|The new economics of the coming era is based on sustainable energy development and companies like Google, which are not competitors in a free market system but world-changing emergent institutions that are part of an ecosystem of companies that cooperate, compete, and learn from each other. Game theory, psychological experiments, and agent-based modeling are part of the way we will look at the world. You can already see the changes in politics, not just Moveon and the netroots, but Drew Westen and George Lakeoff and their analysis of framing.
I blogged earlier this month about the terrific book No One Makes You Shop at Walmart by Tom Slee, an activist and programmer who goes at free market fundamentalism using game theory and behavioral economics. The evil twin of his book is Sunstein and Thaler's Nudge. Sunstein is an important influence on Obama, serving as a legal advisor as well as being married to Sam Powers, an important foreign policy advisor to Obama (they met on the campaign). His prominence in the next administration is why I was curious about Nudge.
Sunstein is a prodigious legal scholar, putting out books at a stunning clip. Usually what he does is package a set of ideas from another sector into a marketable and media digestable recipe, and Nudge is no different. The authors go through the standard litany of important concepts; anchoring, herding, biases, imperfect information, defaults, incentives, and feedback. Anchoring, for instance, is the concept that the first price you hear for an item is forever the price associated with that item. If someone tells you a diamond is worth $5000, it is a luxury item and getting one for $4000 is a deal. If someone tells you a piece of artificial condensed carbon is worth $50 for industrial uses, you'll feel ripped off if someone puts a price tag of $60 on the same stone that was a steal at $4000. The Tipping Point basically told this story, but better.
Still, these are important ideas, because they undermine the notion that free markets exist as neutral arbiters, showing markets as artificial constructs with important regulatory choices built into them. This is a newly emergent set of ideas, and who controls their interpretation will control the public policy choices they imply. As we move into an era where free market fundamentalism dies, it's important to keep our eyes on the framers of the new intellectual moment. Ideas can be used to prop up the corrupt system we have now, or to renew it. Sustein and Thaler are firmly on the side of propping it up. In chapter 6, for instance, Sunstein and Thaler go into a long discussion of savings rates and the importance of opt-in versus opt-out strategies for getting people to save more for their retirement. This, though, is how it's framed, on page 103.
As all politicians know but few are willing to admit, we will eventually have to bite the bullet in order to make Social Security solvent, through some combination of tax increases or benefit cuts.
That is exactly 100% out of the conventional wisdom from the 1960s conservative movement, which treats Social Security as a ponzi scheme. It is unsupported by evidence, as the 'insolvency' date for Social Security keeps being moved up every few years, but it is the way that Sunstein supports his theory of 'libertarian paternalism', which is an updated version of the DLC mantra that we must find a solution between a socialist regulatory state and a free market. Here's how Nudge explains this philosophy and its political viability.
Libertarian paternalism, we think, is a promising foundation for bipartisanship. In many domains, including environmental protection, family law, and school choice, we will be arguing that better government requires less in the way of government coercion and constraint, and more in the way of freedom to choose. If incentives and nudges replace requirements and bans, government will be both smaller and more modest. So, to be clear, we are not for bigger government, just for better governance
The notion of 'nudges', or various things government and business can do to control human behavior without Stalinist regulation, is not new or particularly interesting. For instance, labor unions and business are locked in a multi-million death struggle about card check, which is simply a way of voting for or against labor representation. Labor wants to be able to use petitions or voting, business wants just voting. More examples include voter ID laws that help suppress the vote, ballot designs that privilege one candidate over another, and urban design and sidewalks that encourage or discourage driving. Yet more examples include economic assistance to low income women to reduce abortions, or the fight over abstinence-only education to lower the rates of STDs.
Thaler and Sunstein create new language to describe people who design the defaults in various systems, such as 'choice architect', but once again, this is not even close to a new idea. Bookshops have been charging money for retail placement for years; want your book at eye level, that'll be extra. No, the real point of this book is not to teach anyone about behavioral economics, but to enforce a Beltway orthodoxy that is anti-government to the core.
Here's how Thaler and Sunstein describe how appealing this idea is to politicians.
Libertarian paternalism with respect to savings, discussed in chapter 6, has received enthusiastic and widespread bipartisan support in Congress, including from current and former conservative Republican Senators such as Robert Bennett (Utah) and Rick Santorum (Pa.) and liberal Democrats such as Rahm Emanuel.
Rahm Emanuel a liberal? On what planet? He's a war supporter, a supporter of retroactive immunity for telecom companies, and wants to maintain the hedge fund loophole allowing hedge fund managers to retain more of their earnings than ordinary citizens. For Sustein and Thaler, Emanuel is a liberal because it's useful for Emanuel to be a liberal in the kabuki world that is the Beltway, where government is just too darn big.
If Sunstein and Thaler were serious about the concept of 'Nudges', they would have tackled the most difficult and largest part of government - the Defense Department. Surely, if the concept of a 'Nudge' were so powerful, and government did not need to mandate and enforce, war would be unnecessary. After all, bombing Iraq or invading Afghanistan is not exactly a nudge, it's more of a sledgehammer. And the DoD probably has ample places where Nudges would cut down on the amount of force it would have to prepare to use. The entire surveillance state, with costly surveillance techniques like metal detectors, would also be a ripe target, or perhaps the war on drugs. But no, these are untouchable subjects, even though Sunstein argues that government is too big and ineffective with its mean Socialist mandates and rules.
Ultimately, behavioral economics is going to take over from free market fundamentalism because markets are only one useful tool in governing a society. We're not there yet. And Sunstein, who is as Beltway oriented as they get and probably in line for a Supreme Court appointment or a very senior position of influence in the Obama administration, shows us why.
I'll leave you with a quote from Sunstein and Thaler from page 253, which could have been ripped from Jimmy Carter, Gary Hart in the 1980s, Bill Clinton in 1992, or Barack Obama today.
Ever since Franklin Delano Roosevelt's New Deal, the Democratic Party has shown a great deal of enthusiasm for rigid national requirements and for command-and-control regulations. Having identified serious problems in the private market, Democrats have often insisted on firm mandates, typically eliminating or at least reducing freedom of choice. Republicans have responded that such mandates are often uninformed or counterproductive - and that in light of the sheer diversity of Americans, one size cannot possibly fit all. Much of the time, they have argued on behalf of laissez-faire and against government intervention. At least with respect to the economy, freedom of choice has been their defining principle.
What else is there to say about this book except that Sunstein and Thaler think that the Republican Party is pro-choice?