Too much choice creates space for predators who exploit our all too human limitations.
Dan Patrick, the lieutenant governor of Texas, is clearly what my father would have called a job.
At the start of the pandemic, he made headlines claiming that older Americans should be prepared to risk death so that younger ones can “go back to work.” More recently, he suggested that Texans who found themselves with $ 17,000 utility bills after the February freeze had only themselves to blame for not “reading the fine print. “.
Funny, isn’t it, how politicians who denounce liberal elitists sneer when ordinary Americans are in trouble?
But something else struck me about Patrick’s take on oversized electric bills: how did we become a country where families can face ruin unless they study. carefully something as mundane, as routine as their electricity contract?
And electricity is not a unique example.
As the New York Times’ Margot Sanger-Katz documented, many people find themselves with heavy financial burdens because they chose the wrong health insurance plan. Yet even the experts have a hard time figuring out which diet is the best. Using an off-grid healthcare provider can also result in huge medical bills.
Wait, there is more. One of the causes of the 2008 financial crisis was the proliferation of new financial arrangements, like interest-only loans, which looked like good deals but put borrowers at enormous risk.
What these stories have in common is that they are snapshots of a country in which many of us are given too much choice, in a way that can do a lot of harm.
It is true that Economics 101 and Conservative ideology say that more choice is always a good thing. Milton Friedman’s famous and influential 1980 television series extolling the wonders of capitalism was called “Free to Choose.”
The spread of this ideology has made America a country where many aspects of life that were only part of the background now require potentially fateful decisions. You don’t get a company pension, you have to decide how to invest your 401 (k). When you turn 65, you don’t just get Medicare, you also decide which Medicare Advantage plan you want to enroll in. You don’t just get electricity and phone service, you also get to choose from a wide variety of options.
Some, maybe even most, of this expansion of choices were good. I don’t regret the days when all home phones were owned by AT&T and customers were not allowed to replace their own handsets.
But the argument that more choice is always good rests on the assumption that people have a more or less unlimited capacity to exercise due diligence in all aspects of their lives – and the real world is not like. that. People have children to raise, jobs to do, a life to live and a limited capacity to process information.
And in the real world, too much choice can be a big deal.
The lesson from subprime mortgages, Medicare, and now Texas electricity is that sometimes people with too many choices will make bigger mistakes than they ever imagined possible. But that’s not all. Too much choice creates space for predators who exploit our all too human limitations.
Before the subprime mortgage crisis, Edward Gramlich, a Federal Reserve official who unsuccessfully warned of the potential for disaster, asked, “Why are the riskiest loan products sold to the least sophisticated borrowers?” The question, he suggested, “answers for itself – less sophisticated borrowers are probably fooled into taking these products.”
Likewise, there is clearly a lot of profit in medical billing, with victims disproportionately the ones who are least able to understand what is going on.
Beyond all of that, I would say that too much choice has a psychological impact on many Americans, even when they don’t end up in disaster.
A growing body of research suggests that the costs of poverty go beyond the difficulties low-income families face in securing the necessities. The poor also face a heavy “cognitive burden” – the constant need to make difficult choices that the rich do not face, such as buying food or paying rent. Because people have limited “bandwidth” to deal with complex issues, the financial burdens on the poor too often degrade their ability to make good decisions about other issues, sometimes leading to self-defeating lifestyle choices.
What I am suggesting is that a society that turns what should be routine concerns into decisive decisions – a society in which you can ruin your life by choosing the wrong electric company or the wrong health insurance – is taxing cognitive burdens similar to poverty even on the middle class.
And everything is unnecessary. We are a rich country and the citizens of other rich countries do not fear being ruined by medical expenses. It wouldn’t take much to protect Americans from mortgage scams or the loss of their savings due to fluctuations in the wholesale price of electricity.
So the next time a politician tries to sell a new policy – usually deregulation – by claiming it will increase choice, be skeptical. Having more options isn’t automatically good, and in America we probably have more choices than we should.
Paul krugman, Nobel Memorial Prize Winner in Economics, is a columnist for the New York Times.