What is “Paternalism”?
Words carry preconceived definitions. While the word “Paternalism” is often related to restrictions in freedom, though in economic discussions, paternalism generally synonymous with government policy. In a broad definition, it can also include any policy put into place by a choice architect or any individual or organization in an authoritarian or influential position. Phone companies offer a tremendous example here. It is in their power to determine what the default data sharing options are in customer contracts or how discouragingly complex to make a customer service process, in both instances, substantially influencing consumer behavior. For the purposes of this discussion however, we will narrow the scope to purely those policies which can be controlled by a government entity or legislative body. Private companies are primarily profit driven and carry a variety of additional relationship complexities which would themselves demand a doctoral dissertation let alone a blog post.
The Need: Externalities
Many economists will state that the need for any form of paternalism stems from the fact free markets carry innate inefficiencies at satisfying individuals needs. While there is an absolute cornucopia of research which attempts to substantiate this claim, one can also argue this effect is secondary to an often disregarded primary concern.
Although it is likely impossible to comprehensively define what a “good” individual choice is, it is frequently possible within a specific context, to establish a reasonable argument for what is a “good” choice for society. In other words, an individual’s preference is inherently idiosyncratic and not up for much if any debate, while in general, it is easier, though often still difficult, to discern what the best choice for society is. For instance, one can generally say it is better for society if people chose healthier food options, though what an individual determines to be their personal food choice is entirely subjective.
This juxtaposition of individual and social value is a topic of discussion which traces its roots within economics back to Adam Smith or even earlier. Theoretically, in a free market system needs are defined by individuals and the motivations of firms are directed at solving those needs to derive profit. As such, it is well documented that the needs of the whole do not necessarily equal to the sum of the needs of it’s parts. Value as defined by individuals and value as defined for society, are two often overlapping but not necessarily entirely equal constructs. There are many illegal products which would otherwise be available for sale to individuals through the free market had they not dire consequences for society at large. Narcotics, or military grade weapons for example. It is the existence of these types of discrepancies between individual and social value that I argue is really the primary driving need for paternalism.
“Externalities” is the key word of this discussion. The unavoidable consequential effects of one party’s actions on another. Second hand smoke or an accident due to drunk driving are particularly salient examples for those unfamiliar with the term. While these examples represent individual externalities, (the effect of one individual’s actions on another), social externalities (the effect of one individual or a group of individuals actions on society) are far less conducive to traditional forms of government regulation.
A Real World Example
So why is this so important to discuss? Well so far in order to preserve a more comprehensive scope, the discussion has been largely abstract in nature. To answer that question and bring us into a more everyday tangible context, let us explore how social externalities take place at a high level within the food industry.
As anyone will notice when they grocery shop today, attempting to consume a truly healthy and beneficial diet can be extremely difficult. The structure of the food industry in the US makes it inherently expensive and difficult to know which foods are truly healthy and further, to actually find and then choose those foods at the store. As a result, two major social externalities are created:
- It becomes difficult to locate and expensive to buy healthy food options. What is healthy, becomes secondary to what profitable foods can be marketed as “healthy” by food producers, creating an intense veil of confusion and deception for consumers. If you have doubts, according to the FDA’s vague definition, even food containing MSG can be labeled “natural”. Supply feeds demand and demand drives supply, crowding out and otherwise making it difficult for healthy food options to achieve the economies of scale and market competitiveness necessary for most consumers to regularly adopt.
- As is inherent to any healthcare system, public or private, single payer or free-market based, those that are healthy, heavily subsidize the costs of those that are less so. In areas where individual choice has played little to no role, this is not of relevance to our current discussion on externalities. However, if one individual choses to to consume a heavy cheeseburger diet for 40 years then develops obesity linked illnesses, it is ultimately those who have chosen not to consume that food who subsidize the long-term healthcare costs of doing so through insurance policy payments, disability claims, etc.
Why is Paternalism the Solution?
While this concept is itself highly politicized and controversial, I would argue this largely stems not from an ideological opposition to paternalism as a concept, but from either a misunderstanding or misuse of how the powers paternalism grants are to be employed. Irrespective of one’s political viewpoint, the fact remains that paternalism is uniquely positioned in our society to play the role of check and balance against the free market. The polarizing political consequence this concept creates could be far more neutral if the ideas of paternalism were focused on areas where individual and social externalities exist, and subsequently framed as such. Motorcycle helmet laws for instance might be far better accepted if the regulations and incentives were focused on protecting younger passengers or others motorists against the externalities rather than on the motorcyclists themselves. In a free market and free society, choices that affect the individual and only the individual, are theirs to make. Choices that begin to create externalities however, are subject to debate.
Why argue for parternalism here? Because it is precisely in those instances where paternalism is most effective. Externalities create an implicit competition between an individual’s needs and society’s needs, especially in areas where those needs are diametrically opposed. Freedom is good but externalities demonstrate areas where freedom can be abused to the individual benefit but to the detriment of the public. Paternalism is not a tool to be used to dictate how we think others should behave but to be used as a check on externalities caused by that behavior which may have adverse effects on others in the society.