At the time where several economic institutions -now including also the OECD- raise doubts about the benefits of austerity measures, you can wonder why some people and their governments still persist in that direction. Paul Krugman considers that people are victims of a 'tighten your belt' heuristic and a 'morality' heuristic, which prevent them to follow "counter-intuitive" Keynesian economics and assess all the evidence available (listen starting from 12:00). It is a smart and fashionable answer for an economist, because it lets appear economists as smart (and people as stupid). However, there is I guess some hazard to refuse considering that austerity measures -and it's true for any kind of economic policy- are also partly promoted by well-understood interests, and not purely judgemental biases. Ignoring the existence of biases leads to suboptimal decisions, yet overestimating them leads to other suboptimal decisions.
Robert Sugden attacks Thaler and Sunstein's concept of libertarian paternalism. He proposes that the prescriptions of the behavioral economics, considered in terms of nudges, have to be addressed not to a choice architect (i.e. an impartial benevolent dictator) but to all parties involved in the decision. This contractarian perspective suggests that all parties would accept the introduction of nudges in the choice architecture if every one of them judge that their situation can improve or be the same.
His critique of libertarian paternalism consists in saying that the social planner cannot know what is the best for the nudgee: an obese may want to continue eating junk food and not be nudged against, a smoker may want to keep on smoking too.
Sugden does not draw all conclusions of his view but here are some: with a choice set constant, putting forward salads in the cafeteria, and putting backward the M&M's dispenser, in order to nudge for healthy food, cannot be possible without monetarily compensating M&M's company for the loss. Showing photos of cancers on the cigarettes packages to nudge for reduced tobacco consumption, cannot be possible without compensation to the tobacco industrialists.
More importantly perhaps, the loss incurred by nudged out industrialists, calculated net of incurred costs (for instance, the cost of printing photos on cigarette packages), informs you of the quantity of surplus the industrialist was capturing by exploiting people's cognitive limitations. While this loss is never really addressed by behavioral economists, we can expect it to be substantial. It would inform of one key aspect: corporations are mostly biasless, while people aren't. The existence of cognitive assymetries between corporations and people justifies the existence of government intervention, and denies that any contracting between them could be the result of a fair game.
Happiness war goes on: Veenhoven & Vergunst replicated latest Easterlin's works with same datasources (and presumably more data points) and do find a positive relation between growth and happiness, in the long run. Another foot in the grave of the famous paradox?
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