditional business lobby made life difficult for Maine legislators, so they are to be commended for thinking beyond today.
Like a savvy Madison Avenue advertising team, senators pushing climate-control legislation have decided to scrap the name “cap and trade” and rebrand their product as “pollution reduction targets.”
Green Business
A clunky and difficult term to define for laymen and some politicians, “cap and trade” had become dirty words on Capitol Hill in recent months.
Republicans called the plan nothing more than “cap and tax” and one influential senator took great pains last week to declare cap and trade “dead.”
Senator Joseph Lieberman, an independent trying to draft a bipartisan bill, said, “We don’t use that term anymore.”
Instead Lieberman said, laughing: “We will have pollution reduction targets.”
But Lieberman did say it was still possible utilities may be subject to a cap and trade system. Senator Thomas Carper, who chairs a clean air panel in the Senate, told Reuters on Tuesday that cap and trade for utilities was the way to go.
Under cap and trade, or whatever it’s called, Washington would impose steadily declining limits on carbon pollution that companies could emit, in the hopes of battling global warming. The pollution permits they would be required to hold would be traded in a regulated financial market.
A bill passed by the House of Representatives last year would impose an economy-wide cap and trade program. That bill has been stuck in the Senate since last year.
Since then, other ideas have been discussed for controlling carbon emissions, including a carbon tax, “cap and dividend” and even “cap and trade with training wheels,” where an independent board would set a narrow price range for carbon for eight years to give markets experience in trading permits before going to a full-blown cap and trade.
(Reporting by Thomas Ferraro; Writing by Richard Cowan, Editing by Cynthia Osterman)
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Hmm, evidence of the growing recognition of the power of words, or just one more example of political obfuscation? I’m good either way this time — if it works and we get something done to change behavior.
Image by Getty Images via Daylife
I probably shouldn’t be shocked that there’s already mounting opposition to the proposed rule to favor companies that pay decent wages when it comes to handing out government contracts. Small business will be decimated, the critics warn. It’s simply a gift to organized labor, they cry. It’ll drive up the deficit, they moan. (Claudia Deutsch – The Bottom Line, True/Slant)
Claudia Deutsch and the opposition groups are responding to a New York Times article describing proposed new criteria for awarding federal contracts. It puts my teeth on edge when retro business groups such as the U.S. Chamber and the NFIB set up this false polarity between small business and employees or labor groups. As a business owner, I firmly believe we are all better off when those who work receive a livable wage, which includes essential benefits such as access to health care. If my business cannot survive if I pay decent wages, then it is not a viable business and should close.
Here in Vermont, I was pleased to learn recently that Representative Suzi Wizawaty and others have introduced H.748, which would award state contracts based in part on the working conditions, salary and benefits of the employees. The same criteria would be used to award tax incentives, referred to more appropriately as subsidies, and to evaluate the return on these investments of taxpayer dollars. Our elected officials, at both the federal and state level, need to hear from business owners who understand the false dichotomy of “small business success” or “decent employee wages” is a relic from the past.
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Word Bit Overflow 