The New Republic

Mickey Kaus notes that Frank and I cite inequality as a key place Obama's "third way" will improve on Clinton's version, then complains: 

But Foer and Scheiber's description of Obama's attempt, in the face of these realities, to restore "the old Democratic emphasis" on reducing income inequality never gets around to giving us Obama's nudge-o-cracy plan for reducing income inequality. Just thought I would point that out! I suspect it's because there is no Obama nudge-o-cracy plan for reducing income inequality--which, I suspect, is because there is no conceivable nudge-o-cracy plan that could reduce income inequality in the face of the global economic forces of trade and increasing returns to skilled labor.

It's a legitimate point, but a little uncharitable, I think. Obama's response to inequality is basically investment (in human capital and infrastructure) and social insurance. Some of this can't or won't be accomplished through nudging, no question--expanding rural broadband access looks like it's going to involve direct payments to certain companies, for example. But a lot of it can. Universal health care would clearly mitigate inequality, and Obama wants to provide it using as much nudging as possible (changing incentives so that insurers provide more preventive care, allowing people without insurance to buy into an "exchange" in which private insurers--and the government--compete for their business, etc.) Consider, also, wage-loss insurance:

Several of Obama's top economic advisers--Summers, his deputy Jason Furman, Orszag, and Sperling--have embraced one of Shiller's central proposals for reducing this disincentive: wage-loss insurance. The idea is that the government would offset the pay cut a worker might take after losing a job in an industry hit hard by global competition or technological change. The factory worker forced to retreat behind a Gap sales counter would no longer see his income fall through the floor, making the training a less risky bet.

Obviously, one problem with sizing up Obama's views on the state's role in the economy is that it's still pretty early. But I suspect we'll see the administration implement more of this kind of thing (where possible--it isn't always) as time goes by.

Update: Two more nudge-ocracy ideas Obama has signed onto with an eye toward reducing inequality: 1.) More generous retirement saving incentives for working-class families. (Families who currently make less than $50,000 are eligible for a refundable 50 percent tax credit on up to $1,000 of savings; Obama wants to raise the income cutoff to $65,000.) 2.) Automatically enrolling workers in 401(k)s and (for those whose employers don't offer them) IRA accounts. This disproporationately benefits the working-class, who tend to leave a lot of retirement money on the table (via unclaimed matches and tax incentives, to say nothing of their not saving enough for retirement in the first place). See pp. 84-5 in Obama's budget for more.

--Noam Scheiber

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