The newfound openness of large numbers of Americans to socialism is, by now, a well-documented phenomenon. According to a Gallup poll from earlier this year, 43% of Americans now believe that some form of socialism would be good thing, in contrast to 51% who are still against it. A Harris poll found that four in ten Americans prefer socialism to capitalism. The trend is particular apparent in the young: another Gallup poll showed that as recently as 2010, 68% of people between 18 and 29 approved of capitalism, with only 51% approving of socialism, whereas in 2018, while the percentage among this age group favoring socialism was unchanged at 51%, those in favor of capitalism had dropped precipitously to 45%. The same poll showed that among Democrats, the popularity of socialism now stands at 57%, while capitalism is only at 47%, a marked departure from 2010 when the two were tried at 53%. A YouGov poll from earlier this year showed that unlike older generations, which still preferred capitalist candidates, 70% of millennials and 64% of gen-Zers would vote for a socialist.
The question is why socialism now? At a time when the American economy under Trump seems to be chugging along at a nice clip, why are so many hankering for an alternative? I would suggest four factors contributing to the situation.
Factor #1: Ignorance of History
The first cause of socialism’s popularity, especially among the young, is an obvious one: having grown up at a time after the end of the Cold War, the collapse of Europe’s Eastern Bloc and China’s transition to authoritarian capitalism, “these kids today” — those 18 to 29 year-olds who were born around the last decade of the 20th century — don’t know what socialism is all about. When they think socialism, they don’t think Stalin; they think Scandinavia.
Americans’ — and especially young Americans’ — ignorance of history is well-documented and profound. As of 2018, only one in three Americans could pass a basic citizenship test , and of test-takers under the age of 45, that number dropped to 19%. That included such lowlights as having no clue why American colonists fought the British and believing that Dwight Eisenhower led the troops during the Civil War. Speaking of the war during which he actually led the troops, many millennials don’t know much about that one either. They don’t know what Auschwitz was (66% of millennials in particular could not identify it). Twenty-two percent of them had not heard of the Holocaust itself. The Battle of the Bulge? Forget it. Go back further in time, and the cluelessness just keeps deepening. Only 29% of seniors at U.S. News and World Report’s top 50 colleges in America — the precise demographic that purports to speak with authority about America’s alleged history of white supremacy — have any idea what Reconstruction was all about. Only 23% know who wrote the Constitution. So much for any notion that this is the most educated generation ever.
Closer to the theme — socialism — the same compilation of survey results includes the attribution of The Communist Manifesto’s “from each according to his ability; to each according to his needs” to Thomas Paine, George Washington or Barrack Obama. Moreover, among college-aged Americans, though support for socialism is pretty high, when these same young adults are asked about their support for the actual definition of socialism — a government-managed economy — 72% turn out to be for a free-market economy and only 49% for the government-managed alternative (yes, it looks from those numbers like there are a lot of confused kids who are in favor of both of the mutually exclusive alternatives). As compared to about a third of Americans over 30, only 16% of millennials were able to define socialism, according to a 2010 CBS/New York Times poll. And though I haven’t seen polling on this, I’d be willing to bet that a good bunch of these same students, if asked to say what the Soviet Union was, would have no clue or peg it as some sort of vanquished competitor of Western Union.
Compounding the problem still further is that the history that students are being taught increasingly falls into the category of “woke” history , America’s history of oppression as imagined by the influential revisionist socialist historian Howard Zinn . When socialists are writing our history books, the end result is preordained.
Given such ignorance and systematic distortion of history, is it any surprise that millennials who never lived through very much of the 20 th century don’t think socialism is all that bad?
Factor #2: Government Bungling
When we try to explain the socialist urge, we cannot lose sight of the fact that our government keeps interfering in the economy in ways that give people every reason to think the system is corrupt and needs to be trashed.
Take the skyrocketing cost of college, for instance. On the surface, this looks like greedy capitalist universities just keep on raising tuition, and since most college kids and their parents can’t pay the sticker price, almost 70% take out loans , saddling young people trying to start their careers with a mountain of debt (almost $30,000 on average). This results in all those socialist promises of free college or loan forgiveness sounding dandy. Underneath the surface, however, a huge part of the problem is federal grants and subsidized loans. If the government stopped footing a large part of their bill, more students and parents would be forced to pony up, which would mean, in turn, that colleges would not be able to keep hiking their prices without seeing a precipitous drop in enrollment. They would, instead, be forced to price themselves at some level that applicants could realistically pay, making college more affordable for a large segment of the American middle class.
Another simple example of the problem is Obama’s Emergency Economy Stabilization Act of 2008, colloquially known as the big bank “Bailout.” When kids grow up seeing government tossing out free lifelines to businesses that get themselves in dire straits, cause a massive financial crisis and, in the process, lose ordinary folks lots of jobs and homes, we can’t blame them for concluding that the system is rigged.
There are many more examples where these came from — our government frittering away trillions on foreign wars that increase instability throughout the world and end up costing us even more as we scramble to clean up our own messes is one expenditure that comes readily to mind — but the point is this: the more the government interferes in the economy to help out vested interests, the more reason many of us will see to ask government to interfere in the economy to help out the rest of us. The more reason we give anyone to think that capitalism means crony capitalism, the more they’ll clamor for socialism.
Factor #3: Universities’ Ideological Monoculture
The supporters of socialism are not simply the young, but rather, disproportionately those among the young who are college-educated. And the more college they have, the hotter for socialism they get. According to a 2015 poll , support for socialism grows from 48% among those with a high school diploma or less to 62% among college graduates to 78% among those with post-graduate degrees. Those on the left probably stop thinking hard about now and jump immediately to the conclusion that support for socialism is just a natural outgrowth of big brains and elite educations. But there is, in fact, a less obvious but ultimately far more compelling explanation that also manages to account for the general fact that more education correlates with more leftism: something — something bad — is happening at universities themselves to pull students toward the (far) left.
We have already seen above that what’s not happening at universities, even elite universities, today is a whole lot of education in important subjects like history. What we are getting instead is a lot of groupthink and indoctrination. Universities have always skewed a bit left. But beginning in the early to mid 1990s (for reasons I’ve explained in some detail elsewhere ), ideological diversity began to vanish entirely, as the leftward deviation turned tidal. As documented in a 2005 paper from Stanley Rothman et al., as of 1984, 39% of university faculty were left/liberal, and 34% were right/conservative. By 1999, those numbers had undergone a seismic shift: faculty was now 72% left/liberal and 15% right/conservative. Since 1999, the imbalance has become starker still. A comprehensive National Association of Scholars report from April 2018 from Prof. Mitchell Langbert of Brooklyn College, tracking the political registrations of 8,688 tenure-track, Ph.D.-holding professors from 51 of U.S. News & World Report’s 66 top-ranked liberal arts colleges for 2017, found that “78.2 percent of the academic departments in [his] sample have either zero Republicans, or so few as to make no difference.” Predictably, given the composition of the professoriate, survey data also indicates that students’ political views drift further leftward between freshman and senior year.
In light of this data, it should not be a surprise to us that students who have gone to college in this age of ideological extremism have come out radicalized and … socialized.
Factor #4: Coddled Kids
The young have always been more inclined to embrace pipe dreams — a lack of familiarity with the complicated way in which the world actually works, coupled with the college fix described above, will do that to most anyone — but there is a reason the mindset of today’s young’uns is particularly susceptible to the red menace. In last year’s The Coddling of the American Mind, the prominent social psychologist Jonathan Haidt and FIRE’s Greg Lukianoff describe the species of overprotective parenting and instilling of baseless and uncritical self-esteem by parents and educators alike that came to prevail as kids were growing up in the 90s and 00s. When we are raised in the belief we are wonderful just as we are, we never learn the critical life skills of self-soothing, working through anxiety, facing obstacles and overcoming adversity. The predictable result, as Haidt and Lukianoff observe, is a demand to be safeguarded — safe spaces, free speech crackdowns and so on. The state appears to many as the appropriate institution to provide this sort of “safety.”
If these four are the primary causes of socialism’s rapid surge in our midst, then the next logical question is what to do about it. There is no easy answer, of course, but I would suggest that the radicalization of academia is the lynchpin issue. If we could succeed in reversing that tsunami, many dominoes would fall: we would be addressing the university monoculture that systematically distorts research, sends students veering hard left and graduates generations of left-orthodox clones who find their way into journalism, government, education, entertainment and other influential sectors driving public opinion and shaping the other three downstream issues factoring into socialism’s rise: government policy, educational philosophy and the manner in which history is taught. Many have observed that our universities are in crisis, but that crisis also represents an opportunity to avert the much larger socialist cataclysm that threatens to engulf us all.
Extending the $600 weekly unemployment boost would support millions of workers: See updated state unemployment data
The U.S. Department of Labor (DOL) released the most recent unemployment insurance (UI) claims data yesterday, showing that another 1.4 million people filed for regular UI benefits last week (not seasonally adjusted) and 1.0 million for Pandemic Unemployment Assistance (PUA), the new program for workers who aren’t eligible for regular UI, such as gig workers. As of last week, more than 35 million people in the workforce are either receiving or have recently applied for unemployment benefits—regular or PUA.
Figure A and Table 1 show the total number of workers who either made it through at least the first round of regular state UI processing as of June 27 (these are known as “continued” claims) or filed initial regular UI claims during the week ending July 4. Three states had more than one million workers either receiving regular UI benefits or waiting for their claim to be approved: California (3.1 million), New York (1.7 million), and Texas (1.4 million). Seven additional states had more than half a million workers receiving or awaiting benefits.
While the largest U.S. states unsurprisingly have the highest numbers of UI claimants, some smaller states have larger shares of the workforce filing for unemployment. Figure A and Table 1 also show the numbers of workers in each state who are receiving or waiting for regular UI benefits as a share of the pre-pandemic labor force in February 2020. In four states and the District of Columbia, more than one in six workers are receiving regular UI benefits or waiting on their claim to be approved: Hawaii (19.7%), Nevada (19.3%), New York (17.8%), District of Columbia (17.6%), and Oregon (17.0%).
Figure A and Table 2 show the total number of workers who either made it through at least the first round of PUA processing—the new federal program that extends unemployment compensation to workers who are not eligible for regular UI but are out of work due to the pandemic—by June 20 or filed initial PUA claims during the weeks of June 27 or July 4. We do not sum the PUA claims with regular UI claims because some states have misreported PUA claims in their initial claims data, leading to potential double counting.1
As of last week, DOL reported that over 15 million workers across 48 states and the District of Columbia are receiving or waiting on a decision for PUA benefits, which underscores the importance of extending benefits to those who would otherwise not have been eligible. Five states have at least a million workers in this category: Pennsylvania (3.0 million), Arizona (2.3 million), California (1.9 million), Michigan (1.1 million), and New York (1.1 million). New Hampshire and West Virginia still have not reported any PUA claims. Florida, Georgia, and Oklahoma have reported initial PUA claims, but have yet to report any continuing claims.
We should despair for the millions who have lost their jobs and for their families, and our top priority as a country should be protecting the health and safety of workers and our broader communities by paying workers to stay home when possible, whether that means working from home some or all of the time, using paid leave, or claiming UI benefits. When workers are providing absolutely essential services, they must have access to adequate personal protective equipment (PPE) and paid sick leave. The current spike in coronavirus cases across the country—and subsequent re-shuttering of certain businesses—show the devastating costs of reopening the economy prematurely.
As we look at the aggregate measures of economic harm, it is also important to remember that this recession is deepening racial inequalities. Black communities are suffering more from this pandemic—both physically and economically—as a result of, and in addition to, systemic racism and violence. Both Black and Hispanic workers are more likely than white workers to be worried about exposure to the coronavirus at work and bringing it home to their families. These communities, and Black women in particular, should be centered in policy solutions.
To mitigate the economic harm to workers, Congress should extend the across-the-board $600 increase in weekly unemployment benefits well past its expiration at the end of July. If Congress does not extend these benefits through next year, it could cost us more than 5 million jobs and $500 million in personal income. Figure B, at the end of this post, shows these expected job losses by state.
As part of the next federal relief and recovery package, Congress should also include worker protections, investments in our democracy, and resources for coronavirus testing and contact tracing (which is necessary to reopen the economy). At the same time, policymakers should prioritize long-overdue overhauls of federal labor law and continue to strengthen wage standards that protect workers and help boost consumer demand.
The package should also include substantial aid to state and local governments so that they can invest in the services that will allow the economy to recover, particularly public health and education. Without this aid, a prolonged depression is inevitable, especially if state and local governments make the same budget and employment cuts that slowed the recovery after the Great Recession. More than five million workers would likely lose their jobs by the end of 2021, harming women and Black workers in particular since they are disproportionately likely to work for state and local governments.
1. Unless otherwise noted, the numbers in this blog post are the ones reported by the U.S. Department of Labor (DOL), which they receive from the state agencies that administer UI. While DOL is asking states to report regular UI claims and PUA claims separately, many states are also including some or all PUA claimants in their reported regular UI claims. As state agencies work to get these new programs up and running, there will likely continue to be some misreporting. Since the number of UI claims is one of the most up-to-date measures of labor market weakness and access to benefits, we will still be analyzing it regularly as reported by DOL, but we ask that you keep these caveats in mind when interpreting the data.
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Escaping Paternalism Book Club: Part 1
Rizzo and Whitman (R&W) begins with a primer on the “new paternalism” – the influential policy reform movement powered by the engine of behavioral economics.
For most of history, paternalists have drawn their support from religious or moral notions of goodness. They have claimed special knowledge, from God or some other source, about how people ought to live. The overtly religious character of temperance movements in the nineteenth and early twentieth centuries exemplifies this kind of “old” paternalism. Given their moral convictions, the old paternalists did not usually appeal to the preferences and desires of those whose behavior they wished to regulate. The very desire for alcohol – or drugs, or deviant sex – was condemned directly.
Behavioral economists, like most economists, still accept subjectivism. However, they have rejected the notion of accurate preference revelation. Experimental evidence suggests that individuals may systematically deviate from the behavior that would best satisfy their own preferences. The list of alleged deviations from strict rationality includes – but is not limited to – status quo bias, optimism bias, susceptibility to framing effects, poor processing of information, and lack of willpower or self-control. To the extent that these phenomena cause people to make errors, paternalist policies can in principle help them to do better – not by some exogenous standard, but by their own standards. This is the defining feature of new paternalism that distinguishes it from the old: the new paternalists claim to help people better achieve their own preferences, not someone else’s.
Cass Sunstein and Richard Thaler are the popular and intellectual leaders of the new paternalists. As R&W succinctly explain:
Cass Sunstein and Richard Thaler, coming from an economic perspective, support policies that will make people better off “in terms of their own welfare.” That welfare is best advanced by the choices people would make “if they had complete information, unlimited cognitive abilities, and no lack of willpower” (Sunstein and Thaler 2003, 1162). In other words, Sunstein and Thaler define the correctness of choices in terms of what people would choose for themselves – if only they were not afflicted with cognitive biases.
New paternalists then present novel rationales for a wide range of government interventions. For example, they advocate “sin taxes” to help not society, but the “sinners” themselves. Fat taxes help fat people weigh what they “really want to weigh.”
R&W close the chapter by explaining their multi-stage argumentative strategy.
Our case will consist of a series of challenges – in effect, hurdles that behavioral paternalist proposals must clear in order to be justified as a matter of policy. We will begin with the most abstract and conceptual, then proceed to more pragmatic and applied challenges.
The most abstract: Behavioral economists take simple models of rational choice too literally.
We refer to the traditional economic definition of rationality, adopted by mainstream and behavioral economists alike, as “puppet rationality.” It is a brand of rationality well suited for building models of how the world works. Models are not unlike stage plays, and puppets are the players. The puppets are always well behaved. They play the roles they were designed to play. They follow the rules. They have no motive force of their own. Real human beings, however, are not puppets. Their preferences and behavior may deviate from what is expected of agents in a model. But such deviation does not provide sufficient warrant for deeming them irrational.
But even if standard notions of rationality are solid, the much-hailed experimental evidence is sorely lacking in external validity:
Much of the evidence for “failures of rationality” derives from experimental settings that are effectively context-free. Such experiments may identify “raw” or unmodified propensities in human behavior in the laboratory. But they do not tell us how strong those propensities are “in the wild,” where people make real decisions…
We also argue that people are often (though not always) aware of their cognitive biases, and sometimes they act to counteract or control them. People “self-debias” in myriad and idiosyncratic ways…
Pragmatically, R&W argue that the new paternalism suffers from a massive yet neglected knowledge problem. Most fundamentally: “If actions do not reveal preferences, then what does?”
Last, the book explores public choice and slippery-slope problems with paternalism in great detail.
This is only Chapter 1. In Chapter 2, R&W appeal to “inclusive rationality” to critique behavioral economics at its root.
Are human beings rational? …But it is not easily answered, because the word “rational” has many meanings. Rationality can simply mean purposefulness, that is, trying to use the best means available to satisfy your goals or preferences given your beliefs about the world. It can mean taking an abstract approach to solving problems, applying universal systems of thought and inference, and following scientific methods. It can mean avoiding errors of logic and reasoning. It can mean revising one’s beliefs in accordance with Bayes’ Rule. It can mean having preferences that conform to certain axioms – transitivity, completeness, and so forth – which together guarantee the preferences are internally consistent and have a certain structure. In neoclassical economic theory, it has historically meant all of the above.
In this book, we will defend what we call inclusive rationality. Inclusive rationality means purposeful behavior based on subjective preferences and beliefs, in the presence of both environmental and cognitive constraints. This notion of rationality preserves the core notion of purposefulness, and in that sense it should seem familiar. But unlike other notions of rationality – many of which were invented for modeling purposes but have since taken on a life of their own – inclusive rationality… allows a wide range of possibilities in terms of how real people select their goals, form and revise their beliefs, structure their decisions, and conceptualize the world.
[R]eal people may do all of the following and still qualify as inclusively rational:
- Experience internal conflict that has not yet been (and may never be) resolved;
- Have preferences that change over time;
- Have preferences that are indeterminate or incomplete – i.e., that do not specify attitudes over all possible decisions at all possible times and states of the world;! Have preferences that are in the process of being created or discovered;
- Have preferences that depend on context, including both the options available and the way in which decisions are framed;
- Hold beliefs that serve purposes other than truth-tracking, such as providing motivation or intrinsic satisfaction;
- Make inferences based not on the strict rules of classical logic, but on contextual and linguistic cues they have learned from human interaction;
- Indulge “biased” modes of decision-making when the costs are low and rein them in when the costs are high;
- Economize on scarce mental resources by refusing to impose perfect consistency on their preferences and beliefs;
- Structure their environments, possibly in ways that constrain their own choices;
- Adopt personal rules and resolutions that create internal incentive systems;
- Enlist the help of friends, family, and other groups to assist in attaining goals;
- Rely on institutions, social customs, and market structures to assist in attaining goals;
- Employ heuristics that minimize cognitive effort and/or informational input.
R&W are well-aware of the methodological objection:
Because our notion of inclusive rationality is very broad, we might be accused of offering a theory that cannot be falsified. We should therefore clarify that we do believe positive claims should, in principle, be falsifiable. But some claims are more easily tested than others, and there is no guarantee that the most easily tested claims are also normatively relevant.
In Chapter 3, R&W flesh out this critique in great detail. To take one example: In real life, people often seem to change their preferences. Yet behavioral economists either refuse to consider this possibility, or treat changing preferences as ipso facto “irrational.”
The second interpretation is that the agent’s preferences have simply changed over time. In other words, if someone chose A over B on Monday but B over A on Tuesday, that could be the result of consistent (complete and transitive) preferences on Monday, and a different set of consistent (complete and transitive) preferences on Tuesday.
In general, economists resist preference change as an explanatory strategy because it feels ad hoc. Virtually any change in behavior can be rationalized as resulting from changing preferences, but economists usually wish to show the reasons why behavior may change even if tastes do not – for example, because of changing relative prices. To resort to saying preferences have changed seems like cheating. These are valid concerns from a positive perspective. But from a normative perspective, they hold little weight. There is no reason a person’s preferences should remain fixed. Rational people may change their minds – and we have not encountered anyone arguing otherwise.
1. Escaping Paternalism focuses almost entirely on the “new paternalism.” Yet the more I read the book, the more I concluded that “new paternalism” is largely an attempt to repackage “old paternalism” for an elite, secular audience. Even today, no more than 5% of people who want to forcibly reduce alcohol consumption think they’re helping heavy drinkers “achieve their true preferences.” Instead, they seek to give drinkers “what they need, instead of what they want.” The main audience for the new paternalism is: meddlers who also have an ideological ax to grind against the want/need distinction.
2. On present bias, behavioral economists don’t go far enough. It’s not enough to have exponential discounting rather than hyperbolic discounting. Instead, I say the rational discount rate for utility is no time discounting at all. Contrary to what you may have heard, this would not lead you to starve to death. And you should still discount for uncertainty, finite life, and so on. But, pace Hume, ’tis contrary to reason to prefer a present pleasure to a future pleasure solely because the present is now and the future is later.
3. R&W repeatedly mention behavioral economists’ support for mandatory “cooling-off periods.” I wonder how many behavioral economists have ever examined how often people even take advantage of this opportunity to cancel a contract. The last time I refinanced, we had to sign paperwork apprising us of our right to renege. When I asked the banker how often people exercised this right, he furrowed his brow and laughed, “Never.” I believed him.
4. R&W repeatedly discuss behavioral economists’ support for “employee-friendly” labor contract defaults. Given all the evidence that unemployment breeds misery, a wise paternalist would strive to “nudge” labor’s total compensation down, not up!
5. R&W insist that “inclusive rationality” is falsifiable, but I don’t think they name a single concrete counter-example. This is arguably intentional, for they often say things like:
We do not, however, claim that everyone is always fully rational. We are happy to concede that they are not. But it is one thing to say people make mistakes; it is another to clearly and definitively identify which actions are, in fact, mistakes.
Strikingly the word “opioid” does not appear in the text. (“Heroin” does, but sans empirics). I sincerely wish they had provided an “inclusive rationality” take on the putative opioid crisis.
6. One of my favorite passages:
We don’t expect that every reader will find all of our challenges to paternalism equally compelling. Some may find our conceptual objections persuasive, others may see the knowledge problem as definitive, etc. But our hope is that, taking the gauntlet of challenges as a whole, readers will recognize just how tenuous the entire new-paternalist enterprise is. Behavioral paternalism’s proponents often present it as just common sense – a set of smart, simple, straightforward corrections that will make us all better off. All we’re trying to do is correct some mistakes; who could be opposed to that? But the reality is far more difficult, complicated, and even dangerous.
As you’ll see, I find the conceptual objections only moderately persuasive, but the rest of their critique is strong indeed.
7. R&W go through a lengthy list of defensible “mistakes” people make in experiments. Let’s consider them one-by-one:
When real people take tests designed to test neoclassical rationality norms, they do not leave their inclusive and contextually shaped rationality at the testing room door. Instead, they may behave as they do in the real world. For example:
- They may assume, in accordance with ordinary conversational norms, that experimenters provide only information that is relevant to solving the problem – i.e., no irrelevant or “tricky” information. They do not immediately assume the experimenters are trying to fool them.
- They may resist the distinction between the validity of a syllogistic inference (e.g., “People with red hair are Martians, John has red hair, therefore John is a Martian”) and the truth of a conclusion itself (John is not a Martian). Normally, in everyday life, it is the truth that is more important.
This isn’t entirely wrong, but the ability to recognize such logical errors really is a crucial real-life skill. Anytime you propose an explanation for anything, logical reasoning opens your theory up to testing. Even for an explanation as simple as, “If I go to McDonald’s before 7 AM, the line will be less than 5 minutes long.”
- They may not assume that prior probabilities about something – such as the likelihood that someone has a disease – must be equal to the “base rates” from the population provided to them. Instead, their priors may be affected by their evaluation of the significance of the base rates to a particular problem in front of them – say, whether a specific person who chose to visit the doctor and chose to take a test has the disease. Treating priors in this way is fully consistent with the subjectivist Bayesian view that prior probabilities are subjective – a fact frequently ignored in the rush to deem subjects “irrational.”
- They may not agree with model-builders on the informational equivalence of different descriptions of a situation. Instead, they may infer implicit information or advice from how a problem is presented. For example, they may perceive an important difference between a stated probability of success equal to 0.7 and a stated probability of failure equal to 0.3. Perhaps the former conveys greater optimism, despite the formal mathematical equivalence of the two statements. Conversational norms and expectations do not always align with logic and probability theory. The former can be adaptive in the real world while the latter is adaptive on experimental tests. Which is more important?
Seems pretty crazy to me. Sure, if you’re marketing a product, you’re better off saying “70% success” rather than “30% failure.” Yes, the former phrasing suggests “greater optimism.” The only reason such rhetoric works, however, is that some potential customers are confused.
- They may attach satisfaction or utility to things other than what the analysts expect. For instance, they may value an object more because it is theirs already. Or they may care about feelings of gain and loss experienced during the experiment, not just how much money they have when they leave the laboratory. Or they may gain satisfaction purely from having a particular belief, irrespective of its truth (“My wife is beautiful and my children are gifted”).
Somewhat reasonable, though it’s usually tempting to call such behaviors “childish.” Picture a kid who wants his teddy bear, not an identical teddy bear that’s a hundred miles closer.
8. While we’re on the subject, R&W never discuss children. Are they, too, “inclusively rational”? If so, should parents stop treating them paternalistically? Or what?
9. Suppose someone has inconsistent preferences. How are we supposed to identify their “real” preference? While this might seem like nitpicking, R&W show that behavioral economists have been cavalier at best.
Some defenses have been offered for favoring some preferences over others in cases of conflict, but we find these defenses weak:
Verbal Statements and Survey Responses: When asked, people may say they would rather behave differently or have different preferences. For instance, smokers may say they would rather not smoke, and overweight people may say they would like to eat less. It is indeed possible that these statements reveal “true” preferences. However, the incentives for speech differ from the incentives for other kinds of action. Behavioral research has cast doubt on many economic principles previously taken as given, but the principle that talk is cheap remains intact. Speakers who say one thing while doing another may simply be expressing what they regard as socially approved attitudes – a phenomenon known as social desirability bias (King and Bruner 2000; Grimm 2010). Or their statements may simply reflect “experienced opportunity cost,” i.e., the dissatisfaction that always results from options the agent has forgone.
Note: If we take Social Desirability Bias seriously – as I think we should – we can readily identify the “real” preference. Namely: Contrary to the new paternalists, the real preference is what people really do!
Regret: A person may feel, and express, feelings of regret about the choices they have made: “I wish I had not done that.” Although regrets are real, they do not necessarily reflect all costs and benefits associated with an action. specially for intertemporal choices, such as getting inebriated last night and having a hangover today, the regret is typically experienced while the cost is being experienced in the present and the benefit is already in the past. That does not mean the costs outweighed the benefits at the moment of choice – only that the remaining costs outweigh the remaining benefits. In addition, it’s worth noting that regret can also be felt about the kinds of choices that behavioral paternalists favor. When approaching death, people often express regret at not having lived a more spontaneous and present-oriented life (Ware 2012).
They’ve got them there!
If regret may be experienced regardless of the action taken, then it offers little guidance to the paternalist about which preferences are “true.” As with verbal statements, regret can simply reflect the experience of opportunity cost…
Self-Constraint and Commitment Devices: People will often use various devices and strategies to try to keep their vices under control: planning automatic deductions for savings, avoiding locations where they will be tempted to smoke or drink, etc. These activities do provide further evidence of conflicting preferences, and we will discuss them more in future chapters. They do not, however, show which preferences are superior. Commitment devices reveal one set of preferences at work – but other choices show other preferences at work. Furthermore, the outside observer has no means of knowing whether the right amount of self-constraint has been performed.
Planned versus Unplanned Choices: Behavioral paternalists often favor the preferences of a “planning self” over the spontaneous or “acting self.” The idea is that the planning self is more likely to take all costs and benefits into account and render a considered decision. But the planning self does not necessarily represent a disinterested party; rather, the planning self may represent only the longer-term and more self-denying parts of one’s personality (Cowen 1991). This becomes most apparent in the case of extreme behaviors such as anorexia, where the planning self dominates an acting self that might wish to indulge more often.
10. When I began Escaping Paternalism, I skipped over chapters 1-5, fearing they’d be long-winded, half-baked Austrian philosophy. I was so impressed with chapters 6-10, however, they I started reading the book from the beginning as soon as I finished chapter 10. I swiftly concluded that unlike so many other Austrian-inspired works, Escaping Paternalism was not only conceptually thoughtful, but eager to engage with an array of empirical literatures. If you’re impatient with economists waxing philosophical, I urge you to make an exception here.
What If Public Schools Were Abolished?
In American culture, public schools are praised in public and criticized in private, which is roughly the opposite of how we tend to treat large-scale enterprises like Walmart. In public, everyone says that Walmart is awful, filled with shoddy foreign products and exploiting workers. But in private, we buy the well-priced, quality goods, and long lines of people hope to be hired.
Why is this? It has something to do with the fact that public schools are part of our civic religion, the primary evidence that people cite to show that local government serves us. And there is a psychological element. Most of us turn our kids over to them, so surely they must have our best interest at heart!
But do they? Murray N. Rothbard’s Education: Free and Compulsory explains that the true origin and purpose of public education is not so much education as we think of it, but indoctrination in the civic religion. This explains why the civic elite is so suspicious of homeschooling and private schooling: it’s not fear of low test scores that is driving this, but the worry that these kids aren’t learning the values that the state considers important.
But to blast public schools is not the purpose of this article. There are decent public schools and terrible ones, so there is no use generalizing. Nor is there a need to trot out data on test scores. Let me just deal with economics. All studies have shown that average cost per pupil for public schools is twice that of private schools (here is a sample study).
This runs contrary to intuition, since people think of public schools as free and private schools as expensive. But once you consider the source of funding (tax dollars vs. market tuition or donation), the private alternative is much cheaper. In fact, the public schools cost as much as the most expensive and elite private schools in the country. The difference is that the cost of public schooling is spread out over the entire population, whereas the private school cost is borne only by the families with students who attend them.
In short, if we could abolish public schools and compulsory schooling laws, and replace it all with market-provided education, we would have better schools at half the price, and be freer too. We would also be a more just society, with only the customers of education bearing the costs.
What’s not to like? Well, there is the problem of the transition. There are obvious and grave political difficulties. We might say that public education enjoys a political advantage here due to network effects. A significant number of “subscriptions,” etc. have been piled up in the status quo, and it is very difficult to change those.
But let’s pretend. Let’s say that a single town decided that the costs of public schooling are too vast relative to private schooling, and the city council decided to abolish public schools outright. The first thing to notice is that this would be illegal, since every state requires localities to provide education on a public basis. I don’t know what would happen to the city council. Would they be jailed? Who knows? Certainly they would be sued.
But let’s say we somehow get past that problem, thanks to, say, a special amendment in the state constitution that exempts certain localities if the city council approves. Then there is the problem of federal legislation and regulation. I am purely speculating since I don’t know the relevant laws, but we can guess that the Department of Education would take notice, and a national hysteria of some sort would follow. But let’s say we miraculously get past that problem too and the federal government lets this locality go its own way.
There will be two stages to the transition. In the first stage, many seemingly bad things will happen. How are the physical buildings handled in our example? They are sold to the highest bidder, whether that be to new school owners, businesses, or housing developers. And the teachers and administrators? All let go. You can imagine the outcry.
With property taxes abolished, people with kids in public schools might move away. There will be no premium for houses in school districts that are considered good. There will be anger about this. For the parents that remain, there is a major problem of what to do with the kids during the day.
With property taxes gone, there is extra money to pay for schools, but the assets have just fallen in market value (even without the Fed), which is a serious problem when it comes to shelling out for school tuition. There will, of course, be widespread hysteria about the poor too, who will find themselves without any schooling choices other than homeschool.
Now, all that sounds pretty catastrophic, doesn’t it? Indeed. But it is only phase one. If we can somehow make it to phase two, something completely different will emerge. The existing private schools will be filled to capacity and there will be a crying need for new ones. Entrepreneurs will quickly flood into the area to provide schools on a competitive basis. Churches and other civic institutions will gather the money to provide education.
At first, the new schools will be modeled on the public school idea. Kids will be there from 8 to 4 or 5, and all classes will be covered. But in short order, new alternatives will appear. There will be schools for half-day classes. There will be large, medium, and small schools. Some will have forty kids per class, and others four or one. Private tutoring will boom. Sectarian schools of all kinds will appear. Micro-schools will open to serve niche interests: science, classics, music, theater, computers, agriculture, etc. There will be single-sex schools. Whether sports would be part of school or something completely independent is for the market to decide.
And no longer will the “elementary, middle school, high school” model be the only one. Classes will not necessarily be grouped by age alone. Some will be based on ability and level of advancement too. Tuition would range from free to super expensive. The key thing is that the customer would be in charge.
Transportation services would spring up to replace the old school-bus system. People would be able to make money by buying vans and providing transportation. In all areas related to education, profit opportunities would abound.
In short, the market for education would operate the same as any other market. Groceries, for example. Where there is a demand, and obviously people demand education for their kids, there is supply. There are large grocery stores, small ones, discount ones, premium ones, and stores for groceries on the run. It is the same for other goods, and it would be the same for education. Again, the customer would rule. In the end, what would emerge is not entirely predictable—the market never is—but whatever happened would be in accord with the wishes of the public.
After this phase two, this town would emerge as one of the most desirable in the country. Educational alternatives would be unlimited. It would be the source of enormous progress, and a model for the nation. It could cause the entire country to rethink education. And then those who moved away would move back to enjoy the best schools in the country at half the price of the public schools, and those without children in the house wouldn’t have to pay a dime for education. Talk about attractive!
So which town will be the first to try it and show us all the way?
[This article was originally published April 7, 2008]
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