The Audacity of Data
Barack Obama's surprisingly non-ideological policy shop.
Noam Scheiber, The New Republic Published: Wednesday, March 12, 2008
As a young economics professor in the late 1970s, Richard Thaler began noticing small but nagging ways in which ordinary people defied the predictions of economic theory. A friend confided that he mowed his lawn to save $10, but winced at the suggestion that he mow someone else's to make $10. A colleague confessed that he'd never go out and buy a $50 bottle of wine for a family meal, but that he'd recently opened up a $50 bottle at dinner because it happened to be lying around. The textbooks assumed people would behave identically when equal amounts of money were at stake. But here they were doing completely different things depending on the context.
By the late '80s, Thaler had begun recording these observations in a column for a leading academic journal. The column laid the groundwork for a book, called The Winner's Curse, published in 1994. And the book widely signaled the arrival of a previously obscure sub-field known as behavioral economics. Behaviorists like Thaler believed that the perfectly rational, utterly selfinterested maximizers of economists' imaginations had little in common with actual human beings, who frequently err when making simple calculations, who have trouble with self-control, who often act out of altruism or spite.
But what's really interesting is how Thaler and his fellow behaviorists responded to this fairly critical insight. Though rational self-interest was the central tenet of neoclassical (i.e., modern) economics, they didn't take a wrecking ball to the field and replace it with some equally sweeping theory of human behavior. Instead, they labored to bring economics closer in line with how the world actually works, one small adjustment at a time. "'Discovery commences with the awareness of anomaly,'" Thaler wrote in the introduction to The Winner's Curse, quoting the philosopher Thomas Kuhn. "I hope to accomplish that first step--awareness of anomaly. Perhaps at that point we can start to see the development of the new, improved version of economic theory."
As it happens, Thaler is revered by the leading wonks on Barack Obama's presidential campaign. Though he has no formal role, Thaler presides as a kind of in-house intellectual guru, consulting regularly with Obama's top economic adviser, a fellow University of Chicago professor named Austan Goolsbee. "My main role has been to harass Austan, who has an office down the hall from mine, " Thaler recently told me. "I give him as much grief as possible." You can find subtle evidence of this influence across numerous Obama proposals. For example, one key behavioral finding is that people often fail to set aside money for retirement even when their employers offer generous 401(k) plans. If, on the other hand, you automatically enroll workers in 401(k)s but allow them to opt out, most stick with it. Obama's savings plan exploits this so-called "status quo" bias.
And, yet, it's not just the details of Obama's policies that suggest a behavioral approach. In some respects, the sensibility behind the behaviorist critique of economics is one shared by all the Obama wonks, whether they're domestic policy nerds or grizzled foreign policy hands. Despite Obama's reputation for grandiose rhetoric and utopian hope-mongering, the Obamanauts aren't radicals--far from it. They're pragmatists--people who, when an existing paradigm clashes with reality, opt to tweak that paradigm rather than replace it wholesale. As Thaler puts it, "Physics with friction is not as beautiful. But you need it to get rockets off the ground." It might as well be the motto for Obama's entire policy shop.
Sociologically, the Obamanauts have a lot in common with the last gang of Democratic outsiders to make a credible run at the White House. Like Bill Clinton in 1992, Obama's campaign boasts a cadre of credentialed achievers. Intellectually, however, the Obamanauts couldn't be more different. Clinton delighted in surrounding himself with big-think public intellectuals--like economics commentator Robert Reich and political philosopher Bill Galston. You'd be hard-pressed to find a political philosopher in Obama's inner wonk-dom. His is dominated by a group of first-rate economists, beginning with Goolsbee, one of the profession's most respected tax experts. A Harvard economist named Jeff Liebman has been influential in helping Obama think through budget and retirement issues; another, David Cutler, helped shape his views on health care. Goolsbee, in particular, is an almost unprecedented figure in Democratic politics: an academic economist with a top campaign position and the candidate's ear.
One major reason for these differences is the candidate himself. Cutler told me Obama is adamant about consulting bona fide experts. "The staff kept saying, 'What he wants to know is that he's really talking to experts in the field. When you go see him, you know, make it clear that you're an expert.'" When it comes to economics, it's very difficult to achieve expertise without an academic background. It's a field that prizes rigorous results, supported by reams of painstakingly sifted data. (Though Reich was labor secretary, he was trained as a lawyer, not an economist.) Cutler, for example, has made his name with a series of detailed econometric studies suggesting that, contrary to the conventional wisdom on the left, Americans actually have quite a bit to show for the trillions they spend on health care.
Even a very smart non-academic can come up short by this measure. Last year, Goolsbee participated in a panel discussion with the economic advisers of the major presidential campaigns. At one point, he acknowledged the two other academics in the room and noted their dependence on intricate census data. This prompted some grumbling from the other advisers--very accomplished wonks in their own right--which the moderator acknowledged. But the truth is that almost no non-PhD would know what to do with such elaborate data sets. Or take the latest advances in behavioral economics: "We're aware of that stuff, we read the literature, believe a lot of it," says one Obama adviser. "That stuff hasn't filtered to the Washington policy community yet."
Bill Clinton favored what you might call a "deductive" approach--an all- encompassing, almost revolutionary idea, out of which fell lots of smaller proposals. In a series of speeches in 1991, he unveiled the product of all his late-night bull-sessions with people like Reich and Galston, which he called "The New Covenant." The old model held that government had certain unconditional obligations to its citizens. Under Clinton's reimagining, many of these obligations would disappear. The government would help only those who fulfilled their responsibilities as parents, workers, and taxpayers. For instance, the government would no longer provide unlimited welfare benefits. It would instead require recipients to work after two years of assistance.
For their part, the Obama wonks tend to be inductive--working piecemeal from a series of real-world observations. One typical Goolsbee brainchild is something called an automatic tax return. The idea is that, if you had no tax deductions or freelance income the previous year, the IRS would send you a tax return that was already filled out. As long as you accepted the government's accounting, you could just sign it and mail it back. Goolsbee estimates this small innovation could save hundreds of millions of man-hours spent filling out tax forms, and billions of dollars in tax-preparation fees.
Think of the contrast here as the difference between science-fiction writers and engineers. Reich and Galston are the kinds of people who'd sketch out the idea for time travel in a moment of inspiration. Goolsbee et al. could rig up the DeLorean that would actually get you back to 1955.
Like their intellectual godfather Thaler, the Obama wonks aren't particularly interested in tearing down existing paradigms, just adjusting and extending them when they become outdated. (Thaler urges his students to master the same traditional, mathematical models their colleagues do if they want to be taken seriously.) For example, a central tenet of the economic thinking favored by Bill Clinton and his Treasury secretary, Robert Rubin, was that cutting the deficit lowers long-term interest rates, which in turn stimulates the economy. The Obamanauts are perfectly willing to accept the relationship between long-term rates and economic growth. But recent evidence suggests that low rates weren't quite as central to the success of the Clinton years as they appeared, and that investments in infrastructure and R&D might be as important as deficit reduction. Not surprisingly, Obama plans to focus less on the deficit than Clinton did.
The Clintonites were moderates, but they were also ideological. They explicitly rejected the liberalism of the 1970s and '80s. The Obamanauts are decidedly non-ideological. They occasionally reach out to progressive think tanks like the Economic Policy Institute, but they also come from a world-- academic economics--whose inhabitants generally lean right. (And economists at the University of Chicago lean righter than most.) As a result, they tend to be just as comfortable with ideological diversity as the candidate they advise. Just before the Iowa caucus, I saw Goolsbee approach New York Times columnist David Brooks in Des Moines and gush when the quirky conservative agreed to pose for a picture.
And yet, just because the Obamanauts are intellectually modest and relatively free of ideology, that doesn't mean their policy goals lack ambition. In many cases, the opposite is true. Obama's plan to reduce global warming involves an ambitious cap-and-trade arrangement that would lower carbon emissions 80 percent below 1990 levels by 2050. But cap-and-trade--in which the government limits the overall level of emissions and allows companies to buy and sell pollution permits--is itself a market-oriented approach. The companies most efficient at cutting emissions will sell permits to less efficient companies, achieving the desired reductions with minimal drag on the economy.
Earlier this year, the Times' economics columnist, David Leonhardt, noted that Obama "tends to look at economic policy more like a foreign-policy realist looks at the world." One could argue that the same observation applies in reverse: Obama's foreign policy advisers tend to look at the world the way a behaviorist looks at economic policy.
Probably the closest thing the Obama campaign has to a Richard Thaler on foreign policy is Lee Hamilton, the longtime Indiana representative who recently co-chaired the 9/11 Commission and the Iraq Study Group. Hamilton was a moderate internationalist during his years on the House Foreign Affairs committee. He opposed aid to the Contras under Reagan and urged George H.W. Bush to let sanctions play out before invading Iraq. On the other hand, he supported the U.S. intervention in Bosnia in 1995 after some initial reservations.
All in all, Hamilton is the kind of pragmatic, non-ideological foreign policy eminence who can flirt with heterodoxy without losing respectability. For example, one of the pillars of Bill Clinton's Middle East policy in the 1990s was a concept known as dual containment--the idea that the United States should try to isolate and neutralize both Iraq and Iran. Dual containment enjoyed widespread bipartisan support. And one of its practical achievements was the Iran Libya Sanctions Act (ILSA), which sanctioned foreign companies against doing business in either country, and which Clinton signed into law in August 1996. Hamilton himself voted for ILSA. But, two years later, he decided that the rise of reformist Iranian President Mohammad Khatami had made engagement worth contemplating. He said as much in a speech at the Council on Foreign Relations, going so far as to call his ILSA vote a mistake.
Like Thaler, Hamilton has no formal role advising Obama--he hasn't even publicly endorsed him. But his legacy is very much alive within the campaign. Ben Rhodes, the Hamilton aide who helped write his 9/11 Commission memoirs and key chunks of the Iraq Study Group report, is Obama's foreign policy speechwriter. Another former Hamilton aide, Denis McDonough, is the campaign's top foreign policy staffer. Hamilton alum Dan Shapiro advises the campaign on Middle East policy; another alum, Dan Restrepo, does the same for Latin America. By all accounts, Obama uttered his nowfamous remark about his willingness to meet with foreign dictators like Mahmoud Ahmadinejad off the cuff. But it wasn't such a departure from Hamilton. One of the Iraq Study Group's recommendations was to open a dialogue with Iran. Hamilton himself has publicly embraced this idea.
In economics, it's the academics who are first-rate engineers and the nonacademics who are either dreamers or technicians. In foreign policy, it's often the practitioners whose engineering prowess stands out. And so it's no surprise that Obama would attract the latter. Obama's most influential foreign policy advisers--former Clinton officials like Assistant Secretary of State Susan Rice, Navy Secretary Richard Danzig, and National Security Advisor Tony Lake--all cut their teeth in the policy world.
Of course, that's also true of just about every top-tier Democratic candidate in recent memory. The real difference between the Obama campaign and, say, Hillary Clinton's, is twofold. First, while many of the Obamanauts had previously served in the Clinton administration, they tended to be younger or less influential than the officials who signed on with Hillary. Clinton advisers like former secretary of state Madeleine Albright and former U.N. ambassador Richard Holbrooke tend to be "more invested in justifying or glorifying" the Clinton record, says one Obama foreign policy hand, whereas the Obamanauts don't have the same "permanent need to fight for the legacy of your time in government."
The second difference is that the Obama hands tend to feel less hemmed in by establishment opinion. As one Obama adviser puts it, "Democrats want to be just a little bit different from Republicans, but not so different that they get attacked for being weak." Like Hamilton, the Obamanauts generally reject this calculus--not because they favor some radical alternative, but because clinging to received foreign policy wisdom can preclude highly practical courses of action.
One case in point is a retired Air Force general named Scott Gration. In 2006, Gration joined the senator on a trip to Kenya, and the two men have been close ever since. Gration is a fluent Swahili speaker who grew up in the Congo, the son of evangelical Christian missionaries. He flew nearly 300 missions as a fighter pilot in Iraq and spent part of the second Bush era as a nuclear planner.
You can see Gration's influence on any number of issues, perhaps none more significant than nuclear doctrine. Gration is a vocal proponent of eliminating nuclear weapons globally. This may sound like a utopian idea, but it would almost certainly enhance stability. "We realize we are trying to deter the actions of non-state actors who don't have population centers, don't care about dying," Gration says, explaining why nuclear stockpiles have outlived their usefulness. "But these weapons can get into the wrong hands." Moreover, eliminating nukes would actually increase American military superiority. (We have a far more powerful conventional force than any other country on the planet.)
This position was almost completely taboo in respectable foreign policy circles prior to 2007, when a bipartisan group of Washington elders--Henry Kissinger, Sam Nunn, George Shultz, and Bill Perry--penned a Wall Street Journal op-ed touting denuclearization as a desirable goal. Since then, much of the Democratic establishment has pooh-poohed the idea, though it's caught on in less stodgy corners of Capitol Hill, like Joe Biden's Foreign Relations Committee. Obama endorsed it partly at Gration's urging last October, saying he would seek a world without nukes but would never disarm unilaterally. (The RNC promptly sneered that he was playing to the "fringe elements of his party," one possible explanation for why Hillary Clinton didn't follow suit.) In the short term, Obama suggested a number of incremental steps, such as ratifying the Comprehensive Test Ban Treaty, that would advance this goal without drastically altering the nuclear status quo.
Still, there's probably no better illustration of the Obama camp's Hamiltonian sensibility than the debate over the war. Former Clinton officials like Lake, Rice, and Danzig all opposed the idea from the get-go (as did Hamilton himself). In doing so, they faced down pleas from within the Democrats' permanent State-Department-in-waiting that opposition would be politically disastrous. "Many Democrats had opposed [the first Gulf war]. And these people--particularly the older people, felt like that had been a big mistake. They didn't want to make it twice," recalls an Obama adviser. "It got rather acrimonious."
In the face of these arguments, the would-be Obamanauts didn't invoke some sweeping alternative paradigm--say, the kind of abstract theorizing you'd get from a Kissinger tome. They simply pointed out where the Bush doctrine of preemption and democracypromotion broke down--the "anomalies," if you will. Intuition told them that an easy war was a fantasy, that the United States would face a long and brutal occupation. Many had security clearances during the Clinton administration and had never seen credible evidence of an Iraqi nuclear program. Almost everyone worried that an invasion would detract from the fight against Al Qaeda. "It should have been obvious to anyone who'd served in government that we can't walk and chew gum at same time," says one Obama adviser. "That's not a paradigm, that's a judgment."
Noam Scheiber is a senior editor at The New Republic.
I'm really surprised that this article received not one response. Is it too logical and non-ideological to generate ranting, or what? Same with McCain. These guys don't fit into our neat little boxes. But then we have to ask ourselves: how did we manage to imprison ourselves in starchy little straightjackets of ideology in the first place. The world needs creative thinking. As soon as you hear some presidential candidate leaning on the wisdom of some founding father and stepping no further you have a guarantee that that that candidate doesn't have an original idea in his head. If Thomas Jefferson, or Adams, or Hamilton lived today, they would very likely renounce a good deal of their earlier philosophy and create a new one. That's what really made them great...that they were brilliant empiricists given the data they had. New data=new ideas.
[QUOTE=neckdemon;2435342]nah i think it's just too long and sort of boring......[/QUOTE]
LOL. Which is ironically what behavioral economics is all about... how packaging a decision is often more important than the content. Besides which reading the piece might actually require some of our readers to modify their opinions. That's two strikes against me right there.... Or actually realize that economic theory has moved beyond Milton Friedman. Oops! Struck out. :D
[QUOTE=long island leprechaun;2435337]I'm really surprised that this article received not one response.[/QUOTE]
You're not the only one who can cut and paste. I took the liberty of doing a word count. 3000 words from the New Republic on how Obama is surrounding himself with brainiac tax experts.
[QUOTE=sackdance;2435604]You're not the only one who can cut and paste. I took the liberty of doing a word count. 3000 words from the New Republic on how Obama is surrounding himself with brainiac tax experts.
Not riveting. Not even readable.[/QUOTE]
1. You can tell a great deal about the kind of president a candidate is going to be by whom he chooses as his advisors
2. Obama is targeting a new paradigm. Ironically (although I realize you probably didn't make it through the whole thing), the same behavioral economic pinciples that are shaking up the field, can also be applied to election strategy. Obama's success is in part due to an effective use of "framing." (don't bother to look it up; that will bore you)
3. Hillary Clinton is bringing in the old Bill Clinton guard and she has a stake in preserving the legacy of the Clinton years through her presidency... an interesting and useful tidbit.