Why did behavioral economics get so popular so fast? What, you read a book about it and were fascinated so you started a blog just so you could talk about it? Oh wait, that’s me. But that is kind of how behavior economics did become so popular. People were fascinated by it because it offered simple solutions to real life problems.
For example: employers want to get their employees to enroll in 401ks, but they aren’t. They were given the materials on investments, told they need to do this if they want to retire, and even pointed out they’d get free money from the company in matching contributions. But many people still didn’t sign up. I’ll let you read the books to find out why, but behavioral economics has a solution. Auto-enroll people and the problem goes away. People are forced to opt-out, and few do so.
Behavioral economics focuses on the bad decisions we make, despite those decisions not being the rational ones. It’s rational to save for retirement, but many don’t. It’s no wonder behavior economics has become so popular, in many cases, the solution to a problem is simple.
But behavioral economics can only go so far, as we’re starting to learn. The minds inside the DC Beltway have caught on to the this new wave and legislation is starting to reflect some of the discoveries in this new field of research. For example, to deal with the problem of fat people in America, the healthcare reform bill includes items such as requiring calories on menu items in restaurants. A better-informed consumer will make smarter decisions. But studies are showing this doesn’t do much for getting people to eat less.
This is where traditional economics can step in where behavioral economics cannot. The problem is traditional economics pisses more people off. To fight the problem with obesity, we could start subsidizing fruits and veggies instead of high fructose corn syrup. This will drive the cost down of healthy foods. That will piss off corn growers, who I’m guessing have a stronger influence on Congress than restaurant owners. All this is a summary of what two dudes wrote in the NY Times last week about behavioral economics. But I want to take it one step further.
How do we solve the problem of Congress taking the easy way out? The solution is easy, but hard to implement. Limit Congressional terms. It doesn’t matter what the limit is, because once a Congressman can’t run anymore, then they’ll start passing stuff that’s good for the people. Just look at Chris Dodd. As chair of the Senate Finance Committee, he was no doubt in the pockets of Wall Street. He received some great contributions from the likes of AIG, Fannie and Freddie, and everyone else; even a great loan rate from Countrywide. During the financial crisis in 2008 he objected to the actions of Paulson’s Treasury Department while claiming these companies were fine.
But, I’m sure sometime in 2009 he decided he wasn’t going to run anymore so he got involved in the CARD act and the newly minted financial reform bill. Not only that, but he even flip-flopped on his position about gay marriage (he now supports it) in 2009. It’s amazing what you can accomplish when you don’t have to worry about raising money anymore. So let’s fix the real problem with policy by allowing Congress to make rational decisions not having to worry about raising money from wealthy donors with certain positions they want you to take.
 By The Weakonomist |
The Weakonomist is the founder of Weakonomics. Clicking the picture of the puppy will tell you more about him. If you like what you're reading consider subscribing to the blog, following him on Twitter, and checking out the related posts below. Please consider a donation if you really enjoy Weakonomics. Also keep in mind that nothing I say can be construed as financial advice. |
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