Last November, I had the chance to go to Dubai for the first time to participate in the World Economic Forum Summit on the Global Agenda.
Peter UbelOne of the most interesting people I met there was Peter Ubel, a practicing physician who is also trained in the ways of behavioral economics and psychology (here’s Peter’s Huffington Post write-up of his Dubai experience).
Peter has just published the book Free-Market Madness, in which he combines both of his areas of expertise. The book’s focus is a critique of unfettered markets. He says:
Think of this attack as one designed neither to defeat free markets nor to force capitalism to surrender, but rather to prevent markets from gaining more territory than they deserve. (p. xiv)
His argument is not that markets are immoral or produce negative externalities. Instead he argues that people often (but not always) make bad or irrational choices. His book is an exploration of “what happens when the invisible hand meets the unconscious brain.” (p. xv)
The marketplace is crowded now with books riffing on the cognitive bias literature (many are monosyllabic — e.g., Nudge and Sway). What’s distinctive about Free-Market Madness is Ubel’s willingness to advocate slightly more aggressive government interventions — or gentle shoves to improve the quality of people’s lives. Instead of merely relying on Nudge-like changes of defaults and informational solutions, he’s open at times to old-fashion command and control regulation.
Peter tells the hilarious story of trying to sell his book to an editor who, after asking to know the bottom-line, take-home message of the book finally asked: “Are you aiming for a nuanced argument?” Peter goes on to write:
“Yes,” I replied, and explained that I planned to write a book that would be both nuanced and captured in a marketable sound bite. I believe I lost him at the word yes. (p. 191)
I find this hilarious because I had virtually the same “Is it nuanced?” discussion with a book editor a few years ago. Potential trade authors beware: Nuance doesn’t sell. But that’s just what Peter has tried to do.
He takes head-on the difficulty of distinguishing acceptable risky behavior (such as sky diving or driving a car) from harder-to-accept risky behavior (such as eating or drinking or smoking to excess). He often resolves the difficulty not with theory but with vivid observations:
I have cared for many patients who, when trying to quit drinking alcohol, have experienced what are known as withdrawal seizures. … I held the hands of a 40-year-old man recently — his belly swollen like he was pregnant with triplets, his skin the color of a faded dandelion — while he cried about his inability to stop drinking beer. In fact, we recently had a patient in our hospital who was so addicted to alcohol that he swallowed three dispensers’ worth of Purell hand sanitizer and collapsed in his hospital room with a blood-alcohol level three times the legal limit. And to return to cigarette smoking, I witnessed dozens of patients, their voice boxes removed because of throat cancer, who, despite having a chance of avoiding a cancer recurrence, still insisted on smoking through their tracheotomies. I cannot equate people who continue smoking with people who can’t get out of L.A. (p. 135 to 136)
There is an undeniable power to these examples — but part of me still wants to deny them. They are all ex-post examples where the state of the world turns bad, and these examples don’t give much weight to the pleasure that smoking and drinking gave to these and other people earlier.
Peter knows there are real concerns with a “nanny state” that restricts citizens’ freedom — as parents legitimately restrict the freedom of an infant, confident that they know better what is in the child’s best interest. He wants to use the lessons of behavioral economics and psychology to provide principles for greater and lesser deference to individual decisions. But I would have been happier with a richer list of specific applications to assure me just what is at stake with this more aggressive assault on contractual freedom.
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Using behavorial economics to say people are irrational in various ways may be a correct observation. But guess what? The people in government who you’ll need to pass and enforce laws are also irrational (in addition to have the traditional rent-seeking problems). Is there any discussion of how to overcome the irrationality of government actors? Because if not this book is missing half the problem.
Cigarette smoking and state government is an example of either irrationality or (more likely) rent-seeking through the Master Settlement Agreement. State governments agreed to receive annual payments of billions from a handful of major cigarette companies through the MSA (while also engaging in anticompetitive behaviors to support the market share of the big companies). The States quickly began using those billions to fund their general budgets, giving them an incentive to keep the cigarette companies solvent. In other words, States became addicted to cigarette company money (ironic, huh?)
@ Ted K,
They certainly enforced the risk-assessment adjusting regulation of backing Fannie and Freddie with taxpayer money. That was the worst regulation, the most skewing from free-market principles, and it happened to be the only one that lasted to the end.
With regard to the post itself, it seems like this is just another resurfacing of humanitarianism vs. utilitarianism. Call me morbid but am I supposed to feel sorry for those people described in the book, smoking during their tracheotomy, drinking hand sanitizer? Cause I don’t. I don’t hate them, I just am willing to let them make their own choices. They took risks, drinking or smoking their first time (and repeatedly) for whatever reason, and they are now suffering the negative consequences of those risks. If you don’t want to eat that cheeseburger, if you really don’t, then don’t eat it. Implied preferences / talk is cheap: basic economic principles.
Now a humanitarian steps in and says, “I want to put restrictions on the entire population to protect these people who cannot make good decisions.” Uhh, no thank you. Let me have my freedom, and let all the people who make bad decisions have to live with the consequences of their actions. What an odd incentive structure our country has been moving towards in the past decade: when people make mistakes, everyone who didn’t make a mistake will take care of those that do. What? Now, if I’m smart and efficient, I get punished to keep those that are not smart and are inefficient in my society? Seems like the “smart” thing to do now would be take many risks and when I lose to just get bailed out by the government and by the people that didn’t lose. What a joke of a system.
Any time someone suggests more governmental interference, I wish they would also answer this question: Is there a failure in the market in question, and will the government for sure make it better? I don’t see a market failure in the market of people smoking cigs, for example. Information is very easy to get these days on the consequences or smoking as well as on how it makes you look and feel. Rational people will make rational decisions accordingly. Quite frankly, I don’t want to legally be held fiscally responsible for irrational people, or for dumb people, or for overly-risk-loving people.
I don’t know the answer to the problem. It is easy to believe that most people could get anything from heroin to plutonium if they really wanted it. There may be some social benefit to making some things hard to get and some things easy to get. But this may have more to do with keeping enough people upright to fill the sweatshops and armies.
But, trying to prevent the general population from laying their hands on a whole list of contraband somehow seems pointless and reminds me of Ayn Rand’s quote, “The only power any government has is the power to crack down on criminals. Well, when there aren’t enough criminals, one makes them. One declares so many things to be a crime that it becomes impossible for men to live without breaking laws.”
Oh I know! Why don’t we make tobacco and alcohol illegal… just like cocaine and marijuana. We can then ban fast food and require 30 minutes of exercise per day. After that we can require people to wear germ masks and get mandatory exams. We can put birth control drugs in the drinking fountains at public high schools (since teen pregnancy is sub optimal). We can ban motorcycles too (so dangerous). The smart people (elitist academics and Washington bureaucrats) can tell us what to do and not to do. Life will be so perfect!
The issue of the states dependence relying on the income from smoking predates MSA. King James 1 was very anti smoking and increased the duty on tobacco. Not long after, the government recognised the money stream and has been addicted ever since.
How about everybody leaves everybody else alone and lets others free to make transactions as they please.
I’ll handle my own business without anybody telling me or anybody else what I can or can’t do, but thanks for asking.
By the way, read “Life at the bottom” by Theodore Dalrymple.
People who screw up their lives deserve it, anybody who thinks they’ll make that my responsibility has a fight on their hands.
Christophe: “I’ll handle my own business without anybody telling me or anybody else what I can or can’t do”
Does that include setting up a financial pyramid for example? Or starting a pay-day loans firm with the only purpose of preying on people with financial difficulties thus making their difficulties even worse?
To those who think they don’t have any responsibility for the people who make bad choices, here is more subtle example. Consider this hypothetical situation:
1) Person A has the bad habit of drinking too much booze. He is addicted and as a result spends a lot more than the average person on alcohol. Obviously he is in a downward spiral, which we know is difficult to escape from. He is constantly in debt and his health is deteriorating every day.
2) Company B sells alcohol to person A and company C gives pay-day loans to person A with an exorbitant interest rate. These are the obvious beneficiaries of A’s bad situation and I would even call them predators.
3) Person D is you. You are not addicted to alcohol and you are not the owner of B or C. You have a job, you don’t drink, you make rational choices, you make a decent living and you think that the relationships between A, B and C do not concern you. You enjoy your freedom and you want to keep it? Why? Because you think that A being worse off does not make you better off. Thus you don’t owe him anything.
Wrong! it so happens that you could make cars and sell them to the owners of B or C. Or you sell B and C office supplies. Or your company does the cleaning for another company that organized B’s and C’s Christmas parties. You are SOMEWHERE on the food chain. And you SOMEHOW profit from A being worse off. May be you don’t realize it, may be you don’t care, but A’s addiction to alcohol added a few dollars to your bank account in some direct or indirect way.
So even though you may not be a predator, you still benefit from people that make bad choices. Why is it wrong then if you are asked to give something back?