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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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In Nudge, Thaler says, he and Sunstein drew on behavioral economics to create a “philosophy that was beyond left and right.” They call it “libertarian paternalism,” also “soft paternalism.” It’s libertarian (and soft) because it forswears government mandates wherever possible. It’s paternalistic because it wants government to “nudge” citizens into behaving in ways that policymakers prefer. Thaler and Sunstein know that libertarians find their philosophy too paternalistic and paternalists find it too libertarian, and that’s just fine with them. They cast libertarian paternalism as the via media, the third way, moderate and reasonable, avoiding political extremes and the snares of ideology. It’s Gergenism for the thinking man. The oxymoron, joining two incompatibles, perfectly encapsulates the promise of Obama himself: something fresh, exciting, and highly improbable. 

Obama’s courtiers in the press, hungry for hints of their man’s moderation, have been happy to oblige the oxymoron. When Sunstein announced that Obama wasn’t “an old style Democrat who’s excited about regulations for their own sake,” the New Republic pointed out, Pavlov-style, that Obama was a New Kind of Democrat—newer than the last New Kind of Democrat, Bill Clinton, and newer certainly than Michael Dukakis, an older New Kind of Democrat who inherited the title from an even earlier New Kind of Democrat, Gary Hart. (You have to go all the way back to poor Walter Mondale to find an Old Kind of Democrat, and even he was preceded by Jimmy Carter, himself a very old New Kind of Democrat circa 1976.) 

“Obama has no intention of changing the nature of American capitalism,” the New Republic reporters insisted. He didn’t have to, with behavioral economics at hand. “His program doesn’t set out to reinvent whole sectors of the economy. .  .  . Unlike postwar liberals, he has no zeal for ramping up the regulatory state.” Instead, they said, he was a “nudge-ocrat,” who would preside over a “nudge-ocracy.” The Wall Street Journal proclaimed the onset of the “nudge state,” and Thaler declared that Sunstein, as DOIRA of OMB, would be “nudger-in-chief.” The word play went on and on.

Just as Obama is a liberal Democrat who, his admirers insist, isn’t really a liberal Democrat, behavioral economics proposes government regulation that, behavioral economists insist, isn’t really regulation. Under the influence of libertarian paternalism, regulators abandon their old roles as mini-commissars and become “choice architects,” arranging the everyday choices that members of the public face in such a way that they’ll naturally do the right thing—eat well, conserve energy, save more, drive safely, floss. In the literature the unavoidable example of this involves cafeteria food. Customers in line are more likely to choose food displayed at eye level; this concept, called “salience,” comes to us from behavioral science lab work. A wised-up cafeteria operator who wants his customers to eat healthier foods—at a high school, for example—will give prominent place to fresh fruits in the dessert line and push the Boston Cream Pie to the back. The kids won’t be forced to choose the fruit; the pie will still be there, if their pudgy little arms can reach it. 

Look what happens next. Behavioral economics tells us that fruit consumption will surge, because the choice architect has nudged the customers—not forced them!—into making the healthy choice. 

A more substantial instance of behavioral economics in action has to do with 401(k) savings plans. If an employer simply offers employees the plan, allowing them to choose to opt in or opt out, most of them, under the power of inertia, won’t bother to enroll, even though the 401(k) clearly works to their advantage. Yet all they need is a good nudge to save them from their bovine lassitude. Employers can reverse the default choice and automatically enroll them in the plan. Now lazy people who do nothing find themselves with a 401(k); those alert employees who don’t want to participate can actively choose to opt out, though behavioral economics says that few will do so. Thus the savings pile up and futures brighten, and none of these indolent but suddenly happy people will even know they’ve been nudged. 

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