Behavioural Science and Policy Network Meet-Up

I can’t say I’m at all surprised that The Irish Economy site has completely ignored the centenary of the Easter Rising, the event that had the biggest effect on the Irish economy of any event since the Famine, and which was instrumental in transforming Ireland from a depopulating decaying economic backwater into one of the wealthiest countries in Europe. There must be some reason why Irish economists are particularly anti-nationalist and pro-unionist. It was somewhat similar in Scotland at the time of the referendum. Maybe this could be a topic for discussion at the meet-up. One prominent economist apparently thinks the Rising not as important as a bag of crisps. Another objected a couple of years ago to any public money being used to commemorate it. However, the huge turn-out on Sunday shows that, not for the first time, they are out of touch with public opinion.

Psychology and not rationality drive markets and most economic theory on markets is BS as a result. Behavioural Science can’T be developed and implemented fast enough. The biggest issue imo is analysing the hubris of greed.

Noel Whelan, in an article in the IT before Easter. referred to the behaviour of the two main political parties as “play-acting at government formation”. Few would disagree with this description.

There is also play-acting – and not just among politicians – in refusing to recognise that the freedom of budgetary manoeuvre of any incoming government is strictly limited by EU rules.

The only outcome that can provide stable government, having regard to these rules, is a formal FG/FF coalition. (A minority FG or FF government would be totally lacking in any credibility. Were either to come to pass, every TD involved would find a government slot, a sure-fire recipe for a short existence of the government in question).The main political risk that exists for both parties (i.e. the unanswerable question of whether either, or both, will be left standing when the government leaves office) can only be neutralised or, rather, equalised, for both, by a detailed sharing of cabinet portfolios based on a tightly costed programme for government, on the basis of Vote heads and sub-heads, not wish-lists for this or that popular political demand, AND detailed pre-budget Dáil discussion, if for no other reason than to spread the political responsibility for continued unpopular budgetary decisions more widely. The situation might also demand an agreed rotation of the post of Taoiseach. (Competition for the post of Minister for Health, in charge of the budgetary horse known for bolting, is unlikely to be fierce. Another nag unlikely to be a popular mount is Irish Water).

Reality must bite, sooner or later. Maybe in time for the conference!

http://www.oireachtas.ie/parliament/media/housesoftheoireachtas/libraryresearch/lrsnotes/LRSNoteEU_Fiscal_Rules__140342.pdf

@DOCM,

I doubt the behavioural economists here will rise to your bait. They’re focused on getting the masses to do things that their betters believe are in their interests – and also benefit their betters. You apepar to be focused on getting those who’ve been elected to do what those who elected them elected them to do. In any event Brendan Keenan and Dan O’Brien are in superb form in today’s Indo.

In addition, it’s not perhaps surprising that water charges appear to be creating an impasse. The majority of TDs are in favour of suspending or removing water charges. It’s also interesting that FF is contesting the opinion of m’learned friends commissioned by Irish Water about suspending, but not removing, household water and waste water charges. This nag has a few more furlongs yet to run.

“They’re focused on getting the masses to do things that their betters believe are in their interests – and also benefit their betters.”

Bit of a generalisation Paul. See below for debate about the extent to which the behavioural turn in economics leads to less or more paternalism. It is an interesting debate in itself and I have never understand the arguments of people here that if we are not focusing on a particularly big topic at a time of their choosing that must mean we don’t think that topic is important. Of course, we are all looking to see what will happen with the government but how to design policies, evaluate them, bring in new ideas etc., is a legitimate role for an academic and I don’t need to apologise for continuing to do that.

http://economicspsychologypolicy.blogspot.co.uk/2015/11/ethics-of-nudging-bunch-of-reading.html

Liam, I’m afraid you have the wrong end of the stick. I was simply suggesting to DOCM that you and your fellow behavioural economists were unlikely to rise to his bait. I probably should have also spelled out that you and they are perfectly entitled not to. I will admit to a bit of queasiness about “nudge units” in governments – I’m much more interested in effective collective action and how these nudge units (and policy-makers) avoid it like the plague, but I’m even more concerned about how big firms dealing with the public use all sorts of tricks and ruses to entrap them and rip them off. All of these issues are being highlighted in the current energy market investigation by the UK’s Competition and Markets Authority (CMA) which was occasioned by the sustained and rapacious ripping off of most final energy consumers by the Big 6 energy suppliers. But the rip-off in Britain is restrained when compared to that being perpetrated in Ireland.

And, of course, the remedies being proposed by the CMA are the equivalent of tickling the Big 6 with a feather duster; their share prices rose when the proposed remedies were announced.

Paul, the extent to which “nudges” are weak substitutes for harder and more direct regulation is a very interesting one. I have been writing and giving various talks about the topic. The Bubbs and Pildes article (third link below) is one of the strongest statements to the effect that nudging large firms is unlikely to be effective. I will organise one of the network meetings around this topic and think you would have a good contribution to make if you are around.

https://conversation.which.co.uk/money/nudge-financial-products-behavioural-economics/

http://economicspsychologypolicy.blogspot.co.uk/2015/05/how-paternalistic-should-policymakers-be.html

http://cdn.harvardlawreview.org/wp-content/uploads/2014/04/vol127_bubb_pildes.pdf

I have posted on other threads various links which illustrate that the political debate in Ireland is currently taking place in a bubble, divorced from the actual wider context in which it should be taking place. This collective state of denial seems to me to be worthy of examination under many different headings of economic study, including behavioural.

The silver lining is that the political stand-off may be pushing the country in the right direction.

Through a coincidence of circumstances, totally unrelated to any conscious decision by the Irish electorate, some Irish politicians, mainly FF/FG, are now faced with the choice between another election or entering a Grand Coalition where each member of the cabinet will have to be, as the Swedes put it, “his own finance minister” i.e. each gets a set budget for year 1 over a rolling three year cycle. Overruns in Ministerial Expenditure Ceilings – set as step one of a two-stage annual budget procedure – have to be met by savings elsewhere in the minister’s budget or courtesy detailed examination of the case in the relevant parliamentary (Dáil) committee.

This is the one essential discipline that the outgoing government studiously avoided, as remarked upon by both IFAC and the Commission (although the latter has a certain responsibility in the matter). Will it now be introduced? That is the central economic question confronting the country because the approach is a sine qua non for effective macro-economic management.

cf http://www.esv.se/contentassets/827db7e731934fff82f9254a72cd5ee4/financial-information-of-good-quality.pdf

@ Liam Delaney

Liam, reading your blog with references to thingies like heuristics and Foucauldian analyses, I wonder if there is an easier way to selling what in some cases is just common sense, to policy makers?

People for example prefer stealth taxes than getting bills for services such as water. Enda Kenny should have remembered the claims of double-taxation when bin charges were introduced even though we drinkers of pints of plain should not have been shocked.

However, there is an interesting distinction between the way VAT, which in Europe is typically at a double digit rate, is usually not separately identified in retail sales receipts while sales/GST tax, usually at a single-digit rate, is identified, in many countries.

Cass Sunstein is one of America’s leading behavioural economists and he worked in the Obama administration as a guru on regulations. The White House said his “effort has already produced over $10 billion in five-year savings, along with the elimination of tens of millions of hours in annual paperwork burdens. Because the lookback has been institutionalized, and made a regular feature of American government, far greater savings are expected over time. His leadership in promoting disciplined consideration of costs and benefits, and selection of the least costly alternative, helped generate, to date, well over $100 billion in net benefits.”

There is likely some truth amidst that bullshit!

Sunstein’s wife Samantha Powers is the second Irish-born person to serve as a US Cabinet member.

Prof Sunstein here outlines why Bernie Sanders would be a failed US president after 3 months in office 😳

http://www.bloombergview.com/articles/2016-02-01/what-bernie-sanders-gets-about-millennials

Millennials like socialism — until they get jobs

When tax rates are not explicit, millennials say they’d prefer larger government offering more services (54 percent) to smaller government offering fewer services (43 percent). However when larger government offering more services is described as requiring high taxes, support flips and 57 percent of millennials opt for smaller government with fewer services and low taxes, while 41 percent prefer large government.

https://www.washingtonpost.com/news/in-theory/wp/2016/03/24/millennials-like-socialism-until-they-get-jobs/

Liam, big firms just laugh at “nudging”. “Ouch”..giggle, giggle..”you’re hurting me”. The only thing they understand is a belt from a very big stick. I work on the basis that all large firms who deal directly with the public operate as a conspiracy against the public. And I’ve yet to encounter one that has led me to reject the hypothesis.

I think it would be good if you were to organise a session around the topic of what, if anything, behavioural economics can contribute to put some manners on these consumer-gougers. But the chances of my being in Dublin for such a session are somewhere between slim and FA.

I raised the CMA energy market investigation in Britain because the main issue it is tackling is why do 70% of British households remain on standard variables tariffs (SVTs) that cost them hundreds of pounds a year more than the cheapest offers available – and what can be done to get them to engage. They have been labelled as “disengaged consumers”.

Three broad solutions have been advanced. The first was advanced by Prof. Stephen Littlechild, the first electricity regulator (and father of RPI-X), and other former regulators. These eminences contended that the market was sufficiently competitive and that the only remedy required was to eliminate any constraints that the energy regulator, Ofgem, had imposed on suppliers to restrict their bamboozling of consumers.

Initially the CMA proposed a “transitional regulated safeguard tariff” to protect these consumers – in effect a temporary price cap. Not surprisingly the energy suppliers – and the army of lawyers, accountants, consultants, PR operatives, advisers, tame academics, etc. they retain – went on the warpath to kill the idea stone dead. It was clear that Ofgem was not enthused, but it had to pretend that it would do its bit. Interestingly, the Behavioural Insights Team – the nudge unit in the UK Cabinet Office – backed the price cap, but only as an emergency measure to get the market moving.

Again not surprisingly, given the ferocity of the opposition, the CMA backed off on the price cap. A version was retained for the much smaller number of consumers on prepayment meters who are royally ripped off, but it is now proposed that Ofgem manage a database of all disengaged consumers so that all competing suppliers can contact them to entice them to leave their current supplier. This will prove a total mess and will drive consumers who will be inundated by junk mail totally mad.

It is interesting that the only economist on the panel, Martin Cave (all the others are former high-powered lawyers and accountants) has dissented and remains convinced that a price cap is required to protect disengaged consumers. (Martin Cave deserves the gratitude of energy and water consumers in Northern and Ireland and Britain because previously he single-handedly drove a Competition Commission decision that saved them, and continues to save them, hundreds of millions of pounds.)

And, of course, the option of establishing a statutory collective buyer to purchase energy on behalf of these disengaged consumers has not been considered. This is the only solution that would put manners on these price-gougers. I made a submission on this but I knew it would get nowhere.

@MH “I wonder if there is an easier way to selling what in some cases is just common sense, to policy makers?”

Fair point Michael. I would say these network meetings are pitched at building up this area outside the technical parts. I will think about an op-ed to try to make the case more generally.

@ PH

The piece by Brendan Keenan is worth a link.

http://www.independent.ie/opinion/columnists/brendan-keenan/same-old-ways-of-doing-things-will-not-work-in-the-future-34585376.html

I do not happen to think that he is right with regard to the possibility of a minority government and for two main reasons (i) both FG and FF would be hard put to fill the various posts (including a plethora of unnecessary posts of Minister of State) with even half-capable candidates on their own and (ii) the sight of one side riding around in the ministerial Mercs to the exclusion of the other would be too much for even the most die-hard members at grass-roots level. The eventual make-up of the Seanad also plays a role. (Both points made by Michael O’Regan of the IT, almost alone, as far as I can see, in the commentariat in saying anything sensible on the basic politics involved).

In general, it is amateur hour at all levels, other than the NTMA pre-crash and banking post-crash.

@MH Below is an “op-ed” type piece aimed at laypeople I did recently. The sub-editors even forced me to use phrases like “A debate’s raging..”

https://conversation.which.co.uk/money/nudge-financial-products-behavioural-economics/

I’ll definitely go if Paul Hunt and JtO go too 🙂

@Sarah Carey,

That’s a very, very naughty suggestion. You should be ashamed of yourself. The objective of these soirees is to demonstrate that those practising behavioural economics are “serious people” and have an important contribution to make to policy-making and implementation. As I see it, the proximate objective is to generate sufficient heft and momentum to attact and secure research funds (or consulting assignments) – and that means making nice to those who dispense these funds or commission consultancy work). But the likely ultimate objective is the establishment of a “nudge unit” – such as the Behavioural Insights Team in the UK Cabinet Office – probably in the Dept. of the Taoiseach. And that means making nice to senior civil servants.

Having people like myself or JtO there would be one sure way of frightening the horses.

Big firms need more than nudging. What they are doing issuing bonds and projecting normal rates of growth while following the herd is suicidal. Nudging is too 1998. Existential threats require a fuller monty.

@PH

Key problem Paul is you don’t read or engage with any replies. I don’t know how much more critical of simple nudging as a substitute for hard policy you want than people like Lauren Willis and Bubbs and Pildes. They are making pretty much the same argument you are making and I am very keen that the strain of thought is represented in this debate in events am involved in. Finding folks who are able to articulate these views in an Irish context is challenging though and am open to suggestions.

http://www.lls.edu/aboutus/facultyadministration/faculty/facultylists-z/willislauren/

An Irish version of a behavioural insights team in government is certainly one potential from this. But it also has a lot of implications for how we think about regulation including along the lines you speak about. You are focusing on one particular view rather than engaging with the spectrum. I normally wouldn’t follow you down this rabbit hole but on this issue you have interesting and well-thought out things to say. But they are not things that you and you alone are thinking about.

Actually last time I posted on this you were making similar interesting points but without the snarking

http://www.irisheconomy.ie/index.php/2015/05/03/how-paternalistic-should-policymakers-be/

Liam, in the US there is a long tradition of statutory representation at the state level (and both directly and indirectly at the federal level) of the collective interests of final consumers of certain infrastructure and utility services – even though this is being progressively dismantled. This was the vital quid pro quo for the rock solid protection of private property rights in the provision of these infrastructure and utility services. However, even if it is being eroded, the authors you cite have access to a statutory platform that can be shored up to support the contentions they advance.

Here in Europe, we have nothing like this. Previously, the default position was collective provision via the state of these infrastructure and utility services. That too has been progressively and systematically dismantled. The dominance of producer over consumer interests – and the damage this did to consumer interests – may have provided some justification, but, where these activities have been privatised, the investor interest now dominates and the producer interest has been only marginally curtailed. Where state ownership has been preserved the dominance of the producer interest (and of the managerial elite) has been even more entrenched and advanced to the detriment of the consumer interest. It would be hard to find a better (or worse) example than the ESB. But there is pervasive producer, managerial and investor rent-seeking at the expense of individualised, atomised, isolated final consumers and service-users across the sheltered private, public and semi-state sectors.

At the last election a significant number of voters rejected the mainstream parties that have rotated power periodically since 1932 and which ensured the enactment of the progressively elaborate edifice of legislation and regulation that authorises and facilitates this rent-seeking. If ever there was a time and an opportunity to advance the collective interests of ripped-off consumers – and to encourage the large number of non-affiliated TDs to take up the cudgels on their behalf – it is now. In my view, relying on some limited modification of the legislative framework enacted by the much-shrunken mainstream parties to pursue some policy innovation is futile. And if expressing my views about this futility is seen as snarkiness, then so be it.

Snark referring to taking the mick out of the idea of having the workshops themselves and almost no acknowledgment that my purpose in doing these things is not just to push a Nudge view of the world. I have distributed all over the place the various streams of opinion on the balance between nudging and hard regulation. Other than that, as said, your thoughts here are interesting and thought-provoking. The potential for Nudge to be used as a vehicle to distract from other types of regulatory approach is a real one and I have been trying to keep that in the discussion. Our next workshop in June will deal with some of this very explicitly.

So-called “hard” economic regulation is in decline in the US and Canada and doesn’t really exist in Europe. It’s not meaningful when there is no effective statutory representation of the collective interests of final consumers in the making of regulatory determinations. In effect, regulators, claiming to be acting in the interests of final consumers, negotiate with the regulated firms. There can be only one winner in negotiations of this nature.

Regulation certainly doesn’t exist in a sector where a minister is repoonsible for public policy in the sector, acts as the sole (or majority) shareholder of the main regulated firms, appoints the boards of these firms and appoints the members of the regulatory body.

Paul Hunt:

The 2011 report on State Assets and Liabilities recommended that regulators should report to the minister responsible for consumer matters (Richard Bruton currently) and no longer to the minister who owns the regulated body.
Some officials pushed for this to be done but no joy. There will be no effective regulation under the current arrangements.

Colm,

I agree completely that there will be no effective regulation under the current arrangements. Economic regulators should be accountable, in the first instance, to the Oireachtas, which granted them the powers they exercise and imposed on them the duties they’re expected to discharge, but ultimately to citizens as final consumers and service-users.

Unfortunately we are more likely to see some combination of nudging and tickling with the feather duster such as is applied by Ofgem in Britain to the regulation of the electricity and gas networks: Regulation = Incentives + Innovation + Outputs (RIIO).

I still Paul and JtO should go.

I want to meet JtO before one of us dies. And it sounds like he’s a bit older than me.

Go on. 🙂

Liam Delaney reminds me of the people in Konrad Adenauer’s first post war west german government. In macroeconomic terms we are still in 1944. The Goetterdaemmerung is sure but hasn’t happened yet.

The richest 1% of americans own 40% of everything. In order to achieve this , everything that ensured the safety of the financial system was swept away. Debt issuance is not taxed. Glass Steagal was dropped. Citizens United came in. Rules based regulation was traded for the oversight of rating agencies.
Now JPM is 5 times bigger than Lehman with 4 times as many subsidiaries. The system is TBTF and too big to save.

Nudging might help as the basis of a rational system.

Ah, Sarah. Wiil ya gowon ou’ tha’, will ya. Sure ’tis clear that ’tis JtO yer after. You’re only using me to provide a bit of cover. I’m in enough trouble with the ‘heads’ here already.

Can organise a separate one for JTO. An 8-hour uninterrupted speech about how useless anyone involved in academic Economics is to the wider national economic project.

Regulation as people understand it no longer exists. The whole point of neoliberalism is to shunt money to the top. Read Lewis Powell’s 1971 memo.
This is why Ireland had to pony up for Anglo and allied irish fu$kups.
This is why the EZ does not have a LoLR. Why Central Banks have taken up price discovery for the market. Why useless rating agencies replaced rules based regulation. Why an epic crash is nailed on.

@Seafoid

When is this economic holocaust coming? You’ve been predicting it for ages. Still no sign of it. The latests US figures last week were good. And Ireland’s were exceptionally good. No doubt there will be a recession eventually. There always is. But, whether its this year, or in 10 years, or in 20 years, it too will pass, just like all previous recessions. There is no sign whatever that the era of growth is coming to an end and that some sort of terminal crisis, which you are forever predicting, is imminent.

@Liam Delaney

I’d rarely generalise by saying ‘anyone involved in academic Economics is useless’. If you are brought up in N. Ireland, you are familiar with the folly of whipping up hostility against whole groups. However, I have made it clear in the past that I think certain particular individual economists are fairly useless at forecasting and are extremely politically-motivated (this motivation, rather than technical expertise, being the driving-force behind their absurd forecasts). I don’t think I have ever included you among them. However, the problem is that the site doesn’t allow attacks on named economists (which is reasonable enough, given the libel laws), so the criticisms may come across as general criticisms of all academic economists.

@Sarah Carey

You are far too kind in saying I’m ‘a bit’ older than you. Alas, I’m a lot older than you. However, I’m younger than both Hillary Clinton and Donald Trump, and have spent the past week skiing in Val Thorens, so there is an excellent chance your wish will be fulfilled one day.

Next 18 months jto. I would refer you to Dornbusch. The crisis builds up longer than you think and happens much faster than you think. The US economy is a mess. Real unemployment is 10%. Median wages are 10% lower than 30 years ago. Demand is stagnant.

Hard regulation is the only way to have a stable economy.

@JtO

you pensioners and your exotic lifestyles 🙂

Gracious reply JTO. I feel bad now for my unfair jibe. I blame Paul Hunt for putting me in a bad mood!

JTO
Why has ZIRP lasted longer than Tyrone’s barren spell in the championship if growth is going to sail on unimpeded? Why is price discovery dead?

Thank you, Liam. Heap the blame on those who refuse to hide behind anonymity. It was ever thus in Ireland.

@Liam Delaney

Useful thread …

+ useful links. Ta.

Behavioural economics, imho, represents progress …

When it enters and becomes part of Critical Theory, pls let me know.

@MH

Ms Power is well to the right of Genghis Khan … must be Killkenny hurlin in the blood somewhere – ta for her link to Sunstein

@JtO

I Agree – no thread on 1916!

Any update on how Arlene and Martin are getting on with the Tango Lessons?

I see that Fianna Fail are studying Schrodinger … how to be both IN and OUT of Power simultaneously! Are you back on the Mount Street couch?

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