Over at the OMB's Blog, Peter Orszag gives a warm welcome to Cass Sunstein, who's nomination as head of the Office of Information and Regulatory Affairs is now official. Over the course of his career, Sunstein has done a lot of work, some of it mildly controversial, in the area of cost-benefit analysis. That's a pretty natural intersection with the duties of OIRA. But that's not where Orszag focuses:This is an administration taken with the potential of behavioral economics to inform and improve federal action. As head of OIRA, Sunstein will have a unique opportunity to bring the insights of the discipline to the architecture of the regulatory state. Which worries some. in the most recent issue of TAP, for instance, Bob Kuttner argues that a "nudge may not be enough."One of the most important intellectual developments of the past several years that has had a huge impact on my own thinking has been the rise of behavioral economics. By taking the insights of psychology and observed human behavior into account, we now have a fuller picture of how people actually behave – instead of just reducing them to the hyper-rational utility-maximizers of Econ 101.Cass Sunstein, while not an economist, has been at the forefront of this intellectual vanguard – most recently, with his acclaimed book Nudge, co-authored with Richard Thaler – and I am pleased to announce that the President today nominated Cass to be the Administrator of the Office of Information and Regulatory Affairs here at OMB.
A favorite Sunstein example is the 2006 Pension Protection Act, which changed the default option for workers whose employers offered tax-deferred savings plans. Under the law, workers now must choose to opt out, rather than opt in, which was the previous rule. This simple constructive "nudge" has dramatically increased both employee participation and savings rates.[...]This kind of libertarian paternalism is highly creative as far as it goes. But to pursue the example of the employees helpfully "nudged" into joining savings plans, the deeper problem today is that fewer companies offer pensions at all, and tax-deferred savings schemes such as 401(k)s (which aren't real pensions) are taking a beating from the stock-market collapse. Systemic reform requires more than a nudge; it may even require dreaded commands and controls like the expansion of Social Security.
The question, for Kuttner, is whether Sunstein -- and the administration -- will prove so enamored of nudges that he'll forget how to push.Related: What the hell is OIRA?
