Samizdata

I came across this interview with US academic Cass Sunstein, whose views on behaviouralism – including the area known as “behavioural economics”, have been immensely influential on governments in the past 25 years or so.

The idea of “nudging” people via policies to doing certain things (auto-enrolment in savings for retirement, messaging about the dangers of certain lifestyles, etc) has become a default piece of wisdom. It accords with the tendency of a managerialist political class that sees the wider population as only partially rationally self-interested. Sunstein, as shown in this video (conducted by the Hoover Institution in the US) notes how he disagreed with the Chicago-based economics folk such as Nobel Prize winner George Stigler and others about the idea of rational expectations. The behavioural school thinks that human motivation is not like that; in the financial services space, for instance, there is a school of thought known as behavioural finance that looks at crowd behaviour in times of stock market booms, busts, etc. And there are temptations to try and “fix” these behaviours.

I see a few dangers, and maybe Sunstein does too now (it is worth seeing the whole video). For example, it is easy to see how a government, even if democratic and accountable, can grow into a monster if driven by even well-meaning people that think that people aren’t necessarily fully rational, and need to be nudged, or guided, into doing the “right thing”.

This helps explain, in some ways, why the “administrative state” is what it is. It would not have got so big had it been a clearly evil project. Most people who drive all these changes and programmes think they are doing the right thing. Some might be bad but most aren’t. And yet here we are, with a bloated set of governments in the West, with skyrocketing debt and all the rest of it.

I think a major flaw in behavioural economics is the hubris of the “nudge” advocates about how they think they can handle all this. And as we have seen, politicians who lean towards tax-and-spend policies love some of these ideas because they can sit alongside what they want to do anyway. I am not even sure it makes sense to describe these as “liberal” because some of this “nudge” stuff does not seem to accord with ideas about treating people as individuals who need to be held accountable for their actions.

It is arguable that the “nudge” crowd hew to a form of soft determinism, or maybe “soft paternalism” – the notion that we are not really volitional creatures with agency, but buffeted by internal and external forces, and often emotional first, rational second. But even if that latter point is true, a rational person with choice-making capacity can realise that he or she is prone to making unwise/foolish choices, and like Odysseus who lashed himself to a mast to avoid being tempted by the Sirens, adopt rules and protocols to not screw up. (I know an alcoholic who avoids parties and certain events to avoid getting into trouble, to give one example. Another might be a stockbroker who turns off the noise of the daily news and makes better investment decisions over the long run.)

Self-knowledge is the beginning of wisdom, and all that.

Following from my post of yesterday about the attacks on inheritance, and attitudes around equality more generally, I took another look at the Lewis Goodall attack on inheritance. Goodall, a journalist, argues that he is in favour of capitalism – he wants to cut income taxes – and therefore he is not just some malcontent Leftie who wants to hit people on the head with tax.

There is also a sort of intergenerational justice argument going on here. Quantitative easing and other forces have inflated asset values; Boomers have, to some extent, enjoyed final-salary pensions and been able to retire in their early 60s, if not before. Most Gen X (that includes me), Millennials and the Zs will have to work for longer. (Given hopefully rising healthspans, that might not be a bad thing, however.) True, those who were young adults in the 50s, such as my Dad, had to do military service, and there were other nasties to deal with that we younger adults did not have to handle. But still, there’s a sense of grievance that those who had “never had it so good” got to have the best of times, and their offspring have got the dirtier end of the stick. That’s certainly part of what is driving some of this anti-wealth/inheritance narrative.

Switching gears here, there are structures that people have, over the centuries, sought to form to stop inheritors becoming obnoxious and lazy, and also to hold families together so that they don’t fall out, as in the HBO series, Succession.)

For years, in my day job, I have wrestled with the trend of a multi-trillion dollar/equivalent transfer of wealth from the Baby Boomer generation. In the wealth management sector, particularly in the US, there’s a whole field of advisory work that goes on to help guide ultra-wealthy families about how not to spoil their children. The debate is often framed in the question of “how much is too much?” in transferring wealth.

We have seen the rise, in their thousands, of what are called family offices. These are structures – operating around the world – that act as a sort of trusted point of control for a family’s private wealth. FOs operate in North America, continental Europe, the UK, Singapore, United Arab Emirates, Australia, and other developed countries. (I predict a big expansion in India, as many businesses there are family-owned.)

Sometimes FOs emerge from the executive suite of a family-run firm; they run the liquid wealth of a family, and that becomes a sole focus once a firm is sold or floated on a market. FOs are designed to hold families together – they even have their own “constitutions” and governing procedures – and create a sort of structure through which families handle payments to different members, run investments, deal with philanthropy, personal and cybersecurity, bill payments, and more. Once obscure, the family office industry is a large, multi-trillion sector. The original FO was, arguably, founded by J D Rockefeller, the oil tycoon. Today, the likes of Michael Dell and Bill Gates have them, as do the founders of Google, the governing family of Walmart, Home Depot, shipping dynasties in Denmark, Mittlestand firms in Germany, and many more. (Germany has many family offices, most of which are obscure.) Families that are far less wealthy than the foregoing can create family offices, although they aren’t economically efficient to run if assets under management go under $100 million.

Another structure for we lesser mortals  is the trust. These are creatures of the English Common Law, and are extensive in the UK, Australia, New Zealand, Singapore, and biggest of all, the US.

Trusts remain an incredibly useful tool for ensuring orderly transfer/control of assets by families. If people such as Lewis Goodall are worried that inheritors become spoiled brats and lose a work ethic (if that is his genuine concern, it is a fair one to have), then trusts can, or could, be structured so that a beneficiary only receives payouts from it if certain terms and conditions are met.

Governments sometimes try and clip the wings of trusts. In 2006, UK Chancellor of the Exchequer Gordon Brown moved against the trusts sector, on the specific issue of inheritance. The use of trusts in the UK has, on balance, shrunk, but they retain their uses.

If people fear that inheritance saps the ambition and energy of inheritors, then trusts and other structures can be set up by parents and others to avoid that from happening. In a way, this sort of discussion is not so different from those that come with Universal Basic Income – what happens if we turn the entire working-age public into a bunch of loafers?

To some extent, considering the impact of inheritance on inheritors – or UBI recipients – are empirical questions, based on an understanding of incentives, behavioural issues, values and so on. The morality of it is a different one. UBI is funded via tax – a coercive move of money from the individual to the State. Inheritors of legitimately acquired wealth are receiving something that was legitimately held and transferred by consent of the transferrer.