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Obama’s Behavioral Economics Working a Bit Too Well

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"Obama’s Behavioral Economics Working a Bit Too Well"

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The first thing I thought when I read that only 18 percent of Americans say the stimulus plan “has done anything to help improve their personal situation” was that people must be confused. The tax provisions of the Obama stimulus plan have, without question, put more money into the pockets of everyone who has a job. That’s a lot more than 18 percent.

But then I remembered something else. Traditionally tax cuts have been relatively ineffective as stimulus measures. But the Obama team decided that some insights from behavioral economics could resolve this problem. The way to resolve it, however, was to make it so that people didn’t notice their taxes were being cut by just slightly reducing the amount of money that’s withheld from your biweekly paycheck. Consequently, you wind up with just a bit more cash in the old checking account than you were expecting and become inclined to spend the money. Which is all to the good, except when the pollster comes calling.

That said, even in crass political terms it makes more sense to focus on effective policy than on poll results. Voting behavior is strongly influenced by objective economic factors. Right now, despite the fact that the recession seems to have bottomed-out, conditions continue to be very poor. If bad conditions persist through the fall of 2010, then lots vulnerable House incumbents are going to lose. And if bad conditions persist into 2012, then Barack Obama’s re-election campaign will fail. But if things turn around, then the skies will start looking brighter for incumbents.

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