Obama’s Behavioral Economics Working a Bit Too Well
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.
31 Responses to “Obama’s Behavioral Economics Working a Bit Too Well”
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August 17th, 2009 at 11:36 am
Yglesias is grasping at straws again. 57% do not believe in the stimulus because the deadcat bounce we get will cost much more in the medium term, like the next two years.
August 17th, 2009 at 11:37 am
Except then a bunch of states (California) raised their witholding levels to match what the Federal government dropped their rates. It meant a lot of people didn’t actually see any sort of change.
August 17th, 2009 at 12:07 pm
Lie #1:
It’s what got us out of the recession of 1982 and the last one at the beginning of the decade.
Lie #2:
But people aren’t spending it, they’re saving it.
Face it, Porkulus was nothing but a porkfest of leftist garbage Democrats have wanted to put in for 40 years. Those tax “cuts” are negligible. The best thing was to get businesses to hire. To do that, business taxes, especially corporate taxes, had to get cut. And without all that bullshit spending put into Porkulus.
August 17th, 2009 at 12:07 pm
It may be good that they’re not noticing the increase in take-home pay, and spending that extra dough. It’s almost definitely not the case that they’re somehow discounting the personal wage increase because it’s financed by deficit spending (is that how people viewed the Bush tax cuts they were getting?).
But still, just because you don’t notice extra money, that doesn’t mean you spent it on consumption, i.e. stimulating economic activity. The numbers seem to show that people are furiously paying down their own debt. Maybe it’s a good thing to make a big transfer from private debt to public debt. But that may be all the stimulus ends up doing.
August 17th, 2009 at 12:08 pm
Voters blame Bush and the GOP for the bad state of the economy. I have a really hard time seeing Obama losing in ‘12 unless the economy gets dramatically (I’m talking 20% unemployment, -10% GDP) worse or he leads us into Iraq War the Sequel. If the economy only limps along or modestly improves over where it is now, the President should have little difficulty beating Romney, Palin, or whatever wingnut the GOP primary electorate picks to be their candidate.
August 17th, 2009 at 12:19 pm
It took Bush the better part of eight years to complete the stuffing of the US economy into a bottomless shit pit, and Obama, after only six months in office, is criticized for not pulling it out, hosing it all off, and making it smell sweet once again?
It’ll probably take decades to rid the nation of the Reagan –> Bush economic and political stench, if indeed it’s even possible any more.
I guess what fascinates me most of all is how a nation so intellectually shallow as the US will EVER find the means of pulling itself out of so deep and smelly a hole. I won’t hold my breath in anticipation, although I wish I could.
August 17th, 2009 at 12:31 pm
Which are fewer people every day.
August 17th, 2009 at 12:33 pm
Oh yeah, Bush’s first recession really ended with an exploding economy. That’s why his first term finished with 156,000 more jobs than when it began. Not per month–total.
But hey, at least the economic gains we made under Bush’s stewardship were real and concrete, and not liable to vaporize into thin air, cratering our economy.
August 17th, 2009 at 12:46 pm
I work for a large environmental engineering firm that permits, designs, supervises construction of renewable energy facilities – mostly solar and wind. We do the same for transmission infrastructure and highways and also do large scale environmental remediation work.
About 60% of our business is with the US government. Our management was excited after the Stimulus Bill was passed as we thought we would be in a great position to gain work in these areas that the bill encouraged. Wall Street agreed and out stock price rose.
Last Friday we had a large lay-off. Turns out, we haven’t seen any projects funded by the bill at all. A relatively small number of RFPs have been issued (I’ve worked on two proposals) and no awards made. Also a significant number of large remediation projects (primarily from USACE, EPA, and DOE) that had money programmed before the Stimulus are on hold or haven’t been awarded because the agencies have been so busy trying to program Stimulus money that they stopped work on the projects they already had.
Our wind and solar energy work has been 99% commercially funded up until now. That work has slowed for two reasons: a) venture capital for the projects is tight and lots of developments are on hold or b) the developers have funding but are going slow because they think that the government will get its act together and give them grants so they won’t have to spend their own money.
Our company’s backlog has fallen by 2/3 since the beginning of the year. Basically in our industry, something that the Administration says should be front and center in the new economy, the Stimulus has been a bust due to poor planning and perverse incentives. About 100 people who should be working on projects Obama loves, lost their jobs Friday
August 17th, 2009 at 12:46 pm
It is the Bush experience with government expansion that makes voters wary when Obama tries the same. If Bush goring government got us into the mess then why does Obama growing government get us out?
August 17th, 2009 at 12:54 pm
Campesino,
What part of the country do you live in? I think what is bogging down the stimulus is that the Obama administration is obsessed with government waste that it loses focus on getting the money out.
August 17th, 2009 at 12:54 pm
Yeah, there was absolutely no increase in government spending in 82 or insanely low interest rates in 02.
August 17th, 2009 at 1:00 pm
It’s what got us out of the recession of 1982 and the last one at the beginning of the decade.
Taxes were raised substantially in 1982.
August 17th, 2009 at 1:05 pm
Micheline Says:
August 17th, 2009 at 12:54 pm
Campesino,
What part of the country do you live in? I think what is bogging down the stimulus is that the Obama administration is obsessed with government waste that it loses focus on getting the money out.
============================================================
I’m in Rocky Mtn West, but our company is all over the country, as were the lay-offs
August 17th, 2009 at 1:15 pm
JustMe:
No, they weren’t. In fact, tax rates were cut dramatically; the highest federal rates were cut in half, and so were the others.
Tax revenues did increase, however.
August 17th, 2009 at 1:28 pm
Campesino,
How your competitors are doing?
August 17th, 2009 at 1:34 pm
You really have no idea what you’re talking about. In 1982, one of the largest tax increases in history was passed to make up for lost revenue from the 1981 tax cuts. Of course, they were tax increases that hit the middle classes the hardest.
It seems you’re reading off of a fixed script that you’ve been instructed to repeat rather than making comments that are based on some kind of actual knowledge of budget and tax laws passed in the early 80s. Please stop this.
August 17th, 2009 at 1:36 pm
Micheline Says:
August 17th, 2009 at 1:28 pm
Campesino,
How your competitors are doing
==============================================================
They are laying off as well
August 17th, 2009 at 2:19 pm
In Pittsburgh yesterday I saw a sign at a construction project that said “American Recovery and Reinvestment Act.”
Fine, but what I want to know is where is the “Stimulus Plan” money!
August 17th, 2009 at 3:32 pm
JustMe:
That 1981 tax cut was the largest set of tax cuts. And the 1982 tax increase didn’t even restore half of what was cut the year before. The net effect was tax cuts for everybody, and large ones at that.
August 17th, 2009 at 3:42 pm
Oh wow. Like I got a whole $14 in my check this pay period. Thanks Obama!
August 17th, 2009 at 3:47 pm
So the stimulus was implemented so smartly that its alleged beneficiaries don’t even know it’s working?
If that were true, by what measure could the beneficiaries possibly judge the stimulus a failure?
And if true, what could a survey of the people possibly reveal?
August 17th, 2009 at 8:25 pm
It gives me great pleasure to see behavioralists out-smart themselves.
August 17th, 2009 at 8:42 pm
.
So, YES, taxes were raised substantially in 1982. You were incorrect, to state that taxes were not raised substantially in 1982; in fact, they were raised substantially, in the largest tax increase in American history.
Until 1986, when another tax increase was passed, which surpassed the previous record tax increase.
August 17th, 2009 at 9:03 pm
Thereby supporting the findings of the Romer paper which showed that tax cuts lead to………tax increases. (With deficits in between.)
Steve
August 17th, 2009 at 9:31 pm
Are people primarily saving, or paying down their debts? I’d wager on B.
August 18th, 2009 at 12:37 am
Even if people are paying down their debts, that’s getting the whole system back into whack. In a time when banks are terrified of lending, that’s not a bad thing.
Anyways, none of this matters. If we as a people can’t decide that Republicanism and conservatism are bad after eight years of Bush, then Barack Obama, son of Jor-El, cannot save us.
August 18th, 2009 at 3:41 am
Stimulus was the key, wasn’t it. It had to be good, almost perfect. We had to get at least $500 billion out there building things and creating jobs. But it looks, after some research, that less that $180 billion will go out in that capacity over the next 3 to 4 years. Maybe $50-60 billion a year. And some that is going to get skimmed.
China’s stimulus is out. All $580 billion. No tax cuts, no food stamps, no unemployment, no shoring up of local and state governments. Not that these are bad things, or non-stimulative. But they temporary fixes, nothing more.
Even if 20% of China’s stimulus gets skimmed, which is still money put directly into Chinese’ hands -and not local governments- close to $500 billion, this year, is being put to direct use building China’s long term infrastructure, and its future.
And for China, already simultaneously undertaking 7 or 8 nationwide building projects larger than any infrastructure projects every undertaken in the history of United States, their $580 billion stimulus package amounts to sprinkling jimmies on the icing of a cake.
Looking at the 10 to 1 ratio of China’s stimulus compared to United States,’ and the likely effects of that stimulus in the two country’s future, is mind blowing. MIND BLOWING. I have come to believe that no Nation in the history of civilization has ever enjoyed a more dominate position vis a vis its next greatest rival than China enjoys right now over the United States. Even the Roman Empire at its height was not as dominant -over Persia, say, or Germania. And this new Great Power paradigm has evolved in less than 20 years -historically speaking, it sprung up overnight.
MIND BLOWING.
August 18th, 2009 at 10:36 am
It gives me great pleasure to see behavioralists out-smart themselves.
How do you mean? It seems their policies worked, it’s just that they don’t get “credit” for them.
August 18th, 2009 at 10:37 am
[...] 3. When behavioral economics works too well. [...]
August 18th, 2009 at 1:37 pm
What tax provisions are you talking about? The only thing Obama has done for our family is lower the deduction value of the five figure charitable donations we make (our income is about $200k).