EconLog

Behavior Economics and Behavioral Political Science, 2002-09-06

Jeff Madrick in the New York Times writes about George Akerlof and behavioral economics.

Mr. Akerlof argues, however, that market bubbles can exist and should be kept under control; that unemployment can often be pushed lower by government without generating inflation; that people will not save enough on their own; and that liberalized global capital flows have been damaging. He argues that monetary and fiscal policies do matter in creating jobs and raising incomes.

This implies that government intervention can improve social outcomes. However, that assumes that government is motivated by the public interest. But James Surowiecki discusses what we might call behavioral political science.

In fact, the Bush economic policy looks a lot like what the political scientist Theodore Lowi called "interest-group liberalism." As Lowi saw it, the rise of government regulation and independent bureaucracies had turned the process of policymaking away from the pursuit of the common good—however imaginary that might be—and toward a divvying up of the spoils by politicians and interest groups. As long as the government is as big and as active as it is in the United States, the incentive for interest groups—like big oil and big steel—to seek succor from it will exist.

Discussion Question. Why does interest-group liberalism make it problematic that government can be counted on to deal with issues that are posed by behavioral economics?