Libertarian paternalists, or nudgers, want to preserve freedom of choice while also using default rules, disclosure strategies, and other aspects of the choice environment to incline people in good directions. Because human beings are subject to systematic errors, libertarian paternalists want to provide a little help.
It is natural to wonder: Why should we trust government? Isn't it subject to systematic errors as well? What about the public choice problem? Isn't libertarian paternalism just a new way to strengthen government's hand?
Part of the answer is that libertarian paternalists insist on freedom of choice, and in many contexts, they would reduce government coercion where it now exists. (See
1. Richard Thaler and I propose to increase freedom of contract between doctors and patients, allowing waiver of medical malpractice liability in an effort to promote liberty and to decrease the cost of health care.
2. Libertarian paternalists are highly sympathetic to the argument for school choice, adding only that steps should be taken to make sure that choices are real.
3. For the mortgage crisis, and for credit markets generally, libertarian paternalists reject bans and coercion and favor disclosure remedies.
Skeptics might object that if public officials are not trustworthy, the paternalistic part of libertarian paternalism is scary. It is true that libertarian paternalists want government to select sensible default rules for contract law, property law, prescription drugs, environmental law, and organ donation. But how can government dispense with default rules?
Short of anarchy, the legal system has to start somewhere; it has to specify what happens if people don't do anything. Legal entitlements don't come from the sky. You can't run free markets without basic rules of property, contract, and tort law, and those rules will operate as nudges, in the sense that they will incline people in certain directions. (Russell Korobkin of this very blog has done excellent theoretical and empirical work on this point.)
At a minimum, libertarian paternalists argue that where a government program is already in place, officials should preserve freedom of choice while also making good outcomes easy rather than hard. Consider the current prescription drug program for seniors.
Libertarian paternalists agree with President Bush that competition is a good idea in this domain. But the program is much too confusing; seniors are given too little help in choosing among twenty or more plans. Sometimes they blunder, just because of the complexity of the program. So long as government is going to have a prescription drug program, it should make it easy for seniors to provide relevant information about their situation and then to get a clear sense of what plan would be best for them.
Libertarian paternalists are not opposed to disclosure requirements. In environmental law and in credit markets, they think that disclosure is often helpful. For school loans, credit cards, and mortgages, Thaler and I propose a species of libertarian paternalism that we call RECAP: Record, Evaluate, and Compare Alternative Prices. The basic idea would be to avoid government mandates in favor of a disclosure requirement that would produce a simple, intelligible statement of existing fees. We think that RECAP would improve the operation of credit markets.
Maybe hard-line skeptics want to reject disclosure requirements altogether. But putting that possibility aside, it's hard to see how distrust of government leads to a rejection of libertarian paternalism a) when a government program is already in place, and the question is how to make it work as well as possible, or b) when (short of anarchy) government action is inevitable, as in the basic rules of contract, property, and tort law.