Richard Thaler deserves the Nobel Memorial Prize in economics. But media treatments of Thaler’s work, and of behavioral economics more generally, suggest that it provides a much-deserved comeuppance to conventional microeconomics. Well . . . Not quite.
This is the second part of a three-part summary of a speech that I gave last weekend at the 2015 National Lawyers Convention of the Federalist Society. The first part focuses on how commerce encourages civic virtue. The second continues by discussing how limited government aids civic culture and how the Constitution helps assure that religion will be helpful rather than harmful to that culture:
Besides encouraging a commercial society, the Constitution also sharply limits government. The federal government is limited by the enumerated powers. The states’ capacity to create large, intrusive, anti-commercial government is circumscribed by the right of citizens to exit. To take just a purely hypothetical example, if my home state of Illinois exacts large taxes in favor of small groups like public sector unions, many of its citizens will leave.
Limited government creates the space and indeed the need for the kind of private associations that Alexis de Tocqueville celebrated. Varying in size and mission, these associations may concern self-improvement, mutual aid, or social welfare. As the Nobel Prize-winning political scientist Elinor Ostrom showed, these associations can help people develop bonds of social trust and maintain long-term relations of reciprocal goodwill, which can also help sustain a free society.