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Obama's Soft Paternalism

David Leonhardt has a very good piece in today's New York Times taking a look at the (relatively minor) philosophical differences between Hillary Clinton and Barack Obama on economic issues. Key takeaway:

The easiest way to describe Senator Clinton’s philosophy is to say that she believes in the promise of narrowly tailored government policies, like focused tax cuts. She has more faith that government can do what it sets out to do, which is a traditionally liberal view. Yet she also subscribes to the conservative idea that people respond rationally to financial incentives.

Senator Obama’s ideas, on the other hand, draw heavily on behavioral economics, a left-leaning academic movement that has challenged traditional neoclassical economics over the last few decades. Behavioral economists consider an abiding faith in rationality to be wishful thinking. To Mr. Obama, a simpler program--one less likely to confuse people--is often a smarter program.

The two approaches can be viewed in part (if, perhaps, not entirely) as two sides of the same coin. People do respond to incentives--and one incentive they face leads them to avoid spending the time it takes to acquire the information needed to behave in a purely rational manner. As a result, "soft paternalism" (or "libertarian paternalism")--in which government helps structure the choices individauls face so that the default option is the "right" one--tends to look increasingly attractive. Apparently Obama has reached the same conclusion:

The problem with Mrs. Clinton's savings plan, according to the Obama view, is that many people won’t save even when they are offered subsidies to do so. After all, many workers who are eligible for 401(k) matching funds don’t take advantage of them now.

So Mr. Obama would instead require companies to deduct money automatically from their employees’ paychecks and place it in a savings account the employee owned. Employees could opt out of the program. But if they did nothing, they would end up saving money. It’s an idea that comes directly from academic research showing that savings rates have jumped when individual companies have adopted such plans.

One of this leading proponents (pdf) of this approach is TNR contributing editor Cass Sunstein, a friend and former colleague of Obama's at the University of Chicago Law School, so that may be where Obama picked it up.

--Josh Patashnik