A Small Revolution

The new progressive thinking

American Democrats and European progressives are looking for ways to embed the role of the government into the market thinking. Barack Obama seems headed for a new way: libertarian paternalism.

During her campaign, Hillary Clinton said that Barack Obama was secretly a fan of Ronald Reagan. Obama does write about Reagan’s success in [his book,] The Audacity of Hope. He was worried about the 1980 election, but understood very well why his program was appealing. The Republicans were the party with the ideas at that time.

Different than Reagan, Obama does not have a fixed ideology, let alone such a simple one like that with which Reagan outfitted his life. People who have seen Obama in action pose that he is open to advice and information from varied sources, appreciates empirical material and is self-confident enough to draw his own conclusions. If it weren’t such a catch-all expression, you would call him “pragmatic.”

Of course Obama concluded, like Hillary Clinton, that the Republican ideas were beyond their expiration date. But to come up with new ideas is something very different. Little interesting was to be perceived by the Democrats – and as well with the European social-democrats – in that area. Yet traces were to be found of a new, fresh foundation philosophy in the Obama campaign and now also in his club of advisors, which European progressives can also use to their advantage. A key to this new thinking is the book “Nudge” by economists Richard Thaler and Cass Sunstein, who both teach at Obama’s Chicago University. These ‘behavioral economists’ try to find a new path between free markets and government control, emanating from the determination that the “economic human,” the citizen who makes rational, deliberate choices, is an ideal type that is of little use in practice.

People do not always pursue a maximization of their interests. Sometimes they behave in ways that cannot be explained, out of emotion, fear, laziness or a misunderstood self-interest.

How do you help people make the right choices without putting them in a forcing corset? – that is the essence of “Nudge.” According to Thaler and Sunstein, the government can do that by offering a program in which everyone automatically participates, unless people indicate that they do not want to. In the Netherlands, it was the reason behind the proposition for mandatory organ donation unless one unregistered for it. Everyone was a donor, unless one did not want to be. The authors conclude that in countries where such a program exists, about ninety percent of the people make their organs available. Only ten percent indicates that they do not want that. In countries where people have to sign up as a donor, that percentage lies at about thirty.

Obama would use the process much more often. Social life is full of these kinds of choice processes, and why would the government not be allowed to try to send citizens in the right direction? After all, parties in the free market continuously use this type of directional mechanism to influence choices.

In “Audacity of Hope,” Obama included a proposition to automatically enroll employees in company pension plans with the option to get out if they did not want to be in – the proposition came straight from Thaler and Sunstein. Research showed that if you want people to opt for a pension plan themselves, they mostly do not register for it, not even if it is an especially advantageous program. A non-compelling ‘nudge’ by automatically validating the plan for employees unless they unregister would help, Obama thinks. He seems to share the thoughts of Thaler and Sunstein that in many cases, people do not have specific, balanced preferences. What they choose often depends on the context, the way in which something is framed. Or, out of laziness or lack of insight, they do not make a choice at all.

Whomever is able to direct the choosing process, is able to frame, determines the ‘choice architecture’. That’s nothing new. It happens every day in the market. Based on market research, supermarkets have outfitted their layout in such a way that they influence people in their buying choices. Why would the government not do that? Thaler and Sunstein point to examples like a school cafeteria that offers healthy food next to standard food; in a school cafeteria, profit maximizing is ultimately not the goal (as it is not in most public policy). Of course a problem exists: that the government does not always make the right choices, or can even be influenced by institutions that have an interest in a certain choice. But, according to the writers, at least the government makes a choice and with that offers a starting point.

In an article Thaler and Sunstein published in 2003 in the Chicago Law Review, the authors try to refute the hypothesis that people always make the choices that are best for them or even that those choices would be better than what a third party would choose for them. After all, people have to make most choices in areas in which they have no experience. And every form of government policy already implies choices for citizens. Planners always have an influence.

In the article, the authors introduced “libertarian paternalism,” a nice flag under which this new policy can sail. Locked inside is the freedom those libertarians consider indispensable, be it that it is coupled with a paternalistic government that thinks it knows what is good for its citizens, but that simultaneously gives them the freedom not to care about that. It is crucial that coercion does not play a role. The reason behind this combination is that, according to Thaler and Sunstein, it is completely justified for private but especially for public institutions to influence behavior. People often know too little to make good decisions, and what is more, their decisions are often influenced by external circumstances. According to them, it is OK for the government to be paternalistic by guiding that behavior into a certain direction as ‘choice architects’ with the objective to make their lives longer, healthier and better. The opportunity to opt out gives the citizen the possibility to reject bureaucrats’ ill-considered or wrongly motivated plans. The objective is not to block choices, but to give them direction.

This type of thinking fits completely in Obama’s world. Sunstein calls him a “visionary minimalist,” someone who pursues larges objectives in such a way that he considers the deepest-felt values for as many people as possible. That is why the often-heard comparison with Franklin Roosevelt really fits so badly. Roosevelt was rather maximalistic; he chose far-reaching, all-encompassing programs. Obama’s thought is that by taking people along, by showing respect for their feelings and opinions, you can take bigger steps than was thought possible, with more support.

That does require some consciousness of citizens. You have to enter into discussions with them and take them seriously, always keeping open the possibility that you might be wrong. In that respect, the term “deliberative democracy” appears in Obama’s book, which sounds like an American type of sharp pondering. As he nicely puts it: “Our democracy is not a house that we have to build, but rather a conversation we have to have.” That will not guarantee that the decision society takes is the right one, he continues. It can say whether abortion is good or bad, whether school prayer is better than no prayer. “But,” Obama writes, “it forces us into a discussion, a deliberative democracy in which all citizens are expected to participate in a process of testing ideas.”

[This may be] naive according to some, but according to Obama [it is] the exact way in which his role model Abraham Lincoln came to his most important decisions. This is the Obama who can understand why the agenda of Ronald Reagan was so appealing, even though he did not agree with it himself. The Obama who realizes that poverty of ideas triggers a counter-reaction. The critiques are predictable. The left wing will say that libertarian paternalism is not far-reaching enough. The government must be able to impose things, such as having health insurance. And the question of course is how far you want to go. Are you allowed to get out of the old-age pension? That would undermine the broad, general coverage of such a system.

Economists like Paul Krugman and Robert Kuttner find Obama’s thinking naive. Kuttner calls it minimalism of the worst kind, a policy in which you cannot do anything during a depression. And another objection is that people have to be allowed to make mistakes, an argument that Dutch liberals rather love as well. However, that seems to be a feigned argument, because that space remains intact: no one obliges citizens to accept the “default option,” the automatic option. You are allowed to voluntarily drive your car into the ditch. But you must have decided on it.

It will take some getting used to, this new direction in the field of choices. But when the government has to act, the old left economist will have less trouble seeing themselves in Obama. A large-scale program of infrastructural provisions to keep 2.5 million people employed in a society-friendly way, fits only too well in the Keynesian image. Obama will have to see to it that such programs remain temporary. Also, the government must have the possibility to get out of something, maybe even be obliged to do so after a certain time. Because in this new progressive thinking it is never self-evident that the government acts, forces, or only directs. It is always deliberative. That is the new thing in Obama’s vision. A small revolution.