I was just reading a review by John Cassidy of the book Nudge: Improving Decisions About Health, Wealth, and Happiness, by Richard Thaler and Cass Sunstein. (New York Review, June 12)
One reason the book matters is that its authors are on a wavelength with Barack Obama and "behavioral economics" – a bridge between the extremes of Keynesian big-government economics (FDR, et al) and doctrinaire capitalism, in which the free market settles all questions and solves all problems. This battle has dominated economic policy for most of the past hundred years.
In the world of Thaler, Sunstein, and Obama, when markets get badly out of whack, you don’t necessarily need massive new regulations and controls, but you may need a nudge.
For example, only 60% or so of eligible employees sign up for 401K plans, so 40% are missing a golden opportunity to build a comfortable retirement. Solution: change 401K plans so that people are automatically enrolled unless they choose to opt out. About 90% stay enrolled.
Simple. Non-controversial. Low cost. Millions of people are better off. Everybody wins – because it suits the way people naturally tend to act instead of trying to shoe-horn them into a bureaucratic process. Behavioral economics.
Or take the problem of excessive cell phone charges. Don’t try to put in caps and limits and a big regulatory enforcement apparatus (which wouldn’t work well anyway because lobbyists would eventually pull its teeth). Just require that cell phone companies make all the fees crystal clear up front and available in a public directory — available to you, me, the media, the blogosphere, and Consumer Reports. The bandits and the sneaks will have to clean up their acts or lose all their customers.
Ditto with greenhouse gas and carbon emissions – establish a readily available inventory into which all emitters have to report all their emissions.
Thaler and Sunstein call it Regulation through Revelation. A little sunshine, that’s all. Transparency in government is also one of the first things Obama mentions in the Technology proposals on his website. His programs for Energy and Environment, Education, and others include elements of commonsense behavioral economics.
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A few "nudges" from Obama's web site:
GOVERNMENT TRANSPARENCY
Sunlight Before Signing: Too often bills are rushed through Congress and to the president before the public has the opportunity to review them. As president, Obama will not sign any non-emergency bill without giving the American public an opportunity to review and comment on the White House website for five days.
Obama's Transparency and Integrity in Earmarks Act will shed light on all earmarks by disclosing the name of the legislator who asked for each earmark, along with a written justification, 72 hours before they can be approved by the full Senate.
[He will require] his appointees who lead Executive Branch departments and rulemaking agencies to conduct the significant business of the agency in public, so that any citizen can watch a live feed on the Internet as the agencies debate and deliberate the issues that affect American society. He will ensure that these proceedings are archived for all Americans to review, discuss and respond. He will require his appointees to employ all the technological tools available to allow citizens not just to observe, but also to participate and be heard in these meetings.
ECONOMY/FINANCE
Mandate Accurate Loan Disclosure: Obama will create a Homeowner Obligation Made Explicit (HOME) score, which will provide potential borrowers with a simplified, standardized borrower metric (similar to APR) for home mortgages. The HOME score will allow individuals to easily compare various mortgage products and understand the full cost of the loan.
Create a Credit Card Rating System to Improve Disclosure:
Obama will create a credit card rating system, modeled on five-star systems used for other consumer products, to provide consumers an easily identifiable ranking of credit cards, based on the card's features. Credit card companies will be required to display the rating on all application and contract materials, enabling consumers to quickly understand all of the major provisions of a credit card without having to rely exclusively on fine print in lengthy documents.
HEALTHCARE
National Health Insurance Exchange: The Obama plan will create a National Health Insurance Exchange to help individuals who wish to purchase a private insurance plan...
The Exchange would evaluate plans and make the differences among the plans, including cost of services, public.
Lower prescription drug costs. The second-fastest growing type of health expenses is prescription drugs. Pharmaceutical companies are selling the exact same drugs in Europe and Canada but charging Americans more than double the price. Obama will allow Americans to buy their medicines from other developed countries if the drugs are safe and prices are lower outside the U.S.
Both public and private insurers tend to pay providers based on the volume of services provided, rather than the quality or effectiveness of care. Providers who see patients enrolled in the new public plan, the National Health Insurance Exchange, Medicare and FEHBP will be rewarded for achieving performance thresholds on outcome measures.
HIGHER EDUCATION
Make college affordable for all Americans by creating a new American Opportunity Tax Credit. This universal and fully refundable credit will ensure that the first $4,000 of a college education is completely free for most Americans, and will cover two-thirds the cost of tuition at the average public college or university and make community college tuition completely free for most students. Obama will also ensure that the tax credit is available to families at the time of enrollment by using prior year's tax data to deliver the credit when tuition is due.
Streamline the financial aid process by eliminating the current federal financial aid application and enabling families to apply simply by checking a box on their tax form, authorizing their tax information to be used, and eliminating the need for a separate application.
ENVIRONMENT
Obama supports implementation of a market-based cap-and-trade system to reduce carbon emissions by the amount scientists say is necessary: 80 percent below 1990 levels by 2050. Obama's cap-and-trade system will require all pollution credits to be auctioned. A 100 percent auction ensures that all polluters pay for every ton of emissions they release, rather than giving these emission rights away to coal and oil companies.