Barack Obama’s nudge-ocracy

The New Republic calls it his “new theory of the state.”

Obama has set out to synthesize the New Democratic faith in the utility of markets with the Old Democratic emphasis on reducing inequality. In Obama’s state, government never supplants the market or stifles its inner workings–the old forms of statism that didn’t wash economically, and certainly not politically. But government does aggressively prod markets–by planting incentives, by stirring new competition–to achieve the results he prefers. With health care, for instance, he would make it easier for employees to tote their insurance from job to job, eliminating the disincentive for insurers to invest in preventive care. Or take his bank plan, which helps banks dispose of their toxic assets, reducing uncertainty and making the banks more attractive to private investors–a far less drastic step than nationalization. Rather than force markets to conform to his wishes, he shapes their calculus so they conclude (on their own) that their interests coincide with his wishes.

The “-ocracy” label is about as unpopular as libertarianism and paternalism, so the term joins a proud, long tradition. The full piece is here.

Cass Sunstein goes to Washington

From Chicago to Cambridge and now to D.C.

Cass Sunstein is headed for Washington to lead the White House Office of Information and Regulatory Affairs. A well-deserved congratulations are in order. And now a plea to reporters: Please don’t call him the “regulation czar.”

The OIRA has been around officially since 1980, and unofficially as Presidential regulatory principles and centralized review since the Nixon administration. A trivia question for our readers: Who was the first OIRA administrator? Like Sunstein, this person graduated from Harvard and spent time at Chicago. The answer is here.

There was a lot of chatter in the media and the blogosphere about Sunstein’s appointment (here, here, here, here, here, and here), with frequent references to Nudge – which is great, of course. But it is worth mentioning that Sunstein started writing and thinking about regulation long before he turned to nudges and choice architecture. The behavioral bit may generate the big buzz, but Sunstein’s deep understanding of regulatory issues extends far and wide. At Chicago, Sunstein taught a number of regulatory courses, including Theoretical Foundations of the Regulatory State; Regulation: What Works and What Doesn’t; Employment and Labor Law; Environmental Law; Law, and Behavior and Regulation. And (surprise!) he’s written plenty about these subjects. Interested readers may want to check out some of the highlights below

1) The Cost-Benefit State. (paper)

2) Risk and Reason: Safety, Law, and the Environment. (Amazon link)

3) Beyond the Precautionary Principle (paper) and The Precautionary Principle as a Basis of Decision Making (paper). For a shorter version, see this op-ed in the Boston Globe.

4) Remaking Regulation. (American Prospect article)

5) A New Executive Order for Improving Federal Regulation? (paper)

5) Administrative Law and Regulatory Policy. (Amazon link to law school case study textbook)

6) Worst Case Scenarios. (Amazon link)

Addendum: Thanks to Matt Welch, Reason magazine’s editor in chief, for obliging the Nudge blog’s request, and for having a sense of humor about it.

To NBC and the Wall Street Journal: Bring back a pair of great poll questions

In July, Hart/Newhouse, the polling firm behind the NBC News/Wall Street Journal poll, included a pair of questions about the riskiness/safety of John McCain and Barack Obama as president.

When asked who “would be the riskier choice for president – John McCain or Barack Obama,” the results were 35 percent for McCain and 55 percent for Obama. When asked who “would be the safer choice for president,” the results were 46 percent for McCain and 41 percent for Obama.

The numbers should be mirror opposites, but a clear framing effect skews them. The question never appeared before July, and was dropped in the August poll. To NBC and the Wall Street Journal: On behalf of behavioral economists, political psychologists, and generally curious American voters, throw us a bone and bring back the questions.

Addendum: @ Tristan. Check out this post if you haven’t already.

Cass Sunstein on Open Source

Over the weekend, Cass Sunstein spoke with Open Source’s Christopher Lydon. In the 30-minute conversation, Sunstein describes the arc of behavioral psychology as it has traveled to the fields of law, economics, and public policy. One tidbit: A behavioral explanation for why employers lay people off during recessions rather than cut their wages. People can’t stand wage cuts, just like they can’t stand higher prices. Cutting wages would induce greater employee shirking. Employers recognize this and trim the workforce instead. In the final half of the interview, Sunstein comments extensively on Barack Obama and the 2008 campaign.

Nudge in the New York Times

Benjamin Friedman of Harvard reviews Nudge in the Sunday New York Times Book Review. It begins:

Yes, there is such a thing as common sense — and thank goodness for that. At least that’s this reader’s reaction to Richard Thaler and Cass Sunstein’s “Nudge,” an engaging and insightful tour through the evidence that most human beings don’t make decisions in the way often characterized (some would say caricatured) in elementary economics textbooks, along with a rich array of suggestions for enabling many of us to make better choices, both for ourselves and for society.

Read the rest here.

In the Sunday magazine, David Leonhardt describes Obamanomics as “both more left-wing and more right-wing than many people realize.” For the article, Leonhardt interviewed Cass Sunstein:

Over sandwiches in that cafeteria this spring, Sunstein told me that he didn’t think that Obama arrived at the law school as an old-style liberal or departed as anything like a Friedmanite. Yet Sunstein and other former Chicago colleagues I spoke with said they believed that Chicago had helped give Obama an intellectual framework for his instincts, at the least, and probably made him come to appreciate markets more.

Obama, when I asked him, agreed that his years surrounded by Chicago School thinking affected him. He tends to assign his motives to more intimate narratives, though, and he said that his grandmother, a high-school graduate who rose to become the vice president of a bank and was the family’s main breadwinner, had the biggest impact. “She had to think very practically about, How do you make money?” he told me. “How does the system work? That led me to have an orientation to ask hardheaded questions. During my formative years, there was still ideological competition between a social-democratic or even socialist agenda and a free-market, Milton Friedman agenda. I think it was natural for me to ask questions of both sides and maybe try to synthesize approaches.”

There is plenty of evidence that this synthesis isn’t merely a part of a candidate’s inevitable tack to the center for a general election. In Obama’s memoir, “Dreams From My Father,” he sympathetically recounts a conversation he had with a Kenyan farmer, in which the man complains both about rich people who won’t pay their fair share of taxes and about burdensome government regulations on coffee growing. In Obama’s second book, “The Audacity of Hope,” he goes further: “Reagan’s central insight — that the liberal welfare state had grown complacent and overly bureaucratic, with Democratic policy makers more obsessed with slicing the economic pie than with growing that pie — contained a good deal of truth.”

The partial embrace of Reaganomics is a typical bit of Obama’s postpartisan veneer. In a single artful sentence, he dismissed the old liberals, aligned himself with the Bill Clinton centrists and did so by reaching back to a conservative icon who remains widely popular. But the words have significance at face value too. Compared with many other Democrats, Obama simply is more comfortable with the apparent successes of laissez-faire economics.

Sunstein, now on the faculty at Harvard, has a name for this approach: “I like to think of him as a ‘University of Chicago’ Democrat.”

George Will writes about Nudge

And the conservative columnist likes it. Will thinks Obama is a libertarian paternalist, and he has a bit of fun with Cass Sunstein’s upcoming move.

Barack Obama is a “choice architect” aiming to implement “libertarian paternalism.” He might not know that he is; he might embrace the practice without understanding the theory. It is adumbrated in the new book “Nudge” by two occasional and informal advisers to Obama, both of whom are former colleagues of his at the University of Chicago, Richard H. Thaler of the Graduate School of Business, and Cass R. Sunstein of the Law School.

Beginning this autumn, Sunstein, while retaining a connection with Chicago, will teach primarily at Harvard, an act of downward mobility that illustrates a central tenet of “Nudge,” that even intelligent and analytical people often make foolish choices.

Read the entire Newsweek column, “Nudge Against the Fudge: Dare we hope that Barack Obama shares the ‘libertarian paternalism’ of two of his former University of Chicago colleagues?”

Sunstein on Obama

Sunstein has revised and extended a piece he originally published this spring on what kind of a person Barack Obama is and what kind of a president he would be. (The original version is here.) A few excerpts from the new version, “Obama: The University of Chicago Democrat,” are posted below:

Some people are describing Obama as a conventional liberal, or as “the most liberal person in the Congress,” but these descriptions are preposterous. Obama is a pragmatist, first and foremost, and he defies the standard political categories. In this sense, he is not only focused on details but is also a uniter, both by inclination and on principle.

He is strongly committed to helping the disadvantaged, but his University of Chicago background shows. He appreciates the virtues and power of free markets. In some of his most important disagreements with Senator Clinton, he suggested caution about mandates and bans, and stressed the value of freedom of choice…

Expect transparency to be a central theme in any Obama administration, as a check on government and the private sector alike. It is highly revealing that Obama worked with Republican Tom Coburn to produce legislation creating a publicly searchable database of all federal spending.

Parrots for Obama

(Hat tip: Andrew Golis)

Thaler in Wall Street journal Q&A

From the Wall Street Journal’s Real Time Economics blog:

WSJ: You and Cass Sunstein have both advised Barack Obama, and your friend and colleague Austan Goolsbee is Sen. Obama’s chief economic advisor. Do you see ways in which the Obama platform employs nudges?

Thaler: There are several ways in which the Obama campaign employs nudges. For example, the idea of automatic enrollment is used in several domains such as his health-care plan, and of course, his reluctance to have a mandate is in line with our philosophical approach. More generally, Obama has embraced the idea of improving the interface between citizens and the government by employing better choice architecture. Obama refers to these ideas as creating an “Ipod government,” meaning that interacting with the government would be as easy to use as the Ipod. One example is Goolsbee’s idea to offer people with no outside income or itemized deductions a prepared tax return they can simply sign and return. This would save tax payers lots of time and money.

Also, the campaign has adopted some of our ideas on improving the Medicare Prescription Drug program. The designers of that program missed the essential point that simply offering people lots of choices (there are 50 more plans per state to choose from) does not make people better off if they are unable to do a good job of picking among the plans. It would be easy to offer participants suggestions that would save both the beneficiaries and the government lots of money. Finally, the campaign has adopted some of our ideas on making the terms of credit card and mortgages easier to understand and more transparent.

The conversation also starts with this amusing question from the WSJ reporter: “I just ate a salad at my desk that’s advertised on its label as 98% fat free. How much better is that for me than a salad that’s 2% fat?”