My previous post was here. A lot of writing today, so this entry a bit longer and in the weeds than usual…
In economic analysis, of arts funding or anything else, people’s preferences are assumed to be “rational”, which here has the narrow definition of consistency (If I prefer the blue tie to the red tie, and prefer the red tie to the green tie, rationality means I must therefore prefer the blue tie to the green tie, but not much else), and does not question the ends for what the consumer buys. Economics also works on the assumption that individuals are the best judge of their own interests, and so do not question what choices are made, again so long as they are consistent. When economists consider arguments in favor of arts funding based on market failures, like public goods and positive externalities, they work from the assumption that individuals are their own best judges of how to value things, including what they are willing to pay for the arts.
What happens if we relax these “consumer knows best” assumptions? Would it generate different ways to think about arts funding? In the end, I find (predictably) maybe. But it is a challenge without venturing into paternalism.
One of the principal claims I make throughout this work is that if your view of the world is a broadly conceived liberal one in which we trust people to decide for themselves what sort of art they like, and the degree to which they want it to be a part of their life, and it is not up to the government to push upon people its own conception of what would be good for them, the case for public support of the arts is fragile.
There are a few angles from which we could see if we can relax within economics the idea of consumer sovereignty. The first is the recognition that people might take efforts to change their own preferences. The second is that there might be levels of preferences, where whatever we might decide to do on impulse, we would see in the cool calm of reason is not actually in our best interests. The third is that people might make decisions against their own best interests even when they have had time to reflect. And a fourth is that we might have preferences over community outcomes that are entirely separate from our personal interests. Today I look at each of these in turn.
People often take actions to change their own preferences. Suppose there is a genre of art that you really have never quite understood, and yet you know that there are many people who are knowledgeable about it and seem to get a great deal of satisfaction out of it. I grew up in a household that was relatively rich in music, but where no one knew much or was very involved in visual art (the sum total of my knowledge was a second-hand set of the board game Masterpiece, for which my sister and I never quite figured out the rules). As an adult, I took it upon myself to read about art, attend gallery openings, and make a point of going to museums when I visited cities, in order to understand better the history and contemporary state of visual art, and in turn have something new in my life that was enjoyable and stimulating. I also made a point of trying to see classic films, in the hopes of being able to get a deeper pleasure out of watching great movies. In E.M. Forster’s novel Howards End Leonard Bast hopes that enough exposure to high culture will lift him to a new plane of understanding. Reading John Ruskin, “he felt that he was being done good to, and that if he kept on with Ruskin, and the Queen’s Hall concerts, and some pictures by Watts, he would one day push his head out of the grey waters and see the universe.”
Economists, maybe not surprisingly, have formalized this notion. Gary Becker and Kevin Murphy’s theory of “rational addiction” supposes that an individual gets pleasure from ordinary goods, and also some goods where the pleasure received from them depends on her history of consumption of it. Knowing this, she might begin to consume a good, say opera, even if it doesn’t immediately yield a lot of pleasure, on the expectation that eventually it will, and the future pleasure will be more than worth the initial cost of sometimes being befuddled or bored by what is happening on stage. People who have done long-distance running for many years will advise someone just getting started that at first it is hard to feel motivated, that one might be tempted just to stay in if feeling tired, or the weather is inclement, but that eventually what you want will change, and that you become addicted to your daily run. Everybody is different, and so will perceive the beneficial possibilities of various possible addictions (and note Becker and Murphy’s paper is mostly, though not exclusively, addressed to harmful addictions) differently. People who do not heavily discount future benefits are more likely to try to develop a beneficial addiction (and less likely to cultivate a destructive one). Importantly, there is, at least to this point, no market failure, no opportunity for a beneficial government intervention. Mr. Bast can simply go on reading his Ruskin, and listening to Beethoven at Queen’s Hall.
Now consider that we might have different levels of preferences, that people make some decisions on impulse, or through an habitual short-cut in reasoning, that is at odds with what they themselves would recognize as their best interests. We procrastinate on tasks to a degree that makes us worse off than if we had simply got the task done when it was presented to us (for academics, grading papers is a familiar example). We choose default options on complicated transactions without looking closely at what our actual best option would be. In the Nicomachean Ethics, Aristotle writes that a man can be unjust towards himself by allowing the irrational part of his soul to frustrate the desires of the rational part, and (echoing Plato) the rational needs to rule over the irrational within us just as the ruler of a state must govern the ruled. What if anything ought to be done about this?
The field of behavioral economics represents an effort to incorporate various aspects of that “irrational part of our soul” into the field of economics, to better understand why people make the choices they do, and perhaps to find public policies that improve our well-being. Thaler and Sunstein’s paper on “libertarian paternalism” led to their book of recommendations Nudge (2009), where “nudges” have now entered the policy lexicon. Does the term “libertarian paternalism” make sense? Suppose we define “paternalism” as a government intervention to address individual failures of judgment, for the individual’s own good. A “libertarian paternalism” would not force individuals to make a particular choice, or pay them subsidies to do so (or to tax them to steer them away from particular choices), but would simply design the architecture around which we make choices to favor what most individuals would agree is in their long-run interest. So, for example, people have a tendency to assent to what is presented as the status quo option. If people agree that saving adequately for one’s retirement is a sensible thing to do, then companies that make enrollment in the company pension plan the status quo option for new employees, though where they retain the right to opt out, is a superior design to a company that requires new employees to opt in to the pension plan. A cafeteria that puts healthier food options at the front of the line, and puts desserts at a separate table, will induce people to choose a better lunch, while still allowing people to pick from the offerings whatever they want. State regulations that enforce a “cooling off” period for major financial and legal transactions also serve to lead people to better choices without actually restricting their choices.
It is important to note that these “nudges” are meant to steer people towards choices they would agree are in their best interests, but might not choose under different choice architectures. Nudges are not about getting people to do what they would not choose under careful reflection.
Are there implications for cultural policy? These nudges are not about externalities; they are concerned with individuals’ personal well-being. Bronwyn Coate and Robert Hoffman just recently published a comprehensive review of the possible implications of the findings of behavioral economics for the field of cultural economics, but the policy implications remain unclear. The key problem is: to what decisions do we think people ought to be nudged? Proper retirement planning, a healthy diet, are uncontroversial goods that most everybody’s rational self would agree to. But what does the rational self want regarding the arts that the irrational self will thwart? Rational, positive addictions are more likely to be developed when we have a low rate of discounting future benefits, and one aspect of our irrational self can be a tendency to adopt discount rates higher than we rationally know make sense. So maybe we could nudge people towards developing rational addictions to the arts. But what art, exactly? How could people be nudged in this direction without an explicit paternalism that holds this art form is difficult and takes time to appreciate but is worth it in the end, and continuing to wallow in that art form, popular and catchy, will in the long run fail to generate the same pleasures? The arts are more difficult than decisions over savings and health, where the ends are much clearer.
Next consider a third possible departure from standard economic analysis, that even with deliberation and full information people make decisions that are contrary to what is truly in their best interest. In 1959 Richard Musgrave introduced into his work on public economics the concept of “merit wants” (also known as “merit goods”). He was looking at goods supplied by the market, but which were so “meritorious” that they warranted public subsidy to increase production and consumption beyond what the market would provide. He was careful to distinguish merit wants from externalities (which would also warrant subsidy, although for different reasons), and claimed that “the satisfaction of merit wants, by its very nature, involves interference with consumer sovereignty.” He went on: “A position of extreme individualism could demand that all merit wants be disallowed, but this is not a sensible view.” He advocates paternalism over some goods, recognizing that this might be subject to abuse by an authoritarian state, but which could be permissible in a democratic society.
While consumer sovereignty is the general rule, situations may arise, within the context of a democratic community, where an informed group is justified in imposing its decision upon others. … The advantages of education are more evident to the informed than the uninformed. … In the modern economy, the consumer is subject to advertising, screaming at him through the media of mass communication and designed to sway his choice rather than give complete information. Thus, there may arise a distortion in the preference structure that needs to be counteracted. The ideal of consumer sovereignty and the reality of consumer choice in high-pressure markets may be quite different things.
Musgrave did not specifically mention the arts in his discussion of merit wants. Revisiting the topic almost thirty years later, he tried to set out more details on what merit goods could be. He notes that many policies we see are in fact paternalistic. In the United States, aid to poor families with children is partly through “food stamps”, which are income supplements that not only must be spent on food, but on particular sorts of eligible “appropriate” foods (note that libertarian Milton Friedman opposed this, saying that if we wish to help the poor by increasing their purchasing power, a cash transfer is called for, and the poor ought to be as trusted as anyone to make their own spending decisions). A call for treating the arts as a merit good (although he does not use the term) comes from Tibor Scitovsky: “The only valid argument for government aid to the arts is that it is a means of educating the public’s taste and that the public would benefit from a more educated taste.”
The field of public economics never really “took” to this paternalistic idea. Musgrave claims paternalistic interventions can be justified in a democratic society, but democracies are very imperfect vehicles, subject to all manner of irrationalities in public voting, in legislation, and in bureaucracy. Who decides how the public’s taste ought to be changed? Scitovsky was explicit: Americans ought to listen to more classical music. But how can that be justified without stepping far beyond the bounds of economic analysis? (Note I’m going to return to this question frequently).
And finally, a consideration of an aspect of merit goods that Musgrave called “community preferences.” These are also called “ethical preferences”, and “commitment” by Amartya Sen. Suppose I don’t really have much interest in attending the symphony, but I do support government grants to it. Why might I do that? One possible reason is externalities; I might feel benefits from the existence of the symphony and people attending it, even if I do not attend myself. But suppose I don’t sense any externalities, I don’t feel in any way affected by symphony concerts that other people attend, and yet regardless I believe it is the right thing for the government to support the symphony. It is important for the well-being of others that there is live classical music beyond what the market alone could support, that it may be especially important to a small number of people, and that in a fair and just world this is something that ought to be funded. There is a cost to me in terms of my taxes being used to fund this, and no personal benefits to me (as there are with externalities), but it is something I want to see happen. It is not uncommon for us to make choices out of a sense of duty than out of personal benefit; for example, we take on the cost of voting in elections even when the chance of our ballot determining the outcome of the vote is vanishingly small.
It is difficult to disentangle externalities from ethical preferences. When researchers have surveyed people about public funding for the arts, there is typically at least some support for arts funding even by people who never attended the subsidized arts, though whether this was from personal benefits through externalities or rather through a sense that it is simply the right thing for government to do is hard to determine. Reflecting ethical preferences in public funding is not paternalistic at all, it is reflecting the preferences of voters. But the question of how to recognize where this is the case, or what levels of arts funding would be appropriate given all the various alternative uses of funds, remains a challenge.