One thing that irritates the hell out of me is the fact that many people believe the slightest sign of cognitive limitations implies that we should have government intervention.
Hell I’m centrist, I see myself as left-leaning in somethings and right-leaning in others. But this attitude leads to ridiculous, poorly thought out, interventions.
Several things we need to think about before intervening are.
- What is the problem? Compared to what other practical outcome?
- We have to say “why the problem is occurring” this occurs before we can figure out policy,
- We have to figure out if government can practically implement a scheme, given their own cognitive and institutional constraints,
- We need to ask if the implied problems are observable,
- We need to figure out what the consequences of such a policy are – how do people respond over time.
The most common area where this occurs is in the realm of saving. More people than I care to count have told me that people are irrational, so save too little, so some form of compulsion in savings makes sense. Some of the most intelligent, articulate, and thoughtful people I know have been known to occasionally move into this school of though. However, lets see what needs to be ticked off for this to make any sense:
- We need to figure out why people are saving too little relative to how much they do save.
- We need to make a moral judgment regarding the impact on themselves (if they save too little and end up poor it is really their own problem – why do we need to intervene?)
- If we don’t have that, we need to figure out how it impacts on “other people” – and likely make a value judgment for why this is suboptimal.
- We need to figure out how well government can observe this issue.
- We need to make a policy based on this observability, how well we can target “problem savers”, and the cost of implementation.
- We need to look at the long-run implication of the choice – for example, if we make people “save” they could likely borrow on the basis of this asset … leading to no change in net savings rates.
- We need to look at the distributional and efficiency impact of this policy, and the error bands around it – given uncertainty there would need to be a significant net positive impact for intervention.
I genuinely believe that people understate the intelligence of other people in society – there is no other explanation for how often I am told “people are stupid we need to make them save”. It may surprise many people to find out that other people in society do think, and do make choices. Attacking a “straw man” version of people and mentioning “irrationality” does not justify regulation.
Often I will say “it doesn’t matter if people are irrational, how is that a justification for compulsory savings” – too which people tell me I don’t understand. I guess the failure to actually provide a logical argument does make it hard for me to understand 😉