Free Market Madness: Why human nature is at odds with economics - and
why it matters
Peter A Ubel
Harvard Business Press
Behavioural economics is the theory that decisions are best studied by looking at what people actually do rather than by imposing models of how they should behave. This may not sound very radical, but it is new to economists.
Two Israeli psychologists - Danny Kahneman and Amos Tversky - pioneered this experimental approach in the 1970s, but interest in the subject has exploded since Kahneman was awarded the Nobel Prize for economics in 2002. (Tversky had died some years previously).
Written by a doctor (and professor of medicine), this book uses findings of behavioural economics to criticise market-oriented policies, especially in areas that relate to health. I might note, bitchily, that if the study of actual human behaviour is controversial among economists, evidence-based medicine - the idea that doctors might refer to data on the success and failure of treatments rather than relying on their personal experience - is still controversial among doctors. But let me move on.
The problem with Ubel's thesis is that his criticism is directed at a lunatic fringe even among market fundamentalists. His argument may have more resonance on the other side of the Atlantic, where the lunatics have been, if not in charge, at least very close to the doors of the Oval Office. Still, names like Karl Rove and Grover Norquist must surely now be consigned to ignominious history.
Harvard economics and law professor Kip Viscusi (an American economist of whom I had not heard) is Ubel's principal target. With evident if deranged sincerity, Viscusi argues that since many people overestimate the risks of smoking, they don't smoke as much as they should.
Gary Becker (who, I must reluctantly concede, was also awarded the economics Nobel Prize) is co-author of a famously silly article that purports to explain drug addiction as a rational choice. With friends like these, markets have little need of enemies.
Important issues are raised by this book and deserve attention. More, please, on why people smoke themselves to death or allow themselves to become so obese they have difficulty moving around. Less, please, on those who argue that premature death and immobility represent a rational calculation by those who smoke and drink too much. Some arguments are not sufficiently interesting to deserve discussion.
As a physician and psychologist, the author is surely well placed to explore why our nature and nurture encourage us to do things that are contrary to our best interests. The evolutionary imperative to tuck away food whenever we have the chance served us well on the savanna but is not that helpful in a world where a pizza is only a phonecall away.
Almost everyone who reads this book - almost everyone in the world - will recognise that some state involvement in the market for healthcare is both inevitable and desirable. But which interventions are appropriate?
In common with many other critics of free markets, Ubel seems to take for granted that if you identify a market failure, constructing a policy to address that market failure is a minor technical issue. But designing effective and efficient interventions is not a small problem - in economics or in medicine.
Doctors surely know that to diagnose is not the same as to prescribe a cure, and that every useful treatment has side-effects that need to be weighed in the balance.
The serious case for the market economy has never been that it is a perfect mechanism, only that it works better than the other alternatives on offer.
The argument against our current drugs policy is not that people would be better off if they were free to consume as many addictive substances as they please. The concern is that criminalisation does, on balance, cause more social harm than good in the area of illegal drugs. That argument is surely worth a considered response.
Ubel acknowledges that some people resist extensive government intervention because they fear a 'nanny state'. But this argument is lampooned by associating it with people who think that measures to combat heroin addiction are symbols of that nanny state.
Of course we should discourage people from doing things that inflict grievous harm on themselves - and us. But how much and what kind of discouragement? The argument here is not about the pros and cons of free markets. In a liberal democracy there is a private sphere. At the doors of the bedroom, the kitchen, and the nursery, the defence of that private sphere requires us to say to the well-meaning busybody: you go too far.
That is not to say that concern about sexually transmitted disease, or unhealthy food, or bad parenting, are illegitimate: only that these are areas of policy where we must tread with care.
Ubel's book raises important questions that need urgent debate. But it is a pity that he has devoted so much space to attacking a handful of extremist advocates of free markets and so little to setting out the considerations that should govern a serious debate on public and private health policy.
John Kay's new book The Long and the Short of It is just published by Erasmus Press