A number of years ago Richard Thaler, a terrific economist, and I were talking about public
policy and also about human behavior.
And the idea developed that you can have a form of paternalism that preserves freedom
of choice.
So, insist first and foremost on people being able to go their own way if they want, but
it acknowledges that some of us maybe don’t know how to get where we want to go, or that
some of us may be focused on today and not next year, or that some of us might be unrealistically
optimistic or some of us might not know a whole lot, for example, about health insurance
or savings plans or about how to manage our credit card.
So the idea developed, which wouldn’t have sold any books but we use it anyway, called
libertarian paternalism, and we change that to a simpler form, “nudge”, and the idea
behind libertarian paternalism or nudge is that you have things that are like a GPS device.
So a GPS device is a form of libertarian paternalism.
If you don’t like the instructions you’re getting from the little voice that’s coming
in your car, you can say, “I want the scenic route,” or, “I prefer a direction which
is more familiar to me and I know better than you do given what I care about.”
But it’s steering you in a direction which it has information suggesting is the best
way to get you where you want to go.
Now, we can all use a GPS device in a lot of places and this is the idea of a libertarian
paternalism.
So if you get a credit card bill and it has some information about what happens if you
don’t pay the full amount, meaning you’re going to start getting charged interest, or
if it has information that tells you something about the cost of late fees, that is like
a GPS device in the sense that it doesn’t force you to do anything, but it tells you
a little bit about how to get to what is probably your preferred destination, which is saving
money.
You might have also a warning on a cigarette package or a warning on medicines and those
things are liberty preserving because you can do whatever you want really, but it is
steering you like a GPS device in one direction rather than another.
Some of the most powerful forms of libertarian paternalism, which in a way are changing the
world, are using automatic enrollment in something, so that if people don’t want the thing they
have to opt out rather than saying opt in if you do want to thing.
And one that’s really taken off all over the world is automatic enrollment in savings
plans.
The idea is that once you are working in many places you’re just in a savings plan.
If you don’t want to be you can opt out, but the result of automatic enrollment has
been to increase—massively—participation rates in savings plans while preserving freedom
of choice and that’s going to mean that people all over the world are going to have
more comfortable retirements.
Now the idea of more comfortable retirements is important, it may not be the sort of thing
that gets people’s juices flowing, but when I worked in the White House between 2009 and
2012 we thought a lot about this, about things that could help people while preserving their
freedom of choice.
And one little example does get at least my juices flowing, which is there’s a program
to allow poor kids to have free school lunches and breakfast, and it’s something that isn’t
politically inflamed.
Everyone thinks if you’re below a certain threshold of poverty you should get a nutritious
meal at school—and it’s free, you get it.
But a lot of kids haven’t signed up, maybe because the parents are scared if they get
some form from the government, maybe because the form from the government is kind of daunting
and complicated, maybe because the parents are busy and focused on other things rather
than some bureaucratic note from the Department of Agriculture or the local school.
So what we did was basically just shifted the default.
If the locality knows that you’re eligible for the meal, you are getting the meal.
If you don’t want to be in the program you can opt out, but you’re automatically in.
And at last count that means that about 11 million kids in the United States are getting
school meals for free, to which they’re entitled, and 11 million is a statistic, but
if you think of some small fraction of those kids ages 6/7/8/9 and imagine them having
something that’s going to produce no hunger plus nutrition, that’s a small intervention
that is having a real impact.
So one of the exciting things about the last ten years is that the interest in libertarian
paternalism or nudging has been intense and strong, and it has cut across partisan lines.
So when I worked in the White House there were a number of things I worked on that Democrats
liked and Republicans not so much—climate change regulation, Republicans were not that
excited about it, President Trump not so excited about it, and Democrats were approving.
But libertarian paternalism, we didn’t use the name, but things like information disclosure
about credit cards, information disclosure about mortgages, automatic enrollment in savings
plans, simplification of forms, which is a way of preserving liberty but ensuring that
people aren’t just drowning in complexity, which prevents them from taking advantage
of something, all of these things were able to attract bipartisan enthusiasm.
So Americans don’t like their freedom being intruded on.
They don’t like the idea of public officials saying, “We know better than you do,”
but so long as their freedom to go their own way is maintained they are good with things
like warnings, reminders, information, switching the default role.
You could imagine some examples of those that would get people’s hackles up, but generally—and
this is the kind of the excitement, I think, of the era we’re in—these ideas, informed
by behavioral science for decades of testing, are changing people’s lives, saving in some
cases literally billions of dollars, saving in other cases significant number of lives
per year, these are things that don’t really get the salutary American antipathy to mandates
from self-appointed in some cases elites, and in other cases an elected elite.
The opposition to mandates does not apply to libertarian paternalism, at least so long
as the word libertarian doesn’t merely have too many syllables to be kind of the friendliest
word, but at least so long as it really means freedom then we’re doing something that’s
compatible with American culture.