Newshoggers Archive: Nudger-in Chief

By John Ballard

Here's an interesting exercise. Do a Google search for "Obama policy nudge nudges."

May 6, 2009, one year ago...

Nudge-ocracy

Barack Obama's new theory of the state.

Barack Obama has the type of mind--orderly, analytical, well-read--that takes naturally to the study of ideas. But he's always been uncomfortable describing himself in ideological terms. Is he a liberal? During the campaign, Obama would mock those who applied the label to him: "There's nothing liberal about wanting to reduce money in politics," he'd say. "There's nothing liberal about wanting to make sure [our soldiers] are treated properly when they come home." Is he a moderate? Certainly not when others have suggested it: He once asked the Democratic Leadership Council to remove him from its list of rising stars.

But, when you look at the sum of Obama's early policies, you begin to see the contours of a distinctive philosophy. Unlike the Progressives or the early New Dealers, Obama has no intention of changing the nature of American capitalism. Not through old-fashioned Jeffersonian means (antitrust) or newer-fangled Hamiltonian techniques (industrial planning). His program doesn't set out to reinvent whole sectors of the economy, not even our broken banking system. And, unlike postwar liberals, he has no zeal for ramping up the regulatory state, aside from tightening the screws on financial services. But, even then, he's resisted key parts of Europe's proposal for greater controls on hedge funds.

Like the New Democrats who ultimately shaped the Clinton administration's agenda, Obama has a deep respect for the market and wants to minimize the state's footprint on it. He has little interest in fixing prices or rationing goods or reversing free-trade agreements. But, while he basically shares the New Democrats' instincts, he rejects their conclusions. Reacting against the overweening statism of their liberal ancestors, many New Democrats came to believe that if government largely got out of the way and let markets work properly, the natural result would be widely shared prosperity. You only need to view the extent of Obama's domestic agenda to know he doesn't agree.

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There are no grand theorists in the Obama orbit, certainly no in-house ideologists. During the campaign, Obama sold himself as a green-eyeshade pragmatist, insisting every one of his proposals was "paid for." But, in fact, there is, if not an ideology, then certainly a sensibility that reigns in Obamaland.

Perhaps the easiest place to see it is in the administration's fondness for behavioral economics, the branch of the dismal science that recognizes that humans aren't utility-maximizing automatons, but flawed creatures who often screw up simple calculations and struggle with self-control. The key behavioral insight is that the way we frame choices matters enormously.

New America Foundation

December 17, 2009 |
How Oppressive Can A Nudge Be?

Probably the most distinctive innovation in the Obama Administration's brand of liberalism is its interest in behavioral economics and the power of modest incentives--the �nudge,� as administration official Cass Sunstein calls them--as an instrument of policy. The theory, sometimes called �soft Chicago school� economics because of its association with Sunstein, formerly of the University of Chicago Law School, and Freakonomics co-author Steven Levitt of that university, is that government can guide society gently toward certain results by understanding our sometimes less-than-rational response to choices.
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Countless policies that were created long before behavioral economics came along, as well as countless accidents in the world, have created circumstances that nudge individuals' behavior strongly in one direction or another. The home mortgage tax credit, for example, was established in the 1950s as a way to support the housing industry and help build a middle-class society; today it is a powerful nudge toward one choice--buying a home--and against both other housing options and other forms of savings. A wise �choice architect� might suggest some modernization to that structure. Or, to take the classic example often cited by Sunstein, Goolsbee and others: Most current voluntary retirement savings plans require people to actively choose to participate. Changing them so that people have to opt-out if they don't wish to save retirement preserves the choice but has the effect that far more people will elect to save, and thus will be better off in retirement.

Green nudges: An interview with Obama regulatory czar Cass Sunstein
Two days ago...

"Nudges" impose no mandates. Instead, with canny combinations of framing, informing, and cheerleading, they can inspire free decisions to eat more broccoli, enroll in retirement accounts, and perhaps even rip apart fewer mountaintops. Though he was a mild-mannered law professor at Harvard at the time this interview took place, Sunstein recently became director of the White House Office of Information and Regulatory Affairs. With Sunstein in the role of President Obama's "regulation czar," Americans should prepare to get nudged.

What is a "nudge"? And what in the world is libertarian paternalism?

A nudge is a small change in the social context that makes behavior very different without forcing anyone to do anything. The concept behind libertarian paternalism is that it's possible to maintain freedom of choice -- that's libertarian -- while also moving people in directions that make their own lives a bit better -- that's paternalism. We think it's possible to combine two reviled concepts. Once we put the two together we might start to have a philosophy that a lot of different people can sign on to.

Paternalism implies that there's some notion of what "good" is. How does anyone determine what's "good"? How do we determine what's good for the environment?

For most nudges, we're thinking of people's good by reference to their own judgments and evaluations. We're not thinking that the government should make up its own decision about what's good for people. The environment can fit within that framework to a substantial extent, but it has a wrinkle, which is that often when we buy certain goods or use certain energy or drive certain cars.�we inflict harm on others, so our own judgments about our own welfare aren't complete. We want nudges that do help people who are being nudged but also help people who are harmed by those who are not taking adequate account of the risks they are imposing on other people.

How can we expose those harms and the people committing them?

The nudge approach would be, for energy use in homes and automobiles, to make very clear to people what the costs of their activities are to they themselves. When we're driving cars, most of us don't have a concrete sense of what it's costing per year in gasoline to use a car with bad fuel efficiency. A nudge-like solution is to let bad actors, as we might call them, actually see the economic costs to themselves of what they're doing.

Is there a moral component to environmental nudges? Or this it all about market signals?

I think on a lot of problems, including environmental problems, we can make progress without getting stuck on issues that divide people. The price system can be used in a way that fits with people's moral obligations. If you're inflicting harms on other people but the costs of your actions (become) higher, then you're probably going to inflict lower harms on other people. One of the great tasks of the next decade is to ensure that when people are creating risks though their daily activities, that they bear the cost.

I believe also that one big motivator of behavior is economic and another big motivator is moral, and for certain environmental activities we should appeal to people's conscience. A lot of people are buying hybrids not because they save money, which they might, but because it's the right thing to do. I just bought a hybrid myself. The reason I bought it was moral.