Nudges Versus Regulation

“Libertarian paternalism, we think, is a promising foundation for bipartisanship.” Write Cass Sunstein and Richard Thaler in their book Nudge. The authors are in favor of a governance structure that does not eliminate choice and possibility for people in the world. They are in favor of a system that allows flexibility for the people who have the time and capacity to consider all of their options before making a choice, and they prefer subtle and almost invisible forces to shape public opinion and behaviors. Throughout the book they argue that heavy handed regulation can be harmful to the long-term success and progress in some areas because people may push back against laws and regulations that limit freedom.  Nudges, in their view, can be an avenue toward real bipartisanship and cooperation because they can make real world changes without heavy handed government action.

 

The authors present the standard view of American politics where the Republican Party is presented as the party of small government while Democrats are the party of big government action. Republicans are all about freedom of choice and individual responsibility while Democrats are the party of government planning and the use of public institutions to improve people’s lives. I think this view is wrong. I think people are primarily self-interested, and gravitate toward the party that better reflects their identity, personality, and self-interests, and through motivated reasoning find high-minded excuses for supporting the party that generally aligns with the overarching political preferences that the standard view of American politics presents. But does this mean that Sunstein and Thaler are wrong about the ability of nudges to bring together Republicans and Democrats for action on public policy?

 

They write, “In many domains, including environmental protection, family law, and school choice, we will be arguing that better governance requires less in the way of government coercion and constraint, and more in the way of freedom to choose.”

 

When we consider whether Sunstein and Thaler are correct, we have to ask what is meant by better governance. Better governance might be reaching actual goals and actually improving people’s lives. It might mean creating a system that people are happier to interact with. Better governance may also mean a system that is more equitable, creates more social cohesion and trust, or that operates quicker. Each of these concepts is different, yet related, and we demonstrate that how we chose to measure better governance can shape the approaches we take. A focus on greater equity might come at the cost of quicker hiring and firing processes. Creating a system that leaves individuals who interact with governance happier may mean a system that is bigger and more expensive, but might not mean that it actually solves people’s problems. What we mean by better governance can conflict with what someone else means by better governance, so it is important to be clear about goals and expectations.

 

And that gets to the question – do nudges actually do any of these things? In terms of addressing environmental protection, I don’t think nudges are adequate. I think we are at a point where catastrophic environmental damage and climate change are unavoidable unless we have massive societal and technological changes. Simple nudges that tax oil and gas while offering rebates or incentives for purchasing electric cars won’t change the landscape quick enough to help mitigate climate change and create a sustainable world moving forward. I think we are at a point where we need real action to produce meaningful changes that lead to better governance in environmental policy. It might be time for outright bans on sales of gasoline and diesel engines, billion dollar prizes for green technology, and other heavy handed government interferences in markets and people’s daily lives.

 

However, within family policy, nudges do seem like they can be meaningful. Tyler Cowen recently shared research correlating child car safety laws with the number of children a family has. The argument being that car seats and seat-belt requirements may make it more difficult to have multiple young children who take a long time to get situated in a car before driving, reducing incentives for parents to have more kids. Family decisions, it seems, can be highly influenced by seemingly inconsequential factors. If this is accurate, then nudges, such as child care rebates, really might reduce the costs of childbearing, and might encourage larger families, shaping the actual outcome of people’s lives and securing a young tax base to support social service programs. Nudges might be an effective approach to encouraging more family formation.

 

To continue analyzing policy in areas where Sunstein and Thaler’s quote suggests nudges would be helpful, my argument on school choice would be that it is effectively 100% signaling and self-interest. Religious parents probably don’t care too much about what their children actually learn in school or where they go. They do care about how much their school choice argument and energy demonstrate their religious devotion. Wealthy parents care about the signaling power of elite schools and universities, and similarly care about how much their children will be able to signal and benefit from a private school education that is out of reach for the majority of families who send their children to public schools. Race, socio-economic status, and other identity markers seem to be core to the self-interest of most school choice freedom advocates in my opinion. From my point of view, better governance would enhance social cohesion, encourage more opportunities for those individuals who otherwise would be left out, and help us manage diversity collectively. If school choice is overwhelmingly dominated by signaling and self-interest, then I see little reason why nudges would be the best approach to shaping policy. Nudges that increase costs of signaling end up creating stronger signals for those who can afford to still send their children to private institutions, therefore increasing their value and creating more division and contention within the debate.

 

Nudges seem to have real power in shaping public policy and can likely bring together Republicans and Democrats in some instances, but if governance is not about public policy, but is instead about identity, self-interest, and signaling, then I don’t think nudges can truly do much to improve governance or bring together Democrats and Republicans. Similarly, for massively consequential policy areas, I don’t think we can leave our future and success up to nudges. They may take too long and not be forceful enough to really shape public behavior and attitude, especially if they face entrenched opposition.

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