Fear of freedom

Today is pensions freedom day, which has led to fears that people will misuse their freedom and so pay too much tax, stoke up a buy-to-let bubble or just spend too much too soon and so end up in poverty.

This reminds us that freedom is a scary thing. Bryan Caplan highlights some words of Martin Luther:

I frankly confess that even if it were possible, I should not wish to have free choice given to me, or to have anything left in my own hands by which I might strive toward salvation. For, on the one hand, I should be unable to stand firm and keep hold of it amid so many adversities and perils and so many assaults of demons, seeing that even one demon is mightier, than all men, and no man at all could be saved; and on the other hand, even if there were no perils or adversities or demons, I should nevertheless have to labor under perpetual uncertainty and to fight as one beating the air, since even if I lived and worked to eternity, my conscience would never be assured and certain how much it ought to do to satisfy God.

This is a very modern passage. Just as Luther feared that free will would lead us to fall short of the standards demanded by God, so we moderns fear that it will cause us to fall short of the standards demanded by rationality. And Luther, like us, fears the uncertainty that freedom brings.

I suspect that these fears are exacerbated by a couple of errors.

One is that we fail to appreciate that freedom often leads not to anarchy and chaos but to spontaneous order. As I've said, it's no accident that people who most want immigration controls also tend also to want state intervention in other areas of the economy - because they under-rate the power of the invisible hand.

A second mistake, which is more relevant to pensions freedom, is the failure to empathize sufficiently. This can lead us to be too quick to see irrationality in others.

For example, it might be quite rational to spend a lot of money early in our retirement. Doing so can build up a stock of happy memories which we can look back upon in our dotage. Some types of spending are in fact like saving; the give us a source of happiness in future years. And it makes sense to spend whilst we still can. The marginal utility of consumption declines (pdf) as our health deteriorates; holidays are less fun if we can't walk far, and nice cars are useless if our eyesight has gone. It's possible to be too prudent, and to save too much.

Sure, some neoclassical economists are prone to see rationality everywhere, even in destructive behaviour such as addiction. But behavioural economists can be prone to the opposite error; they are too quick to see irrationality.

However, it is not just others' freedom that we are scared of. Perhaps, like Luther, we are also scared of our own. I've recently been thinking of retiring. One reason why I haven't done so is that I'm scared that I might be misjudging my future finances; the uncertainty here isn't just the risk surrounding financial returns but the unquantifiable uncertainty about my future tastes. So far, this fear has been stronger than the countervailing fear, that I'll lie on my deathbed regretting that I have wasted my life by working.

The limits upon our freedom are not just those imposed by laws. There are also what William Blake called "mind-forg'd manacles." Fear - be it the fear of uncertainty or of others' opinions - is also a constraint.

Comments

[TomDCoates]

Isn't the real fear that unwary pensioners will get ripped off by a rapacious financial services industry?

[Matt Moore]

Even if you do retire, I hope you'll keep blogging. You are one of the few left-wing thinkers I can read regularly without needing to wash my eyes out after, as are therefore very useful at reducing all sorts of biases in my thinking

[An Alien Visitor]

Maybe they should free us of taxes and let us freely spend the money as we wish? Seen as we are so rational?

[Fat Jacques]

Taking their money out and slowly drawing it down is it trying to avoid getting ripped off by a rapacious annuity industry.

[Ralph Musgrave]

Chris says, “..people who most want immigration controls also tend also to want state intervention in other areas of the economy..”. I doubt it.

It’s the political left that is keener on immigration than the right, and it’s the left that tends to want “intervention in other areas of the economy”.

[gastro george]

AFAICS, the main discussion point of these reforms is that they break the previous compact between punters and government - which is that, if we saved for our old age, and relieved part of the burden of old age expenditure from the government, then they would provide a subsidy (tax relief) for those savings.

Now our "pensions" are just another savings vehicle - aligning them with ISAs, the difference being when the subsidy is applied.

The question now should be - is it correct that we should prioritise government expenditure towards a subsidy of the savings of already comparatively rich people, and away from other areas.

Some people complain about the welfare state - but conveniently forget about government subsidies for the middle classes and above.

[Dipper]

gastro george has a point. This isn't Pensions Freedom, this is The End Of Pensions (as in an insurance contract to cover you against not knowing how long you will live and hence how much money you will need).

[RevoltingDoors]

Don't retire Chris, just scale down your work, think of it as diversification and it enables you to test having a little less income. Employment is a reasonable inflation hedge and that is valuable.

From my point of view pensions are now as they should be and the only thing they need is left alone. If someone saves a little and spends it, then that is probably a better use than getting a minute increase in income.

If they save a lot then they have learned how to postpone gratification and should be trusted to make sensible choices in retirement.

Chris says, “..people who most want immigration controls also tend also to want state intervention in other areas of the economy..”

Those that are left wing by definition believe the state is best placed to look after the citizen, however this issue is complex and is influenced by how authoritarian/libertarian one is and other factors.

My brother was politically active for the Scottish Socialist Party. However when campaigning in the poorer areas of Glasgow they avoided discussing race as their core electorate while left wing were not libertarian. They arguably also had real individual economic risk from well educated Poles. So there position was personally rational although perhaps not proportionate to the real risk.

I am a right wing libertarian and believe that immigration has a strong utilitarian case.

[Postkey]

This was 'New Labour's' 'left wing' immigration policy?

“But this is evasion and deception. The mass immigration of the past decade wasn’t caused just by the absence of transitional controls on new EU member states. It was the result of a policy of encouraging immigration to generate economic growth – a policy NuLab copied from Bill Clinton’s America. In a
speech about the policy, then Home Office minister Barbara Roche said:
‘The evidence shows that economically driven migration can bring substantial overall benefits both for growth and the economy. In the United States, as Federal Reserve Chairman Alan Greenspan has commented, the huge recent inflow of migrants – 11 million in the 1990s – has been key to sustaining America’s longest-ever economic boom.’”
http://www.lobster-magazine.co.uk/free/lobster68/lob68-view-from-the-bridge.pdf

[SocialistInTheCity]

Someone's got to look after these oldies. We sensibly said 'Save tax free, and the private sector will look after you'. Now we're saying 'save tax free, do whatever you want with it'. There will be consequences.