Apr 15, 2010
1 minute read

The April issue of Cato Unbound addresses libertarian paternalism. It will not surprise my regular readers to learn that I am basically against it (though I prefer the libertarian brand to the full-throated version). One reason is the Coase theorem. If firms must set some default retirement plan, that is an external cost it is imposing on its employees who do not want the default plan. The firm has an incentive to select the default plan that, by its selection as the default, creates the most value for its employees—that is, to minimize the external cost. In equilibrium this lowers the firm’s salary costs and increases profits.

The more fundamental reason why I oppose libertarian paternalism, however, is that I despise meddlesomeness. I think it might be the most vicious of all character traits. Nothing is more annoying than a meddling do-gooder. Sunstein and Thaler, by giving a rationale for meddlesomeness, will almost certainly increase its prevalence. Talk about an externality.