Harry Clarke — one of the wise old hands of the oz politics blogosphere — has long been preaching the evils of smoking, drugs, gambling, drinking and various other fun activities, and calling for government action. Instead of “doing bad things”, we should only play calm non-contact sports and generally stay in doors doing safe things like eating vegetables and praying.
And it looks like Rudd is going to oblige by hitting drinkers and smokers with extra tax.
One part of Harry’s argument has to do with time preference. Young people tend to have a high time preference (ie, they have a strong preference for now, compared with the future), while older people tend to have a lower time preference. Harry (being more “old” than “young”) comes to the conclusion that old people are right and young people are wrong. Therefore, young people need to be regulated, and when they get old (and have a lower time preference) they will see that the government control was for their own good.
This argument has a number of fallacies. First, time preferences doesn’t always decrease (for me it has increased).
Second, just because time preference changes that doesn’t mean it was ever wrong. At different times in your life it is reasonable to have a different set of preferences. Year 2000 John is entitled to disagree with 2009 John and I will probably have a different set of preferences in 2020. That doesn’t mean any version of me is “wrong”. Just different.
Third, even if one of the “young” and “old” versions must be right… it is not necessarily true that the “old” version is always right. Changing your mind does not prove that your new opinion is correct. Otherwise we simply need to find somebody who used to agree with Harry and now doesn’t… and their change of mind will prove Harry wrong.
I agree with Harry that some people make mistakes with their time preference. I think everybody makes mistakes with some of their preferences during their life. For instance, I think it is a significant mistake to go through life without ever having tried a hallucinogenic drug. I also think it’s a mistake to not travel. Or to be strongly religious. Or worry about getting rich. Or wear crocs. Having said that, I know I’ve made mistakes in the past, and I undoubtably will make more in the future.
Where I disagree with Harry is the idea that some external power should have the authority to “fix” other people’s preferences. I think that is an extremely dangerous game. If humans have difficulty working our their own ever-changing preferences, then it is even harder for us to work out other people’s ever-changing preferences. Especially if you must make a single rule for 21 million other people — most of whom you know nothing about. And that assumes that the authority is actually wants to help you, and are not pursuing other objectives such as getting elected.
Not to mention that whole “freedom” thing that is so out of fashion these days.
Ben accepts that a “too high” time preference can lead to destructive behaviour. His point was that the free-market encourages people to have a shorter time preferences as their future situation is a direct consequence of their current actions. If you make the “right” decisions then you get the future benefits. If you make the “wrong” decisions then you get the future costs. But under the welfare state this link has been undermined as success is taxed and failure is subsidised. Consequently, it is the welfare state which encourages a higher time preference by undermining the strength of the link between current action and future outcome.
Ben goes on to make an additional (and in my opinion less strong) point that a the free-market will lead to an ongoing decrease in time preference. He writes: “Because growth in capital and knowledge increases the productivity of future labour and savings and also increases life expectancy, time preference in a free society will tend to diminish over time”. Perhaps. But growth will also likely lead to more fun stuff to do today and the “diminishing marginal return on exchangeable goods” (which Ben mentions) will make it easier to cover future needs and then not have to worry about the future until you get there.
The logical first conclusion from this is to remove the welfare state. However, if that is ruled out then the secondary consequence from Ben’s thesis is that government paternalism should apply only to welfare recipients. People who, despite contrary government incentives, retain a low enough time preference to be net contributors to the government, should not be punished due to the mistakes (government-induced or otherwise) of others.