A Closer Look at Obamanomics

by: Stephen Hsu June 09, 2008    

Stephen Hsu

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If this article by John Cassidy in the New York Review of Books is any guide, Obama's grasp of economics may be orders of magnitude deeper than that of John McCain. A long exposure to the market-obsessed Chicago School has probably made him at least familiar with the arguments favoring market outcomes over government intervention. The remainder of the article is mainly about behavioral economics, rather than Obama, but well worth reading.

...Should Obama win the nomination, political considerations may well force upon him a more interventionist position, but his first inclination is to seek a path between big government and laissez-faire, a trait that reflects his age—he was born in 1961—and the intellectual milieu he emerged from. Before entering the Illinois state Senate, he spent ten years teaching constitutional law at the University of Chicago, where respect for the free market is a cherished tradition. His senior economic adviser, Austan Goolsbee, is a former colleague of his at Chicago and an expert on the economics of high-tech industries. Goolsbee is not a member of the "Chicago School" of Milton Friedman and Gary Becker, but he is not well known as a critic of American capitalism either. As recently as March 2007, he published an article in The New York Times pointing out the virtues of subprime mortgages. "The three decades from 1970 to 2000 witnessed an incredible flowering of new types of home loans," Goolsbee wrote. "These innovations mainly served to give people power to make their own decisions about housing, and they ended up being quite sensible with their newfound access to capital."

When I spoke to Goolsbee earlier this year, he said that one of the things that distinguished Obama from Clinton was his skepticism about standard Keynesian prescriptions, such as relying on tax policy to stimulate investment and saving. In a recent posting on HuffingtonPost.com, Cass Sunstein, who for ten years was a colleague of Obama's at the University of Chicago Law School—and has said he is "an informal, occasional adviser to him"—made a similar point regarding government oversight of the financial markets: "With respect to the mortgage crisis, credit cards and the broader debate over credit markets," Sunstein wrote, "Obama rejects heavy-handed regulation and insists above all on disclosure, so that consumers will know exactly what they are getting."

If Obama isn't an old-school Keynesian, what is he? One answer is that he is a behavioralist—the term economists use to describe those who subscribe to the tenets of behavioral economics, an increasingly popular discipline that seeks to marry the insights of psychology to the rigor of economics. Although its intellectual roots go back more than thirty years, to the pioneering work of two Israeli psychologists, Amos Tversky and Daniel Kahneman, behavioral economics took off only about ten years ago, and many of its leading lights, among them David Laibson and Andrei Shleifer, of Harvard; Matt Rabin, of Berkeley; and Colin Camerer, of Caltech, are still in their thirties or forties. One of the reasons this approach has proved so popular is that it appears to provide a center ground between the Friedmanites and the Keynesians, whose intellectual jousting dominated economics for most of the twentieth century.

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This article has 12 comments:

  •  
    Jun 09 05:19 PM
    So what was the anti-NAFTA rhetoric about? Ignorance or deception? Neither seems attractive.
    Reply | Link to Comment
  •  
    Jun 10 08:42 AM
    "So what was the anti-NAFTA rhetoric about? Ignorance or deception? Neither seems attractive."

    NAFTA was a loser deal. I gave it the benefit of the doubt because I trusted Clinton. I fail to see benefits.
    Reply | Link to Comment
  •  
    Jun 10 08:43 AM
    "The proof that he is a fool is that if you look at his rallies they are filled with college kids, and lets face it, there is no group dumber than 20 year old kids. For any adult who supports NObama I ask you, who runs your house, your 20 year old kid or you?"

    LOL - too true!

    NObama is an empty suit. Get him away from the teleprompter and he's toast
    Reply | Link to Comment
  •  
    Jun 10 08:59 AM
    You can disparage this guy all you want, but the reality is that he is poised to take the reins, and he'll have a democrat majority in both houses. There will be toast, and it might be us.
    Reply | Link to Comment
  •  
    Jun 10 09:10 AM
    "NObama is an empty suit."

    O is a constitutional scholar; W probably can't spell the word. Certainly, W has abused his power in every conceivable way and run our nation to near bankruptcy.
    Reply | Link to Comment
  •  
    Jun 10 10:03 AM
    Maybe that 20 year old Kid can do a better job than you can.....look at the mess you "old know it all" experts all got us into! It's about time to drop the horse and buggy and get into the twenty-first century. Old thinking never made for progress!!!!
    Reply | Link to Comment
  •  
    Jun 10 11:23 AM
    I am resigned to Carter2 whether McCain or Obama wins. Economic forces aren't going to be tamed by either of them and Bernanke. But shame on HSU for reporting from one of the least knowledgeable sources of economic information, the NYROB, to plant a political ad here.
    Reply | Link to Comment
  •  
    Jun 10 01:05 PM
    Several observations:

    1)This article's title is a misnomer. Does not tell anthing about what NObama believes in (does he strongly believe in anything other than he should be the next US President?).

    2)NObama showed does not understand basic economics nor human behavior when he proposed to impose windfall profit tax on the oil companies. Does he not know that companies just pass on the payment of taxes to the consumer's or if they can't, they do all they can to maintain their profits or make more? Does he not know that companies are in business to make money an those that don't soon close-up?

    3)Does NObama ever study history? Carter did a lot of stupid economic moves that resulted in the US economy tanking, drowning in high interest rates, and NObama wants to do the same. Sure he was only in his teens when this all happened, but when one wants to be President of the US, the largest country in the world (economically speaking), one has to study history or wind up repeating the same mitakes.

    Being a great speaker but being ill prepared to manage a big country does not make a good President. Woe unto us if we allow him to be President. For our own good and for our country, we should all work hard to prevent him from becoming our next President.
    Reply | Link to Comment
  •  
    Jun 10 03:27 PM
    I absolutely agree with all the above comments criticizing Barack Hussein Obama... It is true that the current adminstration took this country very close to the edge, but do we want another "know it all president" that ends up pushing it over the edge
    Reply | Link to Comment
  •  
    Jun 10 05:46 PM
    Hussein will have his racist agenda. My bet is the preacher Wright and Jessee and Al will be the econimists.
    Reply | Link to Comment
  •  
    Jun 11 04:35 PM
    Mr. Hsu is a perfect example of someone who gets in over his head when he is writing about something outside his field. He designs robots, and now he is "thinking" like a robot. Save us from these automatons!
    Reply | Link to Comment
  •  
    Oct 05 01:19 PM
    10 Things You Need to Know About Senator Obama’s Tax Proposals

    Read the Paper: "Michael Boskin: A CLOSER LOOK AT OBAMANOMICS"

    Under the tax plans of Barack Obama and his Democratic friends in Congress, American families will only be left with… the change in their pockets.

    In 2009, Barack Obama and the Democratic Congress have an idea for a bill. Well, really, it’s a lot of bills that will be paid for by nearly every American in the form of higher taxes and higher costs for food, energy and other products.

    So if you have a retirement account, work in or shop at a small business, are close or in retirement, or even flip on a light switch, then there are a few things that you should consider.

    Under that plan:

    1. Small main street businesses would be forced to pay tax rates as high as 62.3% under Senator Obama’s tax proposals.1
    2. Senator Obama’s tax plan would tax small businesses at a higher rate than large corporations!2
    3. Taxes on retirement income and savings could increase by at least 33%, hitting millions of seniors when they need these resources the most.3

    4. 4 million workers over the age of 50 – those eagerly looking forward to retirement – would be hit with increased tax bills. 4
    5. Millions of Americans would only keep 38 cents of every dollar that they earn.5
    6. Senator Obama’s tax plan would reduce the after tax wages of millions of workers by 17.7%.6
    7. It will take 227 days per year, nearly 8 months, just to pay your tax bill!7
    8. 97,065 carpenters, 110,908 police officers, 254,992 nurses, 208,562 postsecondary teachers and 237,000 dentists would see tax increases, if the earnings cap was successfully eliminated.8
    9. 10.3 million workers would see an average of $5,650 taken from their paycheck and given to government programs.9
    10. Even YOU might be considered “Rich.”
    Reply | Link to Comment
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