Can Obama do more than “nudge”?

Government by Obamanomics is surmised to be a government that suggests and encourages, rather than intervenes. But will that be enough if the economy gets worse?

Topics: 2008 Elections, U.S. Economy, Globalization, Barack Obama, How the World Works, Economics,

Do the economic policies of Barack Obama represent a “Third Way” between the militant free market ideology of Milton Friedman and the Chicago School, on the one hand, and the much more interventionist approach favored by the followers of John Maynard Keynes, on the other? Writing in The New York Review of Books, John Cassidy joins the growing chorus of observers who look at Obama’s affiliation with up-and-coming “behavioral economists” and concludes that he belongs to neither the Keynesian or Friedmanite camp; instead, he occupies a netherland in between, where the market is neither worshipped, nor manhandled.

“Economics: Which Way for Obama?” is ostensibly a review of Cass Sunstein and Richard Thaler’s “Nudge: Improving Decisions About Health, Wealth, and Happiness.” But the real target is Obama, who Cassidy defines as occupying a middle ground between John McCain’s do-nothingism and Hillary Clinton’s aggressive New Deal stance.

If Obama isn’t an old-school Keynesian, what is he? One answer is that he is a behavioralist –the term economists use to describe those who subscribe to the tenets of behavioral economics, an increasingly popular discipline that seeks to marry the insights of psychology to the rigor of economics…. One of the reasons this approach has proved so popular is that it appears to provide a center ground between the Friedmanites and the Keynesians, whose intellectual jousting dominated economics for most of the twentieth century.

The question is: Popular with whom? For pragmatic intellectuals who are both weary and contemptuous of ideological approaches to economic policy-making, a middle ground stance is innately attractive. Instead of ordering people what to do, or abandoning them to the whims of the market, behavioral economists urge government to structure economic policy so as to encourage, or “nudge” people into doing the “right” thing, insofar as that is defined by whoever is making the policy. It sounds smart, it sounds fair, it sounds, above all, different. You could even call it “change.”

But in a weak, bordering-on-recessionary economy, a behavioral economics approach may strike some people as weak medicine, especially if they are struggling to make ends meet. Cassidy notes that “should Obama win the nomination, political considerations may well force upon him a more interventionist position, ” but the truth is, his path to the (likely) nomination has been hindered, particularly in Ohio and Pennsylvania, precisely because he hasn’t been willing to move as quickly to the left as Hillary Clinton.

Behavioral economics portrays a world with considerably more nuance than what we normally get from Friedmanites or resurgent New Dealers. But in hard times, nuance is a luxury. If things get really bad, then Cassidy’s conclusion is spot on: ” If the next Democratic president wants to leave a truly lasting legacy, he or she will have to do more than nudge the country in a different direction.”

Andrew Leonard

Andrew Leonard is a staff writer at Salon. On Twitter, @koxinga21.

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