Veracious Thought: Recently, I did a book review for Robert Thaler and Cass Sunstein’s collaboration, Nudge. It was an assigned reading for one of my graduate courses. It is a very interesting book and love to share my thoughts on a book, where the author feels that the government should make an incentive to infringe on citizens’ freedom of speech.
Throughout our lives, we are influenced by individuals, i.e., friends and family members that help mold our decisions, persuading us on whether we should inhale, invest in precious metals, or even what university to attend; however, readers will find Richard Thaler and Cass Sunstein’s Nudge an interesting read because the authors describe how human beings base their decisions on the persuasion and even coercion of others. In addition, the authors make numerous suggestions about public policy as well as about economics from a libertarian paternalism perspective. Libertarian paternalism, might not sound too endearing to libertarians.
Thaler and Sunstein begin by defining the term libertarian: “The libertarian aspect of our strategies lies in the straightforward insistence that, in general, people should be free to do what they like—and to opt out of undesirable arrangements if they want to do so” (p. 6). The authors then mention that paternalism, when modified with the term libertarian, essentially means liberty-preserving. Thaler and Sunstein insinuate that libertarian paternalists encourage people to make their own decisions and exercise their freedom (p. 5).
Reading Nudge was enthralling; it engrossed my attention on how an individual’s choice can be predetermined through policy to convince individuals to make wiser decisions, but is that freedom or is this freedom defined by government and corporations? I must say that I found the book very interesting, especially when the authors repetitively used the oxymoronic term, “libertarian paternalistic” for nudging policy. Cass Sunstein has a history of nudging government to implement policy, which usually violates the constitution. In the most telling of his articles, titled “Conspiracy Theories,” he nudges the government to infiltrate organizations, as well as suppress dissent of websites mentioning conspiracy theories. He also articulates that this covert operation would increase citizens’ faith in the government, in other words, nudge citizens. So, it is safe to say that from his article he is an advocate of restricting freedom.
From the context of the book, it seems that Thaler and Sunstein’s intent is to apprise readers on how people are conformed by the decisions of others, through the science of psychology, and economics. According to the authors, individuals influence our decision making. Some decisions can be as simple as whether to pay the minimum balance on a credit card or the total, but there are other decisions that are more complex, such as to which retirement plan to choose. As an addition to the choices presented a framework—or referred to as choice architecture—is also incorporated, which will eventually affect the decisions of individuals. The thesis of the authors is that individuals are able to make a better decision when presented with a concise set of options.
Robert Thaler and Cass Sunstein are both college professors. Thaler is an economist at the University of Chicago Booth School of Business while Cass Sunstein is a former professor at Chicago Law School. In 2009, Sunstein was nominated as Obama’s Information and Regulatory Affairs Czar. He is now teaching law at Harvard. While at the University of Chicago both professors were colleagues of the current re-elected president, Barack Obama.
So, what is a nudge? Well the authors define the term “ a nudge, as we will use the term, is the aspect of the choice architecture that alters people’s behavior in a predictable way without forbidding any options or significantly changing their economic incentives. To count as a mere nudge, the intervention must be easy and cheap to avoid. Nudges are not mandated” (pp. 6-7). The choice architecture is described as the person who introduces options and improvements to enhance the lives and environment of others (p. 11).
The authors make a multitude of distinctions about how different entities, e.g., government, corporations, and even acquaintances can socially influence people. The book mentions how the state of Texas bureaucrats were frustrated with the failure of its advertisement campaign to reduce littering, so the Department of Transportation felt obliged to take a stronger approach in sending the message to the population who were the major violators (citizens between the age of 18 to 24). The state developed a new ad using athletes from the famous Dallas Cowboys to deliver the message (p. 60). The government’s use of celebrities for public ads was a means of nudging the public to stop littering.
One of the significant focuses that the authors mention regarding economics is saving and investing. They clearly state that Americans do not properly save for retirement (pp.105-106). Individuals usually invest in a tax-exempt 401K or IRA when considering retirement. Thaler and Sunstein attempted to clearly inform readers that when investing in a retirement fund, they should never invest all of their money into one fund, especially when that fund is dominated by stock. They mention an example of a former Enron employee, Charlie Prestwood, who was a long-time employee of the company and gradually moved up the corporate ladder. He invested money in Enron’s retirement fund, buying a significant amount of stock, which the authors considered to be a huge mistake. When Prestwood retired in 2000, he accumulated 1.3 million dollars in stock. After working for Enron and its predecessor for 33 years, he simply lost everything when Ken Lay and the company fell under (pp. 127-128).
With the lack of diversification, Prestwood only received a monthly Social Security and a pension check from previous employers. As the authors articulate, there are millions of Americans who invest all of their retirement funds in their companies’ stock. The authors also mentioned that despite the problems former Enron employees encountered, employees of other companies cannot seem to comprehend the risk of company stocks (p.128).
America has evolved into a nation of borrowers who save very little. It is such an immense problem that the authors compare the human world to the animated world of The Simpsons. According to Thaler and Sunstein, Americans are like Homer Simpson: naïve lenders. The authors examine the real estate market and what transpired with the exploitation of consumers from subprime mortgages, student loans, and credit card debt.
It can essentially become difficult for the average potential homeowner to read through hundreds of lines of stipulations and fees on a mortgage form, some which are not even defined to the borrower. The authors describe this as being a huge barrier for those who held subprime mortgages; for example, penalties and interest rates rose for the homeowner borrowers who paid loans off early (pp.134 –139).
The authors quote a suggestion from the law professor Lauren Willis; her argument limits the diversity of mortgages. One example of this would be the distribution of a thirty-year fixed rate loan, which would allow borrowers the ability to make wiser decisions. Despite Willis’s proposal, it doesn’t fit the guidelines with libertarian paternalism, but both authors feel it is mutually beneficial. Instead of taking Willis’s approach Thaler and Sunstein decided to take a different approach, which would allow individuals to have choices, forcing lenders to report incorporated fees and interest rate provisions. The requirement of this information would allow independent agencies to inform borrowers to be able compare lenders (pp. 139-140).
Recently, student loan debt has risen to over one trillion dollars in the United State exceeding credit card debt. The two types of student loans potential students apply for are private loans and federal loans. Private loans allow students to borrow as much as needed, and most private lenders target a younger audience. Private lenders engage in illegal and manipulative practices to enter the student loan arena. The typical student usually applies for federal student loans (FAFSA). The application process for federal loans can be overwhelming and intrusive (pp. 140-143).
The authors mention two nudges that will certainly ameliorate students in the need of financial assistance. They suggested that if the Department of Education were to simplify the student loan application (FAFSA) if may reduce discouraged applicants. Another nudge is for families to avoid loans as much as possible by helping them establish college savings accounts. Thaler and Sunstein mentions a study where the college savings process begins with eighth graders and their parents. This initiative can be a convenient and ideal way to save for college.
America has evolved into a culture of credit card usage; functioning without this piece of plastic can be nearly impossible. I remember a few years back when I tried to obtain a car rental I was restricted because I did not own a credit card that was required from customers. Theoretically, credit cards have two functions. The first provides a mode of payment as a substitute for cash. The second purpose of credit cards is to provide individuals liquidity in the absence of cash. Thaler and Sunstein mentions that individuals use credit cards as a benefit to purchase amenities that may only be obtained with a credit card, such as frequent flyer miles. Credit card companies in collaboration with other corporations have become the choice architects in nudging consumers to use their credit cards more often. We see this with airlines, gas stations, and even department stores, which nudge consumers to utilize their plastic cards, and they will be rewarded (pp. 144-145).
Some may say that the authors made an interesting assertion that if their suggested policy were set in place to reduce the number of mortgages, it would be easier for borrowers to make a decision. Yes, it would, but that is not a libertarian philosophy. The issue that I notice was that neither author articulated that lenders in the subprime mortgage debacle committed fraud. There was not even any mention of restoring the Glass Segal Act—a statute passed in 1933 segregating commercial and investment banks—which many economists insinuate is one of the main problems affecting the economy. The abolishing of the legislation has made it easier for financial institutions to commit chicanery.
In dealing with credit card debt, Thaler and Sunstien take the same approach as they did when it came to the mortgage crisis. They suggest that credit card companies distribute customers an annual report including total fees customers have accrued over the years. The report could be used to alter the behavior of card users to make conscious decisions about their usage throughout the year. Another nudge suggested by the authors isthat credit card companies should have an incentive to allow customers to make automatic payments of the full bill (pp. 145-146).
One of the many health topics Thaler and Sunstein discuss is about increasing organ donations. They mention that the in United States there is a small population of potential donors. According to the authors, there six types of organ donor policies: explicit consent, routine removal, presumed consent, some complexities, mandated choice, and norms. The preferred organ donor policy that both authors agree with from a libertarian perspective is presumed consent, which would preserve freedom of choice and allow citizens the opportunity to register as a donor (pp. 177-182). One of Illinois’ first campaign to register organ donors was to use technology and social media as a viable way to attract an audience.
Of the nudges that would impact a rise in organ donations, the authors focus attention on education. I am a strong advocate of high school graduates attending college, but I found Thaler and Sunstien’s example of nudging high schools students to attend college encouraging and interesting. According to the authors, the superintendent of San Marcos, Texas collaborated with the Austin Community College. The college counselors discussed with the high school students about the benefits of attending college and provided them with financial aid information. The superintendent’s nudge became very effective, and her strategy became very pervasive (pp. 207-208).
The only dispute that I could concluded from this nudge is that student loan debt is on the rise and most high school students are oblivious to the state of the economy. College counselors will not mention the amount of debt a student may accrue; I am not alluding to the comparison of community college expenses to traditional four-year colleges. The students are responsible for paying back student loans, once they are convinced by the superintendent’s nudge.
Thaler and Sunstein articulate an interesting approach to the institution of marriage; they would rather eliminate the ambiguity of the legal status and allow religious institutions to address the issue. According to the authors, marriage licenses should be abolished because marriage has long history of sexual and racial inequality. When the state controls marriage, it is violating religious organizations freedom to marry couples that choose to make the commitment (pp. 220-221). In essence, it is also violating constitutional rights. The Supreme Court case, Loving v. Virginia is a prime example of the state’s refusal to recognize the marriage license of interracial couples. The Lovings married outside their native state to avoid Virginia’s discriminatory law. The court ultimately ruled that Virginia’s marital segregation law was unconstitutional terminating race-based legal restrictions on marriages. While reading the chapter on privatizing marriage, it became clear that when the government defines same-sex marriage illegal, it is reinstituting the same discriminatory stance as was used with interracial marriages.
The nudge that Thaler and Sunstein suggests is that marriage should be left in the hands of religions and other private institutions. These private institutions should have the ability to prohibit or accept certain types of marriages and divorces, instead of leaving that decision in the hands of the state government. The authors also suggest that the state should be able to determine what is considered an acceptable range of support for a divorce settlement (pp 125-128).
The essential problem with “Nudge” is that Thaler and Sunstein never address some of the nudges that the government utilizes to infringe on the rights and freedom of American citizens. The Northwood documents is a prime examples is just one of many examples of the government potentially using false flags to go to war with rival nations. 9/11 is the paragon of all false flags to nudge the public that it is justified for the TSA to perform an invasive pat down or make you walk you through a body scanner. Al Qeada or terrorist is the nudge that our government uses to transform this nation into an Orwellian surveillance state, drone flying over your home to your computers watching you. Never expected Thaler or Sunstein to cover these issues, but these are the nudges that America experience everyday to infringe on our rights.
I am surely not a zealot of Cass Sunstein’s work and was just introduced to Robert Thaler, but Nudge will surely grasp readers’ attention because it is somewhat humorous and it does address many of the societal and economic concerns that face the nation. Regardless of whether a reader is liberal, conservative, libertarian, independent, or not affiliated with any political party, Nudge is an essential reader. The reality is that choice architects nudge policy more often, in the private and public spectrum, maybe not in a libertarian paternalism sense as suggested. Some readers may find Nudge engaging and very informative, as I did. As a warning to some potential readers, who decry coercion and strong intervention, be prepared to also find this book rather striking. When you read Nudge, read it with a vigilant eye because much of the truth is hidden and suppressed by a mainstream economist and Obama’s czar. Get ready to be nudged.