The Texas Board of Education recently decided to add F.A. Hayek to the high school economics curriculum. The New York Times reports:

In economics, the revisions add Milton Friedman and Friedrich von Hayek, two champions of free-market economic theory, among the usual list of economists to be studied, like Adam Smith, Karl Marx and John Maynard Keynes.

To the Times, this is evidence of the Board’s desire to put a “conservative stamp on . . . economics textbooks.” As usual, the Times gets it wrong.

Hayek is the most courageous and important critic of social planning, and if we are going to expose high school students to the poison of Marx, we must give them the antidote of Hayek. Hayek realized the fallacy of central planning and its inevitable failure decades before anyone else. His book “The Road to Serfdom” should be required reading for any literate American. His ideas about the decentralization of knowledge, the important role heterogeneous preferences would play in destabiling attempts at social planning, and the link between progressivism and totalitarianism are some of the most important contributions to human knowledge of the past 100 years.

Economist, and my friend, Justin Wolfers disagrees. On the ever-interesting Freakonomics blog, Wolfers examines citations to Hayek in economics journals, and concludes the data “suggests that Hayek just doesn’t belong with Smith, Marx, Keynes, or Friedman.”

Others are coming to Hayek’s defense. See comments by William Easterly here.

I offered my own defense of sorts in a 2005 paper for the inaugural issue of the New York University Journal of Law & Liberty. I look at citations to Hayek and other famous “economists” in law journals and by judges. Hayek is the ninth most cited economist, behind only Mill, Smith, Coase, Becker, Stigler, Arrow, Marx, and Friedman. Hayek has been quite influential on law, and like Mill, Smith, and Friedman is accessible to high school students wrestling with big-picture ideas about economics and society.

I do agree with Wolfers’s skepticism about school boards generally and some of the specific decisions of the Texas Board. I also agree that Hayek would be skeptical about attempts to impose knowledge from above. But, since these decisions must be made, it is nice to see some balance being brought to economics education.

Of course, much of this shouldn’t matter. Education starts at home, and I can say that no matter what the high school curriuculum at the University of Chicago Laboratory Schools (where my kids will attend), they will learn about Hayek in the Henderson House.

A number of opponents of Obamacare, such as Wall Street Journal columnist William McGurn, have criticized the President and his people for referring to pending proposals as “health insurance reform” rather than “health care reform.” I suppose these critics think the President is engaging in a sleight of hand in an effort to minimize the significance of the reform proposals — as in, “We’re not reforming the whole health care system, just health insurance. No biggie.” But Mr. Obama is right. This proposal is about insurance rather than the provision of health care itself. And that’s the main problem.

At the outset, the President claimed that a central goal of reform was to reduce the cost of health care itself. While Mr. Obama was always concerned with expanding health insurance coverage to the uninsured, he maintained that health care cost reduction is also key (and, in fact, necessary for expanding coverage without breaking the bank). For example, in a June 2009 radio address setting forth his goals for health care reform, the President insisted, “We must attack the root causes of skyrocketing health care costs,” and he reiterated his “belief that any health care reform must be built around fundamental reforms that lower costs, improve quality and coverage, and also protect consumer choice.” Similarly, his Council of Economic Advisers listed a reduction in actual health care costs as one of the two goals (along with insurance coverage expansion) of health care reform:

CEA’s findings on the state of the current system lead to a natural focus on two key components of successful health care reform: (1) a genuine containment of the growth rate of health care costs, and (2) the expansion of insurance coverage.

So I have a question for supporters of Obamacare (either the House bill, the Senate bill, or the President’s own proposal): What provisions of the proposed legislation will reduce the costs of health care itself? This is an honest question. I’m really trying figure out, if a reduction in health care costs is a primary goal of this legislation (and mustn’t it be?), what is the strongest possible case for the pending proposals?

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When I was a student at the University of Chicago Law School, our president lectured there. I didn’t take any classes from him — he taught stuff I wasn’t interested in — but I had friends who did; all raved. The other day, I opened up my copy of the Law School directory for reasons of nostalgia. There the president is on page 34, under “Lecturers in Law,” between Judson Miner and Stephen Poskanzer. Although I knew President Obama’s biography by heart at this point, one fact in it surprised me: “Before joining Developing Communities Project, he worked as a financial journalist . . ..” Really? A financial journalist? Am I the only one who had no idea about this? As someone who teaches business law, I would love to see the stories the president wrote when he covered finance. If anyone is out there who has copies, send them my way.

To expand on Geoff’s post about concentration in the seed industry, there has been a consistent line of discussion throughout the day raising the specter of monopoly and anti-competitive behavior, not only in seed but also in livestock.  There are continual references to adverse price effects and limitations in choice for consumers and producers alike, followed by such tagged-on qualifiers as “if there are any”. The implication is that there is good reason to believe such effects exist and simply have yet to be discovered if we look.

But that question has already been answered. The Government Accountability Office conducted a study of the agriculture sector.  In addition, they consulted the academic literature and scholars and other experts in the field. The GAO concluded there is no evidence that concentration has had any adverse price effects on commodities or consumer producers.

One would expect that someone among the panel of enforcers at the state or federal level, particularly the DOJ or USDA, would be aware of and familiar with the GAO report. I submitted a question to that effect, asking if–or how–the GAO report would inform the activities of the state and federal enforcers. That question was not selected by the moderator to be addressed.

Antitrust is an extremely blunt tool that cuts coarsely through an industry. Wielding such a tool blithely before the face of industry is likely to have chilling effects on investment and innovation. Why would (or should) businesses invest in facilities, producers, or innovations when there is such great uncertainty over how the politicization of antitrust enforcement is going to be brought down upon them?

There is some snow still on the ground here in Iowa. It will melt more slowly given the chill cast upon agriculture by the comments of the enforcers…if the comments have more behind them than just saying what a farmer-oriented audience wants to hear. Perhaps Marvel Comics had it right?

A common theme throughout the day has been the declining number of seed companies–increasing concentration–and its effect. Except no one has talked about the effect.  Other than pointing to the structural change itself, no one seems to have any evidence relating to the effect of the change.  One farmer at the open mic session (coincidentally one who had been sued by Monsanto) asserted that the move from 70 seed companies to 4 represented a relevant decline in competition.  But he didn’t talk about any relevant effect; he had nothing to offer on declining return on investment–no evidence that the change actually affected his bottom line.

Unfortunately, Diana Moss is the lone antitrust expert on the seed industry concentration panel (also known as the “is Monsanto an antitrust problem?” panel), and it falls to her to put meat on these bones.  But she fails in the effort, and really just repeats the same mantra as the farmer, with exactly the same amount of evidence (zero, in case I wasn’t clear on this point).  (Moss’s AAI paper on biotech seeds is available here; our ICLE paper partially addressing Moss’s is here).

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Let me say at the outset, some of my prior beliefs. First, I believe in the marketplace of ideas and think that more speech is generally better than less speech. I believe the Founders shared this belief and enshrined it in the “no law” component of the First Amendment. I believe this is especially true for speech about politics. Why else would we allow the Nazis to march in Skokie? Other countries don’t let Nazi’s march because they (rightfully) view their ideas as repugnant. But we let them march. We do so because we are more confident in our citizens’ ability to know right from wrong, to look beyond rhetoric for substance, and to be able to weigh competing claims of truth. If we didn’t trust the people to make decisions based on all available information, if we didn’t trust the people to be able to filter speech according to its source and content, if we didn’t trust the people to know what is good for them, we wouldn’t let the Nazi’s march. But we let them march.

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Bill Northey, IA Ag Sec’y, sounds a bit like an economist (ah, turns out he has a degree in ag business and an MBA . . . ).  Yes, price of seeds has gone up, but so has yield, and so has overall value.  The issue, he says, is how to divide the surplus, and he suggests that it’s dividing the pie that drives farmer concerns.  That’s not at all a surprise, but it’s also not much of an antitrust issue.  Unless the pie could be bigger absent, say, Monsanto’s huge investment in seeds and the resulting relatively-concentrated market structure (and basing enforcement on the theoretical possibility of that counter-factual is a perilous enterprise, as Josh and I have suggested many times), this is just a question of pecuniary transfers.  Sure, they matter a lot to the parties involved and there’s always an incentive to deputize the government to put a thumb on the scale of that dispute, but that’s not a matter of allocative efficiency, and not a matter for the antitrust laws.

Now we hear Iowa AG Miller pushing for the development of “the non-antitrust laws to deal with concentration.”  By which he means the Packers and Stockyards Act.  Maybe the DOJ has their Section 5 after all!

As if on cue, AG Miller trots out the pendulum story of antitrust enforcement–”how to bring the antitrust law back to the middle.”  This is not really an accurate description, unfortunately.  Even worse, it’s not an economically-sensible concept, and measuring the efficiency of antitrust enforcement by counting enforcement actions (or looking at rhetoric) is usually just flimsy cover for an essentially-political determination.  Combine that with Miller’s suggestion that the P&S Act’s “unfair practices” language should be enlisted in the service of dealing with concentration, and the risk of false positives is much magnified.  Which, of course, is a perfect lead-in for Christine Varney. (more…)

As readers may know, Eric Holder was added to the workshop at the last minute (see the latest agenda here).  So the day starts out with Holder and Vilsack, and they are joined by Varney and Tom Miller (the Iowa AG) and a host of other politicos including Senator Grassley and Congressman Boswell.

Vilsack is introducing the event, and seems to be lamenting the extraordinary increase in productivity in the farm sector–by which I mean, he laments the loss of farm jobs even though output has increased by leaps and bounds.  That’s an unfortunate framing of the issue, but it suggests that economic efficiency won’t be at the core of the discussion.

Some choice quotes from Vilsack:

“Great efficiencies have led to consolidation.  They’ve also led to lower prices for consumers.  . . . Is marketplace providing a fair deal to ranchers and farmers.”

“We know seed companies control the lion’s share of certain commodities–does that help or hurt farmers?”

“The purpose of the workshops is to determine if the system is fair [not efficient, fair --ed.].”

And now Eric Holder:

“erosion of free competition is one of the greatest threats to our economy.”

“We’ve learned the hard way that reckless deregulation can foster conduct that is harmful [this is a paraphrase . . . ]”

“Enforcement of the antitrust laws does not fully address the concerns of farmers and other stakeholders.  [Which explains why this isn't an antitrust event . . . ]“

And now comments from the panel, moderated by Vilsack . . . I’ll focus on the most relevant (if any) . . .

Holder:

“commitment to enforcing the antitrust laws in the ag sector.”

Grassley:

refers to “concentration and lack of competition in agriculture”

“not enough competition and too much concentration [I'll assume that's not an economic conclusion]“

“bigger isn’t per se bad but it can lead to predatory practices and behavior.”

“I don’t want anything to be done that stifles innovation.”

Well, as the political speeches proceed, there’s not much to report.  I’ll post this and await Varney’s comments . . . .

Global warming critics have taken two primary approaches. First, deny the facts based on the incentives for scientists to fudge the data to get prestige and research dollars (see, for example, the East Anglia emails), based on the inherent limitations of humans to build global weather models to predict the temperature 100 years from now, and based on humans’ Chicken-Little tendencies.

Second, criticize the decision to spend money on global warming now. This could either be because other problems are more pressing, because raising energy prices may cause an economic downturn that causes significant human suffering, or because money spent today may turn out to be wasted either because our predictions about warming are incorrect or because future technologies will be able to solve any future problem much more cheaply. (This last criticism is a question of inter-generational bargaining — imagine someone from 100 years from now coming back to us today and we asked her whether we should spend the money now or instead us it to create wealth that future generations could use to solve the problem. The answer to the question is not at all obvious.)

While there is lots to be said, both pro and con, to these criticisms, I want to ask a different question:

What would we do if we knew observed increases in global temperatures were the result of natural causes, say solar or volcanic activity?

If we knew for certain that humans were not to blame, we would be focused on reducing the expected costs of any systematic change in global climate, instead of trying to stop it.  So what would we do? Would we try to develop technologies to stop the changes or would we focus more on trying to ameliorate the costs? If the former, what would those be and how much would they cost? Would we be more or less likely to engage in global cooperation and wealth sharing if we were not pointing fingers at each other about who was to blame?

These questions and others in the same vein are worth asking for two reasons. It may be that the costs of these strategies would be lower than the costs of trying to stop the problem in the first place. I’m not an expert or qualified to even make a guess, but it seems like a question worth asking. In addition, and more importantly, the questions about remediation and prevention raised above are the same questions we would ask if we accept there is insufficient political will to stop climate change. This seems like a fair description of today’s reality. Things may change — China and India may be convinced to focus more on the weather in 100 years than pulling hundreds of millions of their citizens out of poverty, and the US consumer may agree to be a lot poorer to leave a cooler planet to our great grandchildren — but I doubt it. And, until they do, we need to at least think about what we would do if we aren’t to blame.

UPDATE:  Trying to find the right hash tag for the event, I’ve changed the title of this post and we’ll follow the convention for our live blogging today–posts from the Workshop will all have “#agworkshop” in the title.

Later this week Mike Sykuta and I will be winging our way to Iowa on behalf of the ICLE to attend the first of the year-long series of DOJ/USDA Workshops on Agriculture and Antitrust Enforcement Issues.  You can find the agenda for the first workshop, to be held Friday, March 12 in Ankeny, Iowa, here.  Intrepid reporters, we, our plan is to “live blog” the event for those of you unable to attend.  This first workshop, in addition to introducing the series, will focus on farming, which means seeds, which means the dispute between DuPont and Monsanto over licensing terms and everyone’s perennial favorite: industry concentration.

The agenda clearly reflects the highly-politicized nature of the issues under discussion, and, for example, a few news reports have suggested that the agenda has changed in response to pressure from Iowa Senator Tom Harkin.  Regardless, we expect a lively and interesting discussion.

For ease of reference all of our blogs from the workshop will be categorized under “ag/antitrust workshop,” and each post will have “DOJ/USDA Workshop” in the title.

TOTM is no stranger to the issues, and Mike and I have blogged a few times about the antitrust/licensing issues involved.  See:

Competition in Agriculture Redux (Manne, Kieff and Wright)

Competition in Agriculture (Sykuta)

Monsanto’s Licensing Case Victory (Manne)

Yet More Evidence Against the DOJ’s Antitrust Plantings (Sykuta)

The Seeds of an Antitrust Disaster (Manne)

DOJ Disconnect: Do We Really Need a Roadshow? (Sykuta)

Together with Scott Kieff and Joshua Wright, we also submitted a comment to the DOJ on the topic, “Comment on Intellectual Property, Concentration and the Limits of Antitrust in the Biotech Seed Industry,” available here (SSRN) or here (if you prefer to get it directly from the DOJ website).

The news has also been covering the seed industry antitrust issues, the DOJ/USDA workshops and agricultural antitrust issues more generally, and you can find a host of relevant news articles here.

We’re looking forward to the workshops and to your comments on the day’s events.

Earlier this year the Supreme Court affirmed the free speech rights of corporations by way of the Citizens United case.  President Obama then chided the Court in a rare face-to-face attack during his state of the Union, the blogosphere rightly noted the poor form and ungentlemanly conduct of that move, and former Chief Justice Marshall incidentally shuddered in his grave in response.  Much has been said previously on this case of greater interest, including by Bainbridge, Ribstein, and Somin.

I confess I have very little understanding of campaign finance law, or the first amendment for that matter.  I am therefore surprised, as I imagine our TOTM readers will be, that I should be drawn into this fracas with an invitation to testify in Congress before the House Financial Services Committee about his particularly tense issue.  Just when I was looking forward, I might add, to a welcome spring break devoted to scholarship.  (Did I really just say that?)  (Also, spoiler alert- why would financial services have anything to do with this issue?)

Then again, I am a C-Span junkie, and my grandma loves seeing me on tv, so I went up to the Hill once again.  It was a great panel that included, with links to their opening statements:

• Professor John C. Coffee, Jr., Adolf A. Berle Professor of Law, Columbia Law School
• Mr. Karl J. Sandstrom, Of Counsel, Perkins Coie
• Ms. Ann Yerger, Executive Director, Council of Institutional Investors
• Professor J.W. Verret, Assistant Professor of Law, George Mason University School of Law
• Ms. Nell Minow, Editor and Co-Founder, The Corporate Library
• Professor Michael Klausner, Nancy and Charles Munger Professor of Business and Professor of Law, Stanford Law School
• Mr. Jan Baran, Partner, Wiley Rein LLP

The hearing was focused on a bill introduced by Congressman Capuano (D-MA) which would, among other things, require a shareholder referendum on political expenditures by publicly traded corporations through amendment to the Securities Exchange Act of 1934.  Wait a moment, I asked myself, wasn’t the 34 Act dedicated to two purposes: investor protection and capital formation?  Yes, as I looked them up, I noticed that those are the two guiding principles listed in the Act.  There is nothing about campaign finance or labor policy mentioned in the legislative history of the securities laws whatsoever.

In short, this bill sought to hijack the securities laws to regulate campaign finance.  Even worse, it sought to give Union and State Pension Funds a veto over corporate political spending.  As such, my thesis today was simple: trying to achieve labor and campaign policy goals through the securities laws leaves ordinary investors, who hold shares through their 401(k)s, holding the tab for this politically motivated activity.  I will update with the C-span link when it becomes available, but until then the text of my testimony is below.

“Chairman Kanjorski, Ranking Member Garrett, and distinguished members of the Committee, it is a privilege to testify in this forum today. My name is J.W. Verret.  I am an Assistant Professor of Law at George Mason Law School, a Senior Scholar at the Mercatus Center at George Mason University and a member of the Mercatus Center Financial Markets Working Group.  I also direct the Corporate Federalism Initiative, a network of scholars dedicated to studying the intersection of state and federal authority in corporate governance.

There are two types of shareholders in American publicly traded companies.  The first are retail investors, or ordinary Americans holding shares through retirement funds and 401(k)s.  Half of all American households own stocks in this way.  The other type of investor is the institutional investor, including union pension funds as well as state pension funds run by elected officials. The “Shareholder Protection Act of 2010” seeks to give those institutional investors leverage over companies for political purposes at the expense of retail investors.

Today’s legislation attempts to hijack the securities laws to regulate campaign finance.  It would limit the ability of companies to communicate with legislators by giving Union shareholders power to stop those communications.  This bill does not, however, limit Union political spending in any way.  Further, it has nothing to do with the investor protection goals of the Securities Exchange Act.

Shareholders have two available remedies if they become dissatisfied with the performance of their companies. Shareholders can sell their shares, or they can vote for an alternative nominee in the next annual election of the Board.  And they do both with some frequency.  In the rare event that political advocacy actually results in corruption, there is a third line of defense in place.  If the Audit Committee of the Board of Directors, which is independent of company management, determines that any political donations are inappropriate they are required under the Foreign Corrupt Practices Act to stop them immediately.

The structure of American corporate law rests the authority to manage the day-to-day affairs of the company, including decisions of how to invest the company’s funds, with the Board of Directors.  Putting corporate expenditures to a shareholder vote, as today’s legislation requires, is the first step toward turning shareholder votes into town hall meetings.  Some shareholders may want the company to locate a new factory in their town or give away free health benefits for employees without regard to whether the expenses risk bankrupting the company.

Shareholders choose the board of directors and delegate authority to make these decisions to the board to avoid that very problem.  California’s voter referendums have made its Constitution one of the longest in the world and helped precipitate its budget crisis. Today’s legislation is a first step down a similar path for American companies.

Political risk poses a danger to the 401(k)s of ordinary Americans more now that every before.  Political leaders responsible for policies that subsidized dangerous mortgage practices through Fannie Mae and Freddie Mac now seek to expand financial regulations to generate the appearance of responsive action.

The Supreme Court recently affirmed that corporations have a constitutional right to advocate on behalf of their shareholders.  Corporations do so particularly to protect the property rights of those shareholders from expenses associated with regulations whose benefits may exceed their cost.  Many reputable companies spend money for this purpose.  Berkshire Hathaway, one of the most highly regarded companies in America, spent $3 million dollars last year advocating for the interests of the company and its shareholders.

This bill purports to re-define state corporate law to make un-voted expenditures a violation of the corporation’s fiduciary duty to its shareholders.  This represents a serious misunderstanding of how corporate law is structured.  As Justice Powell wrote: “No principle of corporation law and practice is more firmly established than a State’s authority to regulate domestic corporations, including the authority to define the voting rights of shareholders.”

The bills under consideration would also add disclosure requirements for political spending, but political expenditures rarely approach the materiality requirements of the securities laws sufficient to require disclosure.  In 2008, for example, Exxon Mobile reported political expenditures of roughly $450,000.   In that same time period it earned $45 billion dollars.  Its political expenditures amounted to .001% of annual earnings.  If shareholders had the time and expertise to review corporate expenditures at that minute level, they would be running companies rather than investing in them.

Today’s bill has absolutely nothing to do with reforming financial regulation in response to the financial crisis, and is indeed a distraction from that vital work.  It is a power grab by union pensions funds and state elected treasurers in an attempt to enhance their leverage over the retirement savings of ordinary Americans.  To call today’s bill a “Shareholder Protection Act” is fundamentally misleading.”

Looking for something to blame for the Greek debt crisis, some observers are pointing their fingers at credit derivatives. An article in yesterday’s New York Times makes the case that credit default swaps (CDS), and specifically their sale by Goldman Sachs, are somewhat to blame in part for Greece’s problems.

As I explain in this paper, credit derivatives are merely a financial tool that can be used by those exposed to credit risk, say a default by the Greek government or General Electric, to share that risk with others. This lowers the costs of borrowing and helps spread risk. In addition, third parties with no exposure to the particular credit risk can bet on whether the Greeks will default. These secondary-market transactions are the same as an individual buying stock in General Electric betting it will rise. Importantly, these bets provide a liquid market for credit risk, which lowers the cost of hedging for those with primary exposure, and provides the market with better information about whether Greece or General Electric is a good credit risk. Those who might lend to the country or company, those conducting other business with it, and those who might face the risk of default in other ways, can use this information to better plan their activities. For instance, those disbelieving a country or company’s claim of financial soundness, say because of funny accounting (think: Enron or, dare I say, America) can use credit derivatives to short debt, something that was impossible before credit derivatives were invented. This makes debt prices more accurate and holds borrowers, be they sovereigns or corporations, better to account.

Of course, there is the possibility for abuse. Another New York Times article from a few weeks ago highlights the possibility for abuse in this market. (Note the parallel between the conflict of interest across departments at Goldman Sachs and those in the investment analyst scandals from a few years ago.) But abuse is possible in all markets, and everyone should be in favor of vigorous enforcement against those who try to manipulate markets or trade on undisclosed conflicts of interest. The existence of the potential for abuse, however, is no more an indictment of credit derivatives generally than it is of the stock market or any other useful tool of society than can sometimes be abused.

It is the ultimate irony that politicians are blaming their problems on a tool that helps reveal their tricks and mistakes. This is akin to a burglar blaming an alarm system for being caught. Sure, the burglar might have been better off without it, but the homeowner and everyone else is glad it was installed.

Thanks to Peter Klein over at O&M for bringing attention to this image created by a group of California design students showing the network of suppliers necessary to produce the taco enjoyed at their favorite local taco truck.

While the purpose of their picture is to illustrate the ecological footprint (”tacoshed”) of their favorite tacos, the image illustrates just how complex is the nature of the food supply system.  It also illustrates why agribusiness firms (and other suppliers to the food system) have comprised a larger share of the average food dollar over the past several decades (relative to the farm level), as supply chains have lengthened to various corners of the globe.

In light of the DOJ/USDA antitrust workshops that begin later this week in Ankeny, IA, this picture illustrates what many participants in the program will likely ignore: the US food system is intricately intertwined with international markets and linked together by the same (large) agribusinesses that are under attack by populist farmer groups. While that is not a defense against competition concerns, it does suggest the nature of competition is much more complex (and hence more complicated to understand) than the simple “big is bad” finger pointing promised by the composition of the DOJ’s “discussion” panels.

The WSJ implies that the answer is yes in an interesting article describing the Obama administration’s changing views on behavioral economics and regulation.  The theme of the article is that the Obama administration has eschewed the “soft paternalism” based “nudge” approach endorsed by the behavioral economics crowd and that received so much attention in the blogs — especially as it related to Cass Sunstein’s appointment to OIRA, the Consumer Financial Protection Agency and a few other issues — in favor of harder paternalism and “shoves” including recent proposals for “regulating health-insurance rate increases, separating commercial banking from investing on behalf of their own bottom lines, and prohibiting commercial banks from owning or investing in private-equity firms or hedge funds.”  The article also points to a proposal for new regulations (that I had not heard of prior), that “would require retirement counselors to base their advice on computer models that have been certified as independent” as a precondition that must be satisfied before advisers can push funds with which they are affiliated.

A few observations.

First, is anybody really shocked to see behavioral economics-based proposals give way to harder forms of paternalism?  Though I take Rizzo and Whitman to be focusing on a different slope towards old paternalism, the idea that the behavioral economics nudge approaches reveal policy preferences consistent with hard paternalism is one that has been discussed frequently in this context.  Perhaps the surprising thing is how quickly the shift has occurred?

Second, given the buzz around behavioral economics in antitrust, and especially the misguided notion that the financial crisis has taught us that the baseline assumption for antitrust analysis should that firms are irrational, I was pleased to see Peter Orszag recognizing that “Institutional decision-making is much closer to a rational economics than individual decision-making, no question.”

Third, and cutting to the chase a little bit, its unclear to me that the Administration was ever really interested in behavioral economics as an intellectual guiding force as a “new” approach to regulation.  For example, little attention has been paid to areas where behavioral economics implies less regulation.  Regulators of all sorts want intellectual support for what they are doing.  That is not a criticism.  But was there really ever anything there?  Has anybody seen anything that has come out of OIRA with the signature of behavioral economics?  On this score, TOTM readers may recall that, since early on, I have expressed skepticism about claims that the Obama administration had made any real commitments to behavioral economics:

The second issue is that I’m not convinced that Obama’s policies have much to do with a behavioral economics-based platform. Leonhardt raises Obama’s savings plan (opt-out 401(k)’s), broad based tax cuts for the middle class, and opposition to a health care “mandate” as examples of policies informed by behavioral economics. I understand the the connection between the 401k default policy and behavioral economics. But the second two examples don’t strike me as have much do with with the insights of behavioral economics per se. The link between tax cuts and the lessons of behavioral economics, in this context, is tenuous at best. And as Ezra Klein notes while taking the position that he doesn’t see much behavioral economics in Obama’s positions either, one might suspect that a health care mandate would be more in line with the teachings of behavioral economics rather than Obama’s plan.

Fourth, and finally, I can’t help but note that some agreement on what counts as a behavioral economics-informed policy choice might be helpful in order to make progress.  I’ve been fairly critical of those, especially in the law review literature, who invoke the terms like irrationality and endowment effect willy-nilly, wave their hands around quickly while saying something about market failure (usually this section of the paper also has the term “orthodox neoclassical theory” in it somewhere), and move on to discuss regulatory proposals on the assumption that they will be costless.   But if we are going to be keeping a scorecard here, we should at least agree on what counts as a nudge.  The WSJ shares an example that it says is consistent with what is left of the Administration’s commitment to behavioral economics:

Landlords, for instance, have no incentive to replace a 40-year-old refrigerator if the tenants are paying the utility bills. So the Department of Housing and Urban Development, the Small Business Administration and the Energy Department are looking for ways to give property owners more incentives to save energy, possibly through loan discounts or guarantees offered through mortgage brokers. In October, Mr. Biden unveiled a pilot Property Assessed Clean Energy financing program to try it out.

Wait.  So, the landlord has less than optimal incentives to make investments in refrigerators when the tenant plays the bills because he doesn’t internalize the benefits of the investments.  I hate to be a stickler, but I’m pretty sure standard economics can do this one.   Transacting parties reach agreements to economize on agency costs and incentive conflicts.   The fact that the landlord’s private decision process is different when he owns the refrigerator than when he doesn’t imply irrationality!  Nor is any regulatory shove to get individuals to act closer to the what the regulators think is “optimal” decision-making based on behavioral economics simply by invoking the term.

But if the WSJ is right, maybe this debate about behavioral economics is old news anyway.  Shove is the new nudge and all that.