Episode 13: Nudge, Nudge

In the world of apparatchiks and backroom boys where the political parties find their leaders, there is usually a hot idea or ideas. These come in waves, obviously. Not long ago, nudging was a big thing. The idea came from Richard Thaler and Cass Sunstein’s book Nudge. Downing Street set up an in-house nudge unit. Don’t laugh – even if you’re old enough to imagine Frankie Howerd apologising for having nudged your unit. The nudge unit, whose official title is the Behavioural Insights Team, was so successful that it attracted the highest, most meaningful, most irrevocable honour in our modern democracy: it was privatised. Instead of being owned just by the state, it is now also owned by its employees, and by the soi-disant ‘innovation charity’ Nesta. Public bodies who want advice on nudging now have to pay for the privilege. The nudge unit talks about its victories as follows:

Behavioural insights interventions are usually simple, highly cost-effective, and often yield surprising results. For example:

• Automatically enrolling individuals on to pension schemes has increased saving rates for those employed by large firms in the UK from 61 to 83%;
• Informing people who failed to pay their tax that most other people had already paid increased payment rates by over 5 percentage points;
• Encouraging jobseekers to actively commit to undertaking job search activities increased their chance of finding a new job;
• Prompting people to join the Organ Donor Register using reciprocity messages (‘if you needed an organ, would you take one?’) adds 100,000 people to the register in one year.’

All of which is interesting, not least because it puts such pressure on the complex margin where helpful intervention from the state overlaps with bullying/nannying from the state. The idea that we are being unconsciously manipulated for the sake of our own good has an Orwellian feel, or maybe that should be Huxleyan, or maybe it’s Orwellian/Huxleyan. Still, the world of business has been using these techniques for years, so it was probably only a matter of time before government started doing it too. You do wonder why, when this unit is so effective, and so cheap, it was transferred out of public ownership. The Behavioural Insights website, so rich in self-praise, illustrated with a photo of dynamic semi-young nerds standing outside Downing Street wearing laminated id tags and carrying clipboards, is silent on this point.

Another fashionable set of ideas at the moment concerns behavioural economics. These ideas have been popularised in wildly successful books by Daniel Kahneman and Dan Ariely, and are sure to have been knocking around the parties’ policy units. The fact that ideas are fashionable doesn’t mean that they’re wrong, and the central insight of behavioural economics is certainly true: that humans do not always make rational choices. Our decision-making is biased. We don’t always do the maths; we follow our feelings. One of the main ways in which we do that is ‘loss aversion’. We hate the idea of having things taken away from us so much that we don’t always recognise the real choices we’re offered. This finding is mathematically and experimentally provable: even if we’re probably going to come out ahead of a given transaction, we’re detrimentally prone to focus on the thought of what we might lose en route.

The discovery of loss aversion – of just how deep it reaches as an impulse – goes a long way towards explaining the state of affairs spelled out by the Institute of Fiscal Studies in its briefing on ‘Post-Election Austerity: Parties’ Plans Compared’. The main takeaway from the paper, well-written and candid as IFS papers always are, was that the parties, in their separate and overlapping ways, feel we can’t handle the truth: ‘All four parties’ plans imply further austerity over the next parliament.’ There is nonetheless a big difference about where the plans would take us: by 2019-20, Labour would have about £90 billion more debt than the Tories. That’s a big number, the biggest gap between the two parties’ plans since Major v. Kinnock in 1992.

The IFS complains that the Tories are being too vague about what they’ll cut. Labour are being too vague about what they’ll borrow. When it comes to the SNP, ‘their stated plans do not necessarily match their anti-austerity rhetoric.’ As for the Lib Dems,

they have failed to spell out details of how they would achieve much of their tightening, relying heavily on unspecified measures to reduce tax avoidance and evasion (£7 billion) as well as some unspecified social security cuts (£2 billion). They are also relying on cuts to departmental spending (£12 billion), although (unlike the Conservatives) these were mentioned in their manifesto.

It’s loss aversion everywhere you look. Nobody is going to tell the truth about who pays the real bill for the austerity cuts to which all parties are privately committed. The last sentence of the executive summary says it straight: ‘Unfortunately, the electorate is at best armed with only an incomplete picture of what they can expect from any of these four parties.’

So the IFS view is a plague on everybody’s house, yes? They’re all as bad as each other? You’d be forgiven for thinking so. The IFS is very careful to be non-aligned in party political terms. Robert Peston asked the head of the Institute, Paul Johnson, whose plans he thinks are best. ‘He's keen not to sacrifice the IFS's precious reputation for political neutrality. So he did that politician's thing of dodging the answer.’ But there is a teeny hint about which party is making the most egregious set of claims, in the minds of the guardians of fiscal rectitude. Only two words of the executive summary are italicised for emphasis, as follows:

Since the Conservatives’ plans imply the greatest reduction in borrowing, the Conservatives have the greatest job to do in terms of setting out how they would achieve this. Despite this, their detailed tax policies are a net giveaway of 0.1% of national income, their detailed social security measures would only provide a tenth of the cuts that they have said they want to deliver, and their commitments on aid, the NHS and schools would (relative to a real freeze) increase spending on these areas by 0.3% of national income.

In a document so keen not to seem partisan, those two lonely uses of emphasis are more than usually emphatic: giveaway and increase. It’s not as if the IFS are actually going to say: ‘Liar liar pants on fire.’ But the italics are a bit of a, what’s the word, nudge.