There are many arguments against government paternalism: apart from limiting individual choice (for example, the choice to remain uninsured in the current health-care debate in the United States) and preventing individuals from learning, history suggests time and again that the conventional wisdom prevalent in society is wrong. And, since governments typically try to enforce the conventional wisdom, the consequences could be disastrous.

A clear example is financial regulation. In the US, the low risk assigned to senior tranches of mortgage-backed securities made them attractive instruments for banks to hold, given the relatively high return they offered. But they proved far from safe, despite the prior conventional wisdom. And, because the regulator had pronounced them safe, far too many banks overloaded on them, rendering them even more risky when the banks tried to sell them at the same time.

Other examples of the danger of the coordinating power of government paternalism abound. As I drive to downtown Chicago, I pass a series of high-rise housing projects, meant in their time to be the miracle cure for homelessness, poverty, unemployment, and crime. Today, they are seen as the best way to concentrate and perpetuate many of those ills.

Not only were the housing projects kept a safe distance from areas that had good jobs, but also, with few residents experiencing stable families and livelihoods, there were not enough local examples of success to guide young people. As a result, many went astray.

The fashion today is to integrate poor households into flourishing communities. No doubt we will discover some unintended consequences in the future, and the power of government coordination will ensure that those consequences are widespread.

Nudge

But some amount of paternalism is necessary in civilized societies. Social security is a paternalistic form of forced savings for old age, preventing individuals from consuming and saving as they please. It exists, in part, because individuals know that civilized societies will never stand by and watch the elderly starve.

Similarly, the mandated purchase of insurance in the healthcare bill of the administration of President Barak Obama is an attempt to prevent the young and the healthy from remaining uninsured and turning to the government for support only when they discover that they need it.

So, if paternalism has benefits as well as costs, how do we get the former without the latter? My colleague, Richard Thaler, along with Cass Sunstein, who currently serves in the Obama administration, wrote a best-selling book, "Nudge" (2008), in which they suggest a way to reduce our uneasiness with paternalism. Essentially, by exploiting behavioral quirks, they would nudge people into making decisions that are good for them, even while individuals have complete freedom to change their mind. So libertarian paternalism, in their view, eliminates one of the main objections to paternalism -that it constrains individual choice.

For example, in deciding how their pension savings will be allocated, most people simply choose the default option in their employer-offered plan. Often, the default option is unsuitable for most individuals. Sunstein and Thaler would have the employer choose a default option that works for most people, such as 60 percent in equities, 30 percent in bonds, and 10 percent in money-market funds.

That is the paternalistic part. The libertarian part is that the employee has the right to opt out of the default option. Because people rarely move away from the default option, the employer's paternalistic choice prevails, and we get libertarian paternalism.

Options

The problem is that the semblance of choice in libertarian paternalism is an illusion. Choice remains unexercised, because individuals do not consciously think through their decision.

In choosing the default option, the government or the employer nudges all employees into prevailing fads such as "buy equity for the long run."

Could there be a better alternative? What if there were no default option, and individuals were sent repeated, and increasingly urgent, reminders to choose an allocation if they did not choose one already. The conventional wisdom could be offered as a recommendation, along with explanations of why it makes sense, but it would not be the default. This would force people to exercise choice.

More generally, the flaw in some forms of libertarian paternalism is that the free choice that it appears to offer leaves the paternalism largely unconstrained. Would it not be far better to force conscious choice in order to limit the consequences of paternalistic mistakes?