By Robert Sugden – University of East Anglia
Shaun Hargreaves Heap argues for a constitutional approach to ‘behavioural public policy’. His starting point is a problem in the design and evaluation of public policies. Economists have traditionally assumed that people have well-defined preferences and then worked out how those preferences can best be satisfied, but behavioural economics is showing that those assumed preferences often do not exist. A new approach is urgently needed. I completely agree. Hargreaves Heap’s proposed approach is constitutional or procedural: public policy should be concerned with setting the general rules within which individuals make their own choices, rather than with trying to bring about particular outcomes. Again, I completely agree. I have been arguing for this kind of approach since 2004.[1]
I was surprised to find Hargreaves Heap attributing to me the view that people’s lack of well-defined preferences is ‘a reason against policy intervention altogether because “nudging” can only be paternalistic’. He cites a review of Sunstein and Thaler’s Nudge [2] that I wrote in 2009.[3] In that review, I concentrated on the internal logic of their argument. My principal criticism was that, in determining which nudges should be recommended, Sunstein and Thaler claimed to be using a normative criterion of making people better off, as judged by themselves, but never offered any satisfactory criterion for identifying those judgements. I concluded that their proposals were more paternalistic than they claimed. But the only recommendation that I made on my own behalf was addressed to Sunstein and Thaler’s readers: ‘If you are attracted by the agenda of libertarian paternalism, I urge you to think carefully about whom you are authorising to nudge you, what criteria they will use to decide when and how your own decisions are capable of being improved on, and what incentives there are to induce them to follow those criteria.’ I certainly did not (and do not) oppose ‘policy intervention’ in general.
Hargreaves Heap presents a ‘liberal individualist’ case for constitutionally entrenched redistributive mechanisms in developed economies. He offers several justifications for redistribution, one of which is contractarian: ‘Any practical argument for a liberal order must not only provide the case for liberty, it must also plausibly show why such an arrangement would be stable in the sense that those living under liberal order would not want to change it’. So far, I agree. But he goes on to argue that this stability can be generated by giving each person an unconditional basic income, financed by general taxation. I am not persuaded.
Hargreaves Heap points out that a basic income scheme guarantees each individual a space of opportunity in which to act as she chooses and ‘to feel responsible for [her] actions’. But is this the right way of thinking about responsibility in a liberal society?
I remember an exchange a quarter of a century ago between Philippe Van Parijs – an advocate of unconditional basic income – and John Rawls. Rawls argued that leisure should be treated as one of the ‘primary goods’ whose distribution is a matter of social justice. If someone chooses not to work, he should be deemed to have received resources equal in value to a basic wage and so to have no further claim on society: ‘Those who surf all day off Malibu must find a way to support themselves’.[4] Van Parijs’s response was to defend the Malibu surfer’s right to receive a basic income without having to work for it.[5] I think the contractarian argument for redistribution supports Rawls’s position.
The fundamental contractarian thought is that a well-ordered society is a network of cooperation for mutual benefit. A contractarian can defend a competitive market as a system of general rules within which people are free to seek mutual benefit. However, those rules alone do not guarantee that everyone can expect to benefit from the workings of the market. This is an unavoidable implication of the nature of market opportunities. Suppose I (think of an American rustbelt worker) have customarily traded with you (an American consumer). If you are to be free to choose with whom you trade (including Chinese workers who produce at lower cost), I cannot also be free to demand that you continue to trade with me. Still, if a market system is to continue to command general support, there must be some credible guarantee that most people will benefit in the long run. And that requires some institutionally stable scheme of redistribution or social insurance.
If such a scheme is to be stable, it must command the support of people who, because they are relatively rich, are its net payers. This support is most likely to be forthcoming if the scheme can be understood as an integral part of an economic system based on mutual advantage. Everyone needs to understand that, as Kenneth Arrow once wrote, ‘the owners of scarce personal assets do not have substantial private use of these assets; it is only their value in a large system which makes these assets valuable.’[6] The skills of the rich and talented would have only a tiny fraction of their current value without the network of economic cooperation in which they are put to use. Take Lionel Messi’s footballing skills, which have an annual market value of tens of millions euros. But Messi is just as dependent on cooperation with other people as the person who cleans his kit. He needs other players to make up a team; the team needs other teams to play against; it needs a stadium in which to play and spectators who are willing to pay to watch. A society which uses the market is (as Rawls would say) a cooperative venture for mutual advantage. A person plays a part in this venture by being useful to other people in ways that they find valuable and are willing to pay for. Redistributive taxation is a way of ensuring that everyone who participates in this venture shares in the surplus it creates. But anyone who wants to enjoy these benefits must be willing to share in the costs, not surf all day off Malibu. I call that responsibility.
[1] Robert Sugden (2004). The opportunity criterion: consumer sovereignty without the assumption of coherent preferences. American Economic Review 94: 1014–1033.
[2] Richard Thaler and Cass Sunstein (2008). Nudge: Improving Decisions About Health, Wealth, and Happiness. Yale University Press.
[3] Robert Sugden (2009). On nudging. International Journal of the Economics of Business, 16: 365–373.
[4] John Rawls (1988). The priority of the right and ideas of the good. Philosophy and Public Affairs 17: 251–276.
[5] Philippe Van Parijs (1991). Why surfers should be fed: the liberal case for an unconditional basic income. Philosophy and Public Affairs 20: 101–131.
[6] Kenneth Arrow (1984). Collected Papers of Kenneth J. Arrow. Volume 1: Social Choice and Justice. Oxford: Basil Blackwell, p. 188.