26 February 2006

The tricky new paternalists

Glen Whitman's recent article, Against the New Paternalism: Internalities and the Economics of Self-Control, offers a Coasean response to the paternalists' Pigouvian sin taxes (including fat taxes). Whereas the old paternalists argued

“We know what’s best for you, and we’ll make you
do it.” The new paternalism says, “You know
what’s best for you, and we’ll make you do it.”
The basic rationale of the paternalists is that your present self consumes more twinkies, cigarettes, and unsafe activites, yielding the benefits in the present, yet does not have to pay the costs of these activities. The costs are borne by the future self and as such, the present self "overconsumes" at the expense of the future self. A tax on the activity would reduce this consumption and thus benefit the future self.

The Coasean response is that there is no need for a tax. Indeed a tax may be inefficient if the reduction in benefits from reducing consumption are greater than the costs of employing counter-measures. Why should the future self get preferential treatment? By allowing the person most intimately aquainted with both parties involved, the individual making the decision, we allow her find the optimal balance between present, transient pleasures and the future costs of enduring or remedying the consequences.

This requires individuals to exercise responsibility of self, a necessary condition for self improvement.

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