A key issue for those of us who believe the state is bad at looking after people, is whether or not individuals are any good at it either.
This is Tim Congdon in the Telegraph today on the competence or otherwise of people in saving:
Much of economic theory is concerned to establish that people are rational. But theoreticians and practitioners do not always see eye to eye. When confronted with real-world problems, economists are inclined to forget that they live in a world of rational agents.Indeed, they are quite unembarrassed about offering recommendations to politicians which make sense only if people are rather silly. A good example is the recent report from the Pensions Commission, under the chairmanship of Adair Turner.
It says flatly: "Most people do not make rational decisions about long-term savings without encouragement and advice.'' The report proceeds from this patronising remark to recommend increased state involvement in pension provision, with a consequent enlargement of the government's role in the economy and a rise in taxation.
Professor Congdon goes on to look at the overall savings people make including saving that is not labelled "pension saving" but which nonetheless can be used for that purpose. He concludes that people are perfectly rational. His analysis may be open to challenge. But I want to mention another area in which the rationality of people in looking after themselves may be in doubt.
In America, people have to pay for their own healthcare. But in the same country, the incidence of obesity is very high. Why, when they must know that being fat increases their chances of premature death and early use of expensive healthcare, do so many Americans allow themselves to become fat? It does not seem sensible or rational.
One possible answer may be that American laws - particular tax laws - incentivise people to have company healthcare plans which apply to everyone in the company in similar ways, regardless of their lifestyles and obesity. So although American healthcare is mostly privately paid-for, it is far from operating in a free market. In a free market, health insurance premiums would be lower for those who were not fat and so being thin would be financially rewarded. The same would go for those who have no insurance and pay for healthcare as and when they need it. On this basis, people are still perfectly rational. Their behaviour has just been distorted by government interference.
A second possible answer is that people just can't help themselves. The lure of salt, sugar and fat are just too great for human beings after millions of years of evolution in which our bodies were trained to go for sweetness and fat at any opportunity.
I have not done enough work on this to have a strong view and would welcome comments on this and also other areas in which individuals have or have not shown themselves to be capable of looking after themselves.
Posted by James Bartholomew • Indexed in General • NHS • Pensions • Welfare benefits
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If we look at the poorest people in Third World countries, we can see that most of their economic behaviour is rational. They have many children, they build their own houses, they even plant cash crops that their children will benefit from. If these illiterates are capable of rational behaviour, then we have no excuse.
Posted by: EU Serf at April 13, 2005 11:19 AM