Monday, September 8, 2014

Personal Liberty And Snakeoil

John Stuart Mill has been an inspiration to libertarians for a long time.  This post by a well known economist provides a seminal quote from Mill's essay on liberty.  The essence of the idea is that every adult knows more about her individual needs and wants than anyone else.  Therefore, the state should avoid making decisions for others as long as those decisions do not affect others.  This idea makes a lot of sense until one begins to think about exceptions to the rule.  Should the state intervene in personal decision making when they do not have adequate information?  Should the state intervene when a personal decision decision affects others indirectly?

Most people do not have enough information to make intelligent decisions in many areas.  For example, before the government intervened in the drug market it was quite common for entrepreneurs to market ineffective remedies to poorly informed individuals.  Snake oil was one of the most commonly sold remedies for almost any ailment.  Should the government have prevented entrepreneurs from selling snakeoil as long as individuals believed that it might be effective?  Libertarian economists, like Milton Friedman, have used Mill's doctrine to oppose government intervention into the drug market.  Should we get rid of the FDA?  I believe that individuals should do whatever they can to learn more about their medical care.  Its relatively easy find good information on the Internet that can assist individuals in making personal care decisions.  On the other hand, there is also a lot of snakeoil peddled on the Internet.  The snakeoil vendors cannot sell drugs but they can sell non-drugs that may or may not be harmless.  Even if they are harmless some individuals may avoid taking effective drugs because they believe that "natural remedies" are superior to drugs.  Where should the line be drawn to protect individuals from making poorly informed decisions?

There are many other areas where poorly informed individuals participate in markets where other parties have superior knowledge.  The financial crisis would not have occurred if the government had protected poorly informed consumers from taking out mortgages that they did not understand.  Those mortgages were packaged into securities that were sold to "sophisticated investors" who were misinformed about the risk in the securities that they purchased.  It is difficult for the government to intervene in every market where sellers are better informed than consumers but we should recognize that it is easier to profit in markets where consumers have an inflated sense of the value received, or when they are poorly informed about the product itself.  In particular consumers are poorly informed about most of the financial products that they purchase.  Almost everyone has a credit care, for example, but few cardholders have read the complex agreements that they signed to get their credit cards.  The agreements have been made complex so that consumers cannot easily compare offers between competitors.  The financial industry would be much less profitable if consumers were better informed, but we do a poor job of educating individuals about financial markets. Its no wonder that financial industry executives tend to be devoted libertarians.

The other problem is that our decisions can affect others indirectly.  Environmental pollution is classic example of this problem.  I may not be personally affected when I contribute to pollution but when my decision is compounded by similar decisions made by others I have helped to destroy the commons.  Many of the arguments made against the Environmental Protection Agency are predicated on libertarian assumptions.  That is, the government should not make decisions that are best left to individuals who know better than the government.  Its easy to understand why individuals or firms that profit from pollution are devoted libertarians.  Its better to defend oneself by an appeal to a philosophic principle than it is to defend one's selfish motives.

Mill's essay on liberty is like many philosophic ideas.  It is not easy to generalize simple ideas to complex situations.  He may have lived in a period in which monarchs abused the power granted to them.  On the other hand,  jungles are not the best of all possible worlds for most people.  Its not easy to draw the lines that are necessary to defend Mill's simple idea about liberty.  Individuals can be their own worse enemy and states can interfere in areas where they should not interfere. 

Mill's concept of individual liberty makes sense in many situations.  We certainly don't want the government to be interfering excessively in our personal lives.  On the other hand,

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