Ignoring the Budget completely here

Half of the biggest change in policy thinking this decade is the idea that people are rational, but that rationality is limited. I’ll explain.

Ministers tell civil servants to go and design a policy that achieves X, whatever X might be. You might think that X is a good thing or a bad thing, but that’s irrelevant here, we want a well-designed policy that delivers X. X could be:

Less people smoking
More insulated houses
Higher pension savings
More nurses
Less crime
More happy kittens

The problem is mostly a mis-match of timescales. From a government point of view, smoking kills lots of people; from a personal point of view, it feels good now. Fixing climate change is going to save us truly vast amounts of money in about fifty years time; people want cheap petrol now.

Policies need to reflect and understand peoples’ behaviour. Simply assuming that people will save for their pensions coz it is in their own interest to do so is an assumption that just fails in the real world, and it’s in the real world that policies live. So examples of policies that reflect that are opt-out pensions, not opt-in ones. In the imaginary perfectly rational world, opt-in and opt-out pensions have the same uptake. In reality, most people just aren’t fussed enough to bother opting-out. Same goes for presumed consent for organ donors.

(Actually, pretty much every political debate ever goes just like this:
Conversation with myself about obesity – from Dim Post, one of our national treasures)

(Oh, and Hot Topic on the Minister for Climate Change’s speech opening last week’s climate change conference. He’s much more polite than I’d have been…)

3 thoughts on “Ignoring the Budget completely here”

  1. Referring to an earlier discussion, one of the reasons I rejected libertarianism is because it assumes that people are Homo Economicus and, as you say, that’s just not true. I prefer my policies to work rather than be ideologically pure.

    (Then there’s the bit where the people who did buy insurance/save spit on the starving people in the gutter.)

  2. Well, first of all, those comments were in Investigate, so god knows what slant they put on them. I’d like to say Investigate is useful for one thing and one thing only, but it’s printed on shiny paper, so it’s not even useful for that.

    Yup, Key’s taking the approach of economy over environment, and doing anything about the environment is such a threat to the economy that we can’t do anything more than window dressing. This is bollocks, as people like Stern have pointed out. Doing something about it is likely to have a small overall cost at worst, and a big benefit at best.

    However, it’s not the potential overall cost that holds sway, it’s the fact that a small number of businesses will have large costs and a large number of people will have small benefits. Thus it’s a collective action problem. No-one is going to riot in the streets/pay consultancies to write influential and slanted reports over a small benefit, they will for large costs. So, how do we avoid the minority holding sway over the majority?

    (Oh, and “implode a few years later”? Hardly. it’s not good news, but it’s not a substantial threat at an economy level for quite a few decades.)

Leave a Reply

Your email address will not be published. Required fields are marked *