Journal: News & Comment

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Behavioral economics

The Fraser Institute's annual report on economic freedom lists the top ten "economically free" countries in the world as Hong Kong, Singapore, New Zealand, the U.K., the U.S.A., Australia, Ireland, Switzerland, Luxembourg, and the Netherlands. Canada is number 13, Germany 15, Japan 20, Italy 24, France 34, and Taiwan 38.

But Hong Kong is not a good place to be poor. Singapore completely bans the import, sale, and possession of chewing gum -- and if you possess enough marijuana, you'll get a mandatory death sentence. New Zealand has one of the biggest gaps between rich and poor in the developed world. Even Ireland may be free economically -- but not socially.

Some, like the Fraser Institute, hold up unrestricted free-market capitalism as the best possible way of organizing society. (Never mind Enron.) Then there are behavioral economists.

Orthodox economics says that we're supremely rational beings -- self-interested agents in a perfectly efficient market. We buy and sell because it's in our interest to buy and sell. "It is not from the benevolence of the butcher, the brewer, or the baker that we expect our dinner, but from their regard for their self-interest," wrote Adam Smith in "The Wealth of Nations" in 1776.

Back in the real world, however, a different kind of logic prevails. We buy things we shouldn't, we spend money we don't have, we get caught up in sales. "Real humans, even when they know what is best, sometimes fail to choose [what is best] for self-control reasons..."

Unfortunately, the idealism of a perfectly well informed, perfectly rational populace falls down in reality. That's why governments, social programs -- and left-leaning types like me -- still exist.

I'm okay with number 13.

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