Wright on "Libertarian Paternalism":

GMU law professor Joshua Wright takes sides in the Posner-Becker dialogue over libertarian paternalism.

It is not enough to justify paternalistic intervention (soft, hard, libertarian, or otherwise) simply to show that consumers make mistakes. The burden of proof is to demonstrate that the government can make better choices for the individual than can the individual. In accounting for the long run costs of paternalism, we must also be mindful of dynamic effects that are likely to follow from paternalistic decision-making before intervening.

C. Gray (mail):
1.17.2007 9:46am
Bravo Prof. Wright! Individual consumers may be ignorant (rationally or otherwise) of certain facts, but the wisdom of the free market is that aggregated consumers exercise greater awareness and discretion than any subset of the marketplace could effect, including smart professors, judges, braintrusts, or government officials.

There may be situations where aggregated choice cannot be wise because the proper information is absolutely unknowable (such as undiscovered diseases, health issues, or consumer products), or because it is secret (such as where the results of a particular investigation or experiment have not been released). Setting aside this sort of insurmountable ignorance, aggregated consumers will exercise greater wisdom in their choices than any subset of the marketplace. Choice, after all, involves a cost-benefit analysis that is both very personal and, in the aggregate, revealing of popular demand. When the government acts to restrict choices - presumably on the basis of members of the government's own cost-benefit analysis - the resulting rump array of choices reflects one group's preferred subset of choices. Since individuals, and subgroups of individuals smaller than the marketplace, have their own interests, it is undeniable that the basis for restricting choice, and thus the presumed consequences of those restrictions, reflect only the preferences of the individual or sub-group and not those of the aggregated marketplace.

While one sub-group may prefer one particular choice because it effects less cost on, or more benefit for, that subgroup, that choice may actually reflect an inefficient result (more cost or less benefit) on the aggregated marketplace. That is to say, a subgroup's act of restricting consumer choice creates an externality for the rest of society. This assumes of course that the subgroup's preferred choices are not in perfect harmony with the preferences of the aggregated market, for in that case there would be little point in creating a restriction in the first place.

Moreover, the law of unintended consequences suggests that the act of creating a consumer restriction creates a new array of choices, with a rebalancing of costs and benefits, that is unknowable in advance (even to smart judges like Posner) and may result in greater social costs for all.

Restricting consumer choice may be excusable where the choice itself may create substantial externalities, such as the purchase of nuclear weapons on Main Sreet, or where insurmountable ignorance exists, such as the government keeping secret the results of a study that reveals the existence of grave externalities or high but hidden costs that consumers cannot be aware of. Aside from those two narrow options, the government's act of restricting choice reflects not some high-minded act of public duty but rather the externalities that the government's own members wish to impose on the rest of society.
1.17.2007 12:54pm
theobromophile (www):
Most important in Wright's analysis is choices for the individual. Posner, in his justification of a government ban, assumes either that no individual would choose to have any trans fat in his diet, or that the social costs of trans fat outweigh the individual benefits. Neither one involves an individually-tailored decision.
1.17.2007 2:52pm
J. F. Thomas (mail):
And the rush of producers going trans-fat free without government intervention suggests at least that consumers are indeed responding to evidence of the harm from trans-fats.

Well, here again we run into the great libertarian fallacy. Without the nagging government paternalism, how on earth is the consumer going to find out about the dangers of trans-fat or that the food he is eating contains trans-fat? Wouldn't food labeling in a perfect libertarian world be entirely optional so the ingredients on a twinkies label could read simply "twinkies". Who is going to do the research on trans-fat in the first place? Certainly not the manufacturers of it. It is not in their interest to find out it is bad for you. Look how long it took tobacco manufacturers to finally admit their products caused cancer. The CEOs of every major tobacco company were even willing to lie under oath in front of congress about a link between cancer and cigarettes rather than admit the truth. And that was with a paternalistic government and mounds of evidence to the contrary.

The other fallacy is that there is such a thing as "self-regarding acts" in our society. Unless you live in a cabin in Montana with no electricity or running water and grow your own food there are very few "self regarding acts" in an advanced technological society.
1.17.2007 4:11pm