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Monday 9 November 2009

Nudge, nudge: meet the Cameroons’ new guru

The economist Richard Thaler — a favourite of the Cameron and Obama camps — talks to James Forsyth about the power of ‘nudging’: small transformative acts of persuasion

This, perhaps, explains Brown’s lack of interest in Thaler’s thinking and behavioural economics more generally. He is both of the wrong generation and quite close to actually being homo economicus. Somehow one suspects that Brown does not have direct debits for a gym membership that he never uses or anything like that.

Thaler thinks the most potent of his ideas is complete electronic disclosure which he claims would ‘completely change the way we think about regulation’. Thaler gives the example of credit cards. Your card issuer would be obliged to send you two files each year, one explaining every charge they make — e.g. interest charged, late fees, currency conversion — while the other file would list every time you incurred a charge. This would lead, Thaler argues, to websites springing up telling us what credit card was actually best for us. The knowledge of how and when we had been charged would leave us forewarned and fore-armed. Thaler believes this would ‘eliminate the need for credit card regulation’. Politically, this allows you to square the circle: consumers would welcome the increased transparency while it would allow for the bonfire of regulation that business is always demanding and that politicians are always promising but never delivering.

The speed with which the nudge agenda has been adopted by both Cameron and Obama tells us that they are both pragmatists, not ideologues. For nudge is all about what works. Indeed, Thaler sees similarities between the Obama and Cameron campaigns, remarking that the Cameroons he has met remind him of Obama’s people in that they are ‘smart, curious and pragmatic’. Nudge also requires an appreciation of the limits of government. Thaler, who has known Obama since his Senate primary campaign, disputes the characterisation of Obama as a big-government-style liberal, saying that ‘deep down he is a pragmatist’, and arguing that ‘you can’t spend 10 years at the University of Chicago Law School, even part time, and not get an appreciation for markets. It is just not possible.’

Perhaps the reason Thaler’s work resonates so much with the Tories is that both are trying to achieve the same thing. Thaler says that he wants to ‘see how far we can go using classical liberalism in directions favoured by the Left’, which sounds awfully close to Oliver Letwin’s definition of Cameronism as taking ‘Conservative approaches to achieving progressive goals’. Maybe it is this that is the real third way.

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