Beware the Perilous Protagonists of Patronising Paternalism: Richard Layard, Julian Le Grand and the New Paternalism

Consider the following scenario. Scientists determine that, following careful empirical study and the meticulous application of cost-benefit principles grounded in utilitarian ethics, men ought not to be allowed to live beyond the age of 86 and women beyond the age of 88. You can easily see how the utilitarian calculus would lead to this conclusion and policy recommendation. By the time people cross those age thresholds, they tend to be frail, infirm and doddery. Many no longer enjoy life and may even wish they were dead. Some have failed to "shuffle off this mortal coil" only through inertia and lack of commitment, others because of religious convictions that proscribe suicide, yet others because they are too decrepit even to attempt unassisted suicide and because assisting suicide is a criminal offence in most countries.

Because but few of these old folk still make a productive contribution as workers, home makers or child minders, they also impose a serious financial burden on the community. Many no longer pay taxes but are net recipients of government transfers. The medical expenses incurred by and on behalf of the very old tend to be high. In the UK, with its tax-funded NHS, the elderly impose a non-trivial health-tax on the rest of society. In addition to the financial/fiscal burden imposed by the elderly, they impose negative externalities. They drive too cautiously and fail to make due progress; they slow down other pedestrians on busy streets and during the rush to catch a bus, train or tube. Their Zimmer frames clog up passageways and entrance halls. They also are at times not very pleasant to look at, especially when they take out their dentures in a restaurant. Finally they can be highly irritating, because they tend to bang on about the good old days.

A utilitarian paternalistic government would know what to do in this situation. It would rewrite the intergenerational social contract to include mandatory involuntary euthanasia at age 87 for men and at age 89 for women. The week before my 87th birthday, I would receive a note informing me that in a week’s time I have to turn up at my local NHS hospital to be humanely executed by lethal injection. Those who have served in the armed forces could opt instead to be executed by firing squad. The penalty for failing to turn up would (of course) be death.

Professor Julian Le Grand, of the LSE’s Department of Social Policy, would not approve of this classical utilitarian paternalism. His libertarian paternalism (a poisonously oxymoronic expression) would instead prescribe the following government policy. The intergenerational social contract would be still rewritten to include involuntary euthanasia at age 87 for men and at age 89 for women. I would still receive, the week before my 87th birthday, a note informing me that I will be humanely executed in a week’s time by lethal injection. Those who have served in the armed forces could still opt instead to be executed by firing squad. The penalty for failing to turn up, however, would not be death but a fine of £200 (a Life Permit).

The arguments I have used to rationalise a fine or fee for being allowed to go on living, are no different in essence from the arguments used by Professor Julian Le Grand to rationalise his suggestion (offered for discussion and debate) that the sale of cigarettes should be banned except to holders of a Smoker’s Permit. Le Grand’s Smoker’s Permit would cost £200 and would also require the signature of a doctor. Similar proposals have been floated by him for the automatic enrolment of employees by their employer in exercise classes, subject to an opt-out clause (this time without a fine or fee).

Le Grand is advocating ‘soft compulsion’, that is, mandating (prescribing or proscribing) certain kinds of behaviour, subject to an opt-out clause. The exercise of the opt-out option can be made costly in a number of ways: by attaching a financial cost to it (£200 for the Smoker’s Permit), by making it time-consuming (the requirement of a doctor’s signature for the Smoker’s Permit), by making it embarrassing (overcoming peer-pressure not to opt out of workplace fitness activities) or by creating the presumption (or at least a suspicion) that future (career) prospects may be adversely affected should you opt out.

Le Grand is not the only highly visible advocate of an enhanced guiding and directing role for the government through ‘soft compulsion’. Another LSE notable, Richard Layard, Emeritus Professor of Economics at the LSE, and author of the book Happiness: Lessons from a New Science, published in 2005 and now available as a Penguin book, appears to believe all of the following (the seven proposition are mine; I distilled them as best I could from Layard’s Happiness volume):

  1. We know what makes us happy
  2. We want to be happy
  3. Therefore we ought to do what makes us happy
  4. The state knows what makes us happy
  5. The state knows how to make us happier
  6. The state wants us to be happier
  7. Therefore the state ought to take measures that make us happier

A number of strong and to me convincing arguments against propositions 4., 5. and 7. can be found in the useful tract Happiness, Economics and Public Policy by Helen Johns and Paul Ormerod, published by the  Institute of Economic Affairs in 2007. I believe all seven points are either dangerously misleading (or even deceptive), completely wrong or a threat to liberty and to all that makes life worth living.

Proposition 1. is true only if happiness is defined either as self-reported happiness (the verbal or written characterisation of their mood/state of mind/feelings by persons responding to questions in an interview or filling in some kind of questionnaire) or as a physiological or electro-chemical response to certain events or stimuli. None of this need bear any relationship to everyday notions of happiness. Using a value- and emotion-laden word like ‘happiness’ to label behaviour, actions, reported feelings and physiological or electro-chemical responses that bear little or no relation to the everyday concept, is misleading.

Proposition 2. is the happiness literature’s equivalent of ‘revealed preference’ in neoclassical consumer choice theory. People choose what they choose, because they prefer what they choose; and the proof that they prefer what they choose is that they choose it. It is a tautology. We want to be happy because if we wanted to be something other than happy, the happy we appear not to want to be cannot really be happiness.

Proposition 3. is a normative statement or value judgement that I reject utterly, regardless of whether Propositions 1. and 2. are correct. Many ethical system, some based on religious principles, others without divine underpinnings, would reject the pursuit of personal happiness as the main goal a person ought to pursue. The Christian tradition I belong to commands me to seek the Kingdom of God and to love my neighbour as myself. From this perspective, the pursuit of personal happiness is immoral, self-obsessed infantilism. Whatever one’s views on ethics, Proposition 3 isn’t science.

Proposition 4. is correct only if we define happiness in one of the peculiar ways prevalent in the pseudo-science of happiness; it also requires that the state and the government that manages it, has taken on board the views of Layard, Le Grand and their ilk. I hope this is not the case, even in the UK, on any wide scale. The worrying trends towards teaching pseudo-happiness in English schools will in all likelihood turn out to be yet another fad that does not outlast the incumbent administration. 

Proposition 5. is wrong, even if Proposition 4. were correct. The state/government knows at most only the ‘partial equilibrium’ direct determinants of ‘happiness’ (or even more likely just of few of the empirical correlates). No one and no institution, including the state, understands the dynamic general equilibrium effects even of those policies whose direct impact effects on ‘happiness’ are at least partially understood. Interaction effects, feedback effects (negative and positive), lagged effects, effects working through expectations and anticipations – no one has a clue.

Proposition 6  is wrong even if Proposition 5 were correct. Even if the government or some other state institution were to know how to raise our level of self-reported happiness, or how to lower hypertension, or indeed how to modulate the electro-chemical reactions in the cerebral cortex (or any other part of the brain) so as to give us a warm feeling or pleasant buzz inside, it would not follow that the government would want to pursue policies aimed at doing any of these things. 

The notion that governments are benevolent and competent makes for bad political economy. Governments are temporary coalitions of partly self-interested, partly altruistic, partly ideological, partly noble and partly evil people who happen to have got hold of the levers of control of the state. Each government represents the good, the bad and the ugly. It does some good and some harm. The primary objective of the governments I have observed is to hang on to power. If that requires making people happy (by any definition), the government may try to do so; its ability to achieve the objective should, of course, not be overestimated.. If it requires making people feel powerless, fearful, resentful and divided, then the government will instead pursue that objective. 

Proposition 7 is a normative statement about what the state ought to do. I strongly disagree with it. The defining property of the state is that it has the monopoly of the legitimate use of force in a society. The state can coerce, prescribe and proscribe behaviour; it can tax and it can declare some of its liabilities to be legal tender. It should only do those things that require this power of coercion. 

The fundamental responsibility of the government is to create institutions, laws and regulations that allow people the maximum freedom to make their own choices. This requires the funding of key public goods, such as defense, law and order, public administration, public health and the education of children. It will also require the public provision of those public goods and services that cannot be provided effectively through private or cooperative arrangements. Governments also have the duty, on behalf of the community and jointly with other private and cooperative institutions, to help those who cannot help themselves: the poor, the weak and the infirm; those too young to qualify as competent citizens; the mentally ill; the mentally handicapped; and those too old and frail to look after themselves any longer. 

Governments can try to correct market failures and failures of other non-government allocative mechanisms, as long as government failure is not likely to make things worse. The main causes of market failure are externalities (including informational asymmetries) and market power. Both regulation and taxation or subsidies can be used to address the causes of market failure. 

Externalities are any effect of the actions of one or more persons on the well-being (utility) of third parties. I prefer restricting the government’s role in addressing externalities to those instances where an action has a material (significant) adverse effects on the rights of others. Such material rights externalities would exclude, for instance, someone taking offence and getting upset at something I write or say, no matter how much this lowers their subjectively experienced wellbeing or comfort level. This is because, in my book, there is no right not to be offended. 

As I accord the government no automatic role in correcting externalities that are not rights externalities, it will not come as a surprise that I also oppose the government having any role in boosting people’s ‘happiness’ (in any and all senses of the word) when there are no rights externalities involved. Even if the government were to know what is good for me, it is not the government’s business to see to it that I (or someone else) undertakes the actions required to bring about that good. If my actions harm me (smoking tobacco, excessive alcohol consumption, smoking cannabis for non-medical reasons, using heroin for reasons other than pain relief) there is only a role for government if my actions also infringe on other peoples’ rights.

In the case of smoking, the health effects of secondary smoke inhalation are a prima-facie case for banning smoking in enclosed public spaces. If the only externality from smoking had been the fact that it causes the air to stink and to become irritating to some people’s eyes, this would not be sufficient grounds for the government to ban smoking in enclosed public spaces, although private clubs could do what they want. Putting further obstacles in the way of mentally competent adults who wish to smoke – things like Le Grand’s Smoker’s Permit cum doctor’s signature – is harassment and an assault on freedom. Excessive alcohol consumption is not a problem requiring government action if all it does is to cause my liver to rot. If I drive under the influence, or become drunk and disorderly in public, there are laws to deal with this. 

The wearing of seat belts by adults is another area where governments have no obvious role, other than an informational one (see below). Clearly, insurance companies may require seat belts to be fitted in cars they insure. Air lines have the right to refuse passengers who do not wish to tighten their seat belts. Mandating seat belts for children is also legitimate. Mandating the wearing of seat belts by competent adults is an unwarranted interference with individual sovereignty. 

The only legitimate role for the government in areas of private decision making where there are no rights externalities involved are (1) the provision of information and (2) framing. Information is an awkward commodity. Ex-ante the discovery of information can be costly. Ex-post, information is non-rival in use and should be disseminated as widely as possible. Governments therefore have a role in funding the provision of relevant information on health issues (even those without a public health dimension), seat belts, hygiene (which may also have a public health dimension) and food and product safety. Mandating the provision of information on the ingredients/materials in food, household products and drugs by the producer or seller can also make sense, with due allowance for the cost of providing different kinds of information. Therefore, pace Julian Le Grand, no ban on salt in processed foods, but clear labelling and information about the health risk of too much salt. 

Framing or presenting logically equivalent choices in different ways is a tool for influencing choices that relies on the violation of one or more of the conventional postulates of rational decision theory – often the independence of irrelevant alternatives. Framing matters if you feel different when I describe the bottle as half empty or half full. Framing is central to the opting in – opting out debates concerning trade union membership and participation in ‘second pillar’ company pension schemes by workers. When the ‘default’ is that workers are enrolled in the company pension scheme unless they actively opt out, 80% of the work force stays with the scheme. When the default is that workers are not enrolled but are free to opt in, only 20% of the workforce signs up. 

If mere framing, that is, mental window-dressing which does not have any effect on outcomes and payoffs in different states of nature, has a powerful effect on behaviour, the role of government becomes interesting. If we believe that there are areas of private choice for which the government knows what is good for us better than we do ourselves – if not all of the time then at least at those times when we actually decide to opt in or out of the company pension scheme – then we should grant the government the right to insist on a particular kind of framing of the choices in private pension schemes. If we don’t trust the competence of the governments and its experts, we should deny the government the right to frame choices in private arrangements. 

It is clear from Le Grand’s Smoking Permit example, that he does not trust the ‘soft compulsion’ of moving from opting in to opting out when it comes to many kinds of private choices. The cognitive distortions exploited by framing will in many cases have to reinforced with other incentives to get the outcomes preferred by Le Grand. Fines, taxes, mandatory waiting periods, time wasted in obtaining permits etc. are all part of the toolkit of the new Paternalists.

A true libertarian wants the state out of his life and out of his business. The camel’s nose unavoidably is back into the tent when one recognises the legitimacy of collective coercive action given the reality of rights externalities – when my actions impinge on your rights. There is, however, a huge difference between those who try to keep as much of the camel out of the tent as possible and those who are trying to push every inch of the beast into the tent. Le Grand and Layard are contributing to a dangerous ideology rationalising ever-increasing and ever more sophisticated attempts to steer, nudge, influence and in the limit completely override individual judgement and choice. One opt-out and fine at a time, it is moving us towards a nightmarish form of central planning not even attempted by the former Soviet Union – the micro-management of individual consumption, life-style and human capital management choices.

This ideology is fundamentally totalitarian, although the uniform of the familiar military dictator has been replaced by the tweed jacket and business suit of the expert and the technocrat, and the secret policeman has given way to the psychiatrist and behavioural therapist.

It is totalitarian because the state refuses to leave the private sphere alone.  Actions that have no external effects, and which therefore a-fortiori have no external rights effects, are nevertheless deemed legitimate concerns of the state.  Private actions can be nudged, influenced and incentivised by the state using any of the tools and instruments it possesses, for no reason other than that the state believes this to be in our ‘true’ interest. 

Well, thanks but no thanks.  I prefer making my own mistakes to having someone else, be it the state or another entity or individual, make the ‘right’ choices for me.

The London School of Economics and Political Science has moved a long way from the days when it counted among its economists such champions of liberty as Lionel Robbins and Friedrich von Hayek, to the present-day prominence of two champions of the intrusive, micro-managing, overweaning, overbearing state – Richard Layard and Julian Le Grand. Let’s just hope these things move in cycles.

Maverecon: Willem Buiter

Willem Buiter's blog ran until December 2009. This blog is no longer active but it remains open as an archive.

Professor of European Political Economy, London School of Economics and Political Science; former chief economist of the EBRD, former external member of the MPC; adviser to international organisations, governments, central banks and private financial institutions.

Willem Buiter's website