The New York Review of Books reviews Nudge

John Cassidy writes the review, which includes a lengthy overview of behavioral economics.

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One Response to “The New York Review of Books reviews Nudge”

  1. nobody.really Says:

    I sense John Cassidy doesn’t have the same understanding of Libertarian Paternalism that I do. Should government intervene to limit people’s ability to harm themselves? Libertarians say no. But should government intervene to limit people’s ability to harm others? Even libertarians say yes. Cassidy doesn’t seem to appreciate that distinction.

    That said, Cassidy identifies the tough nut: How far do we look to find externalities from private behavior in order to justify limiting people’s choices?

    The housing bubble is a good example. Yes, looser lending practices resulted in many people buying homes who now cannot afford them, etc. It’s easy to see today’s world as less desirable than the world we experienced in, say, 2004. But that’s an irrelevant comparison; if we hadn’t had the looser lending practices, we never would have achieved the economic activity of 2004. That is, I suspect no amount of government regulation or deregulation would have produced a world that could sustain the economic activity of 2004.

    The relevant question to ask is, are there any government interventions that could have produced a better world TODAY than the one we have today? For example, would we be better off in a world of, say, 1970s-era regulation when vastly fewer people had access to credit to buy homes, build businesses, go to school, etc.? Yes, such regulation limited the downs. But it also limited the ups. On balance, was this a good trade-off?

    Freer markets have more booms and busts. Booms and busts impose costs. But stagnation imposes costs, too. The fact that people are currently bemoaning the boom-and-bust cycle does not provide me with enough information to know that it is less desirable than any alternative.

    If we can answer that question definitively yes, then arguably even Libertarian Paternalists could agree to imposing such regulations in the interest of protecting innocent third parties. If not, then not. Ultimately, this is a factual – not a philosophical – problem.

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