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Old 04-23-2009, 07:20 PM  
Direckshun Direckshun is offline
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Nudge-ocracy

The New Republic, with the best description of the Obama economic theory I've read yet.

http://www.tnr.com/story_print.html?...1-419bd957e926

Nudge-ocracy
Barack Obama's new theory of the state.

Franklin Foer and Noam Scheiber, The New Republic
Published: Wednesday, May 06, 2009


Barack Obama has the type of mind--orderly, analytical, well-read--that takes naturally to the study of ideas. But he's always been uncomfortable describing himself in ideological terms. Is he a liberal? During the campaign, Obama would mock those who applied the label to him: "There's nothing liberal about wanting to reduce money in politics," he'd say. "There's nothing liberal about wanting to make sure [our soldiers] are treated properly when they come home." Is he a moderate? Certainly not when others have suggested it: He once asked the Democratic Leadership Council to remove him from its list of rising stars.

But, when you look at the sum of Obama's early policies, you begin to see the contours of a distinctive philosophy. Unlike the Progressives or the early New Dealers, Obama has no intention of changing the nature of American capitalism. Not through old-fashioned Jeffersonian means (antitrust) or newer-fangled Hamiltonian techniques (industrial planning). His program doesn't set out to reinvent whole sectors of the economy, not even our broken banking system. And, unlike postwar liberals, he has no zeal for ramping up the regulatory state, aside from tightening the screws on financial services. But, even then, he's resisted key parts of Europe's proposal for greater controls on hedge funds.

Like the New Democrats who ultimately shaped the Clinton administration's agenda, Obama has a deep respect for the market and wants to minimize the state's footprint on it. He has little interest in fixing prices or rationing goods or reversing free-trade agreements. But, while he basically shares the New Democrats' instincts, he rejects their conclusions. Reacting against the overweening statism of their liberal ancestors, many New Democrats came to believe that if government largely got out of the way and let markets work properly, the natural result would be widely shared prosperity. You only need to view the extent of Obama's domestic agenda to know he doesn't agree.

Instead, Obama has set out to synthesize the New Democratic faith in the utility of markets with the Old Democratic emphasis on reducing inequality. In Obama's state, government never supplants the market or stifles its inner workings--the old forms of statism that didn't wash economically, and certainly not politically. But government does aggressively prod markets--by planting incentives, by stirring new competition--to achieve the results he prefers. With health care, for instance, he would make it easier for employees to tote their insurance from job to job, eliminating the disincentive for insurers to invest in preventive care. Or take his bank plan, which helps banks dispose of their toxic assets, reducing uncertainty and making the banks more attractive to private investors--a far less drastic step than nationalization. Rather than force markets to conform to his wishes, he shapes their calculus so they conclude (on their own) that their interests coincide with his wishes.

Obama is hardly the first president to grasp the appeal of manipulating incentives and altering the context in which we make decisions. In the mid-'70s, Charles Schultze, Jimmy Carter's top White House economic adviser, sketched out a version of the conceit in a book called The Public Use of Private Interest. Schultze favored "harnessing the 'base' motive of material self-interest to promote the common good"--say, by taxing rather than outlawing harmful activities. A generation later, the behavioral theorists Richard Thaler and Cass Sunstein, both informal advisers to the Obama campaign, hatched a descendant of this approach. In their own book, Thaler and Sunstein suggested that the government inculcate desirable habits like saving and philanthropy through a series of gentle "nudges."

Given the alternatives--even greater federal involvement, even more federal dollars--such "harnessing" and "nudging" makes enormous political sense. But Obama's version also represents a huge gamble. Many countries have nationalized banks and run health care systems--and we have, at least, a good sense of how those programs would turn out. The Obama approach is largely untested on the scale he proposes, which is far greater than anything Schultze or Thaler and Sunstein imagined. His plans can be dismayingly complex; they often involve heroic assumptions about how people respond to new incentives. There's more than a hint of Ira Magaziner--the much-derided architect of Bill Clinton's 1993 health care plan. But, if it works, Obama will have truly found the Third Way Clinton grasped for a decade ago.



By 1976, Schultze could no longer contain his frustration with the inefficient "command-and-control"-style regulations Democrats had embraced for a decade. He laid out an alternative vision in a series of lectures on the eve of the Carter administration. Under the prevailing approach to worker safety, for example, bureaucrats would hit employers with an endless list of dos and don'ts. "If specific regulations are the only bar to prevent social damages," Schultze wrote, "first it will take 21 pages to deal with ladders, and then even more as time goes on." Schultze advocated a far more elegant alternative: worker-injury taxes and steep workers' comp payouts. By making injuries costly to employers, the government could improve safety without peering onto every factory floor in America.

Schultze helped sell Carter on deregulation, which he brought to the airline and trucking industries. And, though Schultze's broader agenda died with Carter's failed presidency, his ideas lived on in the minds of liberal technocrats like Gary Hart and Michael Dukakis. Then, in 1992, Bill Clinton discovered them through the work of an influential policy guru named David Osborne. Osborne's big idea was "reinventing government" to make it more efficient, more responsive, and altogether more businesslike. In the process, he advocated certain reforms--like public-school choice, tenant ownership of public housing, competition between government and the private sector--that would achieve desired outcomes with a lighter bureaucratic touch. The government should "steer, not row," Osborne proclaimed.

At the time, Clinton was running on a two-pronged strategy of harnessing populist resentments while also redeeming the Democratic Party from its Great Society overreach. Toaccomplish the first goal, Clinton called for strict limits on executive pay and investments in worker retraining. When it came to the second, the Schultze-Osborne model held considerable appeal, and Clinton leaned on it heavily. In response to George H.W. Bush's charge that he was pushing warmed-over tax-and-spend liberalism, Clinton took a page (almost literally) from Osborne's book, telling an audience at the University of Connecticut he wanted to run "a government that steers more than it rows; a government that is a catalyst for action by others; a government that is market-oriented, less bureaucratic, and more entrepreneurial."

After Clinton won, both liberal populists and Osborne-like moderates had reason to believe he would stand with them. Which might have been possible in less constrained times. But the deficits of the early '90s threw the two wings of the party into direct competition. During the transition, Clinton's economic advisers concluded that, if the fiscal status quo persisted, the red ink would top $350 billion by 1997. It sounds almost quaint in our current era of trillion-dollar deficits. But, at the time, the anxiety was palpable. Long-term interest rates had jumped in the fall, and inflation fears were pervasive. Clinton's incoming chairman of the Council of Economic Advisers, Laura Tyson, warned of a "long-term risk of financial collapse," according to Bob Woodward's The Agenda.

Clinton, like Obama, had spent the transition hashing out his budget priorities and the shape of a stimulus for a recession-weakened economy. He eventually made the exact opposite choices his Democratic successor would, scaling back his beloved middle-class tax cut and domestic spending plans in favor of deficit reduction. The theory behind this decision came straight from Fed chairman Alan Greenspan, vouched for by Clinton's then-economic aide Robert Rubin: The bond market would bid down long-term interest rates in anticipation of lower deficits, which would eventually spur economic growth. Shrinking the deficit would also free up capital for private investment. Still, the move was likely to inflict pain early on, and the realization set Clinton brooding. When Al Gore urged him to be bold like Roosevelt in the 1930s, Clinton snapped: "Roosevelt was trying to help people. Here we help the bond market and we hurt the people who voted us in."

And yet, somehow, Clinton managed to satisfy both--and far sooner than his advisors anticipated. Before long, the economy was creating jobs at a dizzying clip--ten million between 1993 and 1997, another eight million between 1997 and 2000. Rising productivity was driving up wages across the income spectrum. By some measures, poverty was the lowest since the government had begun keeping track. It really did look like shrinking deficits had triggered lower interest rates and unleashed a wave of private investment that was powering the economy to new heights.

It's what came next that darkens the narrative. Amid all the new economy triumphalism, the Clintonites deregulated the telecommunications industry and repealed New Deal-era restrictions on bank consolidation. In 1997, Clinton even signed a bill lowering the capital-gains tax rate, that perennial GOP fetish. Having begun their administration grudgingly appeasing Greenspan, the Clintonites gradually embraced his view that, in many cases, government could do no better than step aside.



In recent months, several of the architects of Clintonomics--Larry Summers, Gene Sperling, Rahm Emanuel--have reassembled to take another crack at creating broad-based prosperity. What's striking is the change in their thinking about how to pull it off.

In fact, the center-left had revised its economic theories while the bubble was still inflating. Beginning in 2004, the data gradually began to undermine the Clintonites' central assumption: that the benefits of growth would accrue to the poor and middle class. Their policies, it turns out, had only temporarily tamped down the income inequality that had been rising since the 1970s. Workers' wages had once tracked productivity growth. Now workers were producing more, but only the wealthy were reaping the rewards; everyone else's income had basically flattened out. The economists Robert Gordon and Ian Dew-Becker, both then at Northwestern, put into words what much of their profession was thinking. "A basic tenet of economic science is that productivity growth is the source of growth in real income per capita," they wrote in 2005. "But our results raise doubts, that we find surprising and even shocking, about the validity of that ancient economic paradigm." Worse still, it was tough to pin these findings on George W. Bush. Although his tax cuts had undoubtedly exacerbated the trend, they couldn't account for what was happening to pre-tax income.

Suddenly the '90s were looking less and less like the dawn of a new economic model and more like a historic anomaly fueled by a once-in-a-lifetime technology boom. And what remained when the boom subsided was insecurity, dislocation, and stagnating standards of living. Globalization was especially bracing. The Clintonites had believed strongly in greasing the flow of goods and capital across borders. Now they wondered if they'd oversold the benefits and understated the costs. Alan Blinder, a former Fed Vice Chairman and White House economic adviser, published a paper warning that between 22 and 29 percent of all U.S. jobs were at risk of being "offshored."

In 2006, Rubin launched a think tank called the Hamilton Project, whose aim was to design a response to the insecurity that didn't threaten free trade and fiscal discipline. Peter Orszag, the former White House aide Rubin hired to run it, christened the approach "warm-hearted but cool-headed." In many respects, the effort represented a new consensus within the party, and the locus classicus of the kumbaya spirit was a New York Times op-ed jointly authored by Rubin and Jared Bernstein of the labor-backed Economic Policy Institute. The two men professed their shared desire to see a revived labor moment, one of the few forces they could imagine restoring workers' bargaining power.

During his campaign for the Democratic nomination, Obama sometimes seemed more interested in filleting Clintonism than signing onto the center-left truce. He famously thrashed the politics of triangulation in a Des Moines Jefferson-Jackson Dinner speech that may have saved his campaign. But, looking back over his time in the national spotlight, the periodic sops to populism stand out as the exception. In The Audacity of Hope, Obama endorsed fiscal conservatism and deferred to Rubin's instincts on trade. A dialogue between the two about the loss of jobs at an Illinois Maytag plant ends with Obama nodding in agreement: "It was hard to deny Rubin's basic insight," Obama wrote. "We can try to slow globalization, but we can't stop it."

When the Hamilton Project launched in 2006, Obama attended the group's maiden event and lavished it with praise: "some of the most innovative, thoughtful policy-makers ... the sort of breath of fresh air that I think this town needs." He affirmed this conclusion after winning the election, stocking his administration with the think tank's highest-profile contributors.

He was going to need them. The problem with Clintonism was that it had partly sacrificed the goals of 1960s- and '70s-style liberalism even though it had only meant to exorcise the bogeymen. Hence Obama's challenge: to reclaim progressive goals without the economic self-sabotage of the earlier era.
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Old 07-05-2011, 08:28 AM   #16
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Instead, Obama has set out to synthesize the New Democratic faith in the utility of markets with the Old Democratic emphasis on reducing inequality.
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Old 07-05-2011, 09:23 AM   #17
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Damn. Just Damn. This article is as far from reality as I have ever read.
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Old 07-05-2011, 09:55 AM   #18
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Damn. Just Damn. This article is as far from reality as I have ever read.
It's funny that all the moonbats believed all that tripe back then, but it's sad, pathetic, horrifying really, that they still believe it.
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Old 07-05-2011, 09:58 AM   #19
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Fart...I started reading it because I thought it was NUDE-OCRACY
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Old 07-05-2011, 10:47 AM   #20
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Fart...I started reading it because I thought it was NUDE-OCRACY
It should read Idiot-ocracy.

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Old 07-05-2011, 11:00 AM   #21
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Old 07-05-2011, 08:35 PM   #22
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Damn. Just Damn. This article is as far from reality as I have ever read.
Drugs. Only way to explain the OP
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Old 07-06-2011, 08:34 AM   #23
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Damn. Just Damn. This article is as far from reality as I have ever read.
It's sickening that someone could even dream it up.
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Old 07-08-2011, 06:39 AM   #24
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Old 07-09-2011, 07:45 PM   #25
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Old 08-03-2013, 10:28 AM   #26
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