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"If Obama isn't an old-school Keynesian, what is he?"

Asks John Cassidy (as he reviews "Nudge: Improving Decisions About Health, Wealth, and Happiness" by Richard H. Thaler and Cass R. Sunstein):

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....

The central tenet of the Chicago School is that markets, once established and left alone, will resolve most of society's economic problems, including, presumably, the mortgage crisis. Keynesians?old-school Keynesians, anyway?take the view that markets, financial markets especially, often fail to work as advertised, and that this failure can be self-reinforcing rather than self-correcting. In some ways, the behavioralists stand with the Keynes-ians. Markets sometimes go badly awry, they agree, especially when people have to make complicated choices, such as what type of mortgage to take out. But whereas the Keynesians argue that vigorous regulation and the prohibition of certain activities such as excessive borrowing are often necessary, behavioralists tend to be more hopeful about redeeming free enterprise. With a gentle nudge, they argue, even some very poorly performing markets?and the people who inhabit them?can be made to work pretty well.

Full post as published by Althouse on May 27, 2008 (boomark / email).