March 8, 2010
A little more than a year into its ascendancy at the White House, behavioral economics as a key policy-making tool may be on the wane.
The opening weeks of the Obama administration were a coming-out party for economists who hold that incomplete information, subtle obstacles to participation and confusion tend to make people act in economically irrational ways. Economic policy can "nudge" people and institutions into more efficient, economically beneficial behavior without heavy-handed command-and-control measures in regulation and legislation, they argue.
Cass Sunstein, co-author of the behaviorist bible, Nudge, took up residence at the White House Office of Information and Regulatory Affairs, while behavioral economist Jeff Liebman is acting deputy director of the Office of Management and Budget. Yet another true believer, Austan Goolsbee, took a seat on the Council of Economic Advisers.
At this time a year ago, the order of the day was disclosure, transparency and light-touch policy proposals, such as automatically enrolling workers into 401(k) plans and simplifying student-loan forms.
But in recent weeks, President Barack Obama has proposed regulating health-insurance rate increases, separating commercial banking from investing on behalf of their own bottom lines, and prohibiting commercial banks from owning or investing in private-equity firms or hedge funds.