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Nudge Nudge, Wink Wink

Behavioral economics—the governing theory of Obama’s nanny state.

Apr 19, 2010, Vol. 15, No. 29 • By ANDREW FERGUSON
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Among the many transformative experiences President Obama says he has planned for us, one in particular has gone relatively unnoticed. He has vowed to remake the methods by which the federal government regulates our homes, our offices, our roads and brooms and thimbles, our roller skates and garden tools and tortilla chips and sunglasses—nearly everything. The federal government regulates nearly everything already, of course, but now the new administration wants to regulate by different lights. A few days after taking office last year, Obama signed a presidential memorandum to set our new transformative experience in motion. 

Nudge Nudge, Wink Wink

The memorandum began by noting that federal regulatory policy has lately been governed by an executive order issued in 1993. Political activists disliked the old order—EO 12866, as it’s known among regulation buffs—because they saw it as a hindrance to new and ever more sweeping regulations. EO 12866 made the job of regulating difficult by requiring a federal agency to perform onerous cost-benefit analyses on each regulation it proposed and to rework the rules that proved too costly. In his memorandum, the president suggested that this approach, while perhaps well-meaning, was the product of a less sophisticated, pre-Obama era. 

“A great deal has been learned since that time,” he wrote. “Far more is now known about regulation—not only about when it is justified, but also about what works and what does not. .  .  . In this time of fundamental transformation, that process—and the principles governing regulation in general​—should be revisited.” 

President Obama didn’t do away with the cost-benefit requirement, or with Executive Order 12866. Instead he kicked the can down the road, as he likes to say other people are always doing. He ordered the Office of Management and Budget to conduct a 100-day review of 12866 and report back to him. Among other things, he wanted the report to “clarify the role of the behavioral sciences in formulating regulatory policy.”

At this reference a few knowing observers pricked up their ears. During his campaign, the candidate Obama was often portrayed as an intellectual acolyte of “behavioral economics,” a très chic social science that culls up-to-the-minute laboratory research about why human beings behave the way they do and applies it to the world of buying, selling, borrowing, and investing. At the candidate’s elbow, said Time magazine, was a “behavioral dream team”: economists and psychologists steeped in the latest behavioral literature. And once in office the president surrounded himself with many dream-team veterans: Lawrence Summers, Austan Goolsbee, Peter Orszag—behavioralists all. 

He also appointed Cass Sunstein, a former colleague from the University of Chicago Law School, to be his “regulation czar” (journalese for the director of the Office of Information and Regulatory Affairs in the Office of Management and Budget). Being DOIRA of OMB may not sound glamorous—it sounds more like a sinister potentate in Lord of the Rings—but it is easily the most powerful regulatory position in the executive branch, after the president’s. Every significant rule proposed by every federal agency must win the approval of Sunstein’s office, which is now staffed with still more behavioral economists recruited from Harvard, MIT, Princeton, and the Brookings Institution. It’s like behavioral summer camp over there. 

“Relying on behavioral science,” Time announced, Obama and “his administration [are] using it to try to transform the country.”

It’s harder than it looks. 

Behavioral economics—the idea of it, anyway—is a great help to President Obama in his efforts to define himself as a man too complicated and thoughtful to fit the categories of conventional politics. As a candidate he identified himself as an admiring reader of Nudge, a bestseller written by Sunstein and Richard Thaler, another Chicago economist who is often considered the founder of behavioral economics. Nudge was behavioral economics’ popular manifesto, a guide, for policymaker and citizen alike, to “improving decisions about health, wealth, and happiness.” Nudge became a big bestseller, predictably enough, for it was another in a long train of books—the Wisdom of Crowds, Freakonomics, Sway, Wiki-nomics, The Black Swan, the entire oeuvre of New Yorker writer Malcolm Gladwell—that claim to scour the arcane literature of social science and then cleverly apply its findings to everyday life, in ways that the wealthy white people who buy books find flattering, reassuring, amusing, and provocative. But not too provocative.

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