Jobs Created

Obama plans to save or create three to four million jobs over the next two years.  The records of his predecessors:

Ranking the Predictions

Georgetown Professor David Walker ranks the different forecasting models: the Iowa Electronic Market came out on top with a 0.2% error, while the RealClearPolitics average (0.3% error) was a close second.

RCP’s success speaks to a larger point about predicting presidential elections: with the abundance of polls, a simple aggregate provides a fairly accurate result.  And, even without polling, plugging a series of macroeconomic variables into a model gets close to the final margin.

Stat of the Day

Ron Brownstein identifies the Big Blue Wall:

The 18 states which have voted for Democratic presidential candidates consistently through at least five election cycles. That’s 248 electoral votes. (In contrast, Republicans have won 13 states worth about 93 electoral votes over five cycles.)

Explaining Bubbles

Behavioral economics does a much better job than the standard models:

By borrowing the insights and methods of psychology, behavioral economics focuses on all the ways in which humans fail to act as the rational, self-interested beings that economic models call for – we aren’t good at thinking about the future, we’re susceptible to peer pressure, we overestimate our abilities and underrate the odds of bad things happening. It’s a set of traits that describes perfectly the behavior of many of the people who, in a cascade of self-defeating decisions, helped create the subprime crisis.

Nudge, Coming To a Theater Near You

Ezra Klein analyzes Cass Sunstein’s appointment as head of the Office of Information and Regulatory Affairs:

The point of all this is that OIRA is quiet, but important. It’s the chokepoint of the entire federal regulatory apparatus. If used wisely, it facilitates the flow, provides welcome analysis and judgment, and aids in implementation…

It’s worth remembering that Sunstein has recently achieved great fame for Nudge, a book which basically argues that we need to apply the insights of behavioral economics to the construction of regulation. And Director of the Office of Information and Regulatory Affairs is the ultimate staging ground for those ideas.

This is a huge pick.

In Nudge, Sunstein discusses the standard behavioral economics example: 401(k) plans.  Companies generally have opt-in policies, where workers are forced to fill out paperwork to enroll in the plan.  One of behavioral economics’ axioms is that people tend to stick with the default; therefore, the majority of people never take advantage of their 401(k)s.

Say you make a minor tweak.  Switch the 401(k) from opt-in to opt-out, meaning employees are automatically enrolled in the program.  A CBO study shows that this nearly doubles participation rates (going from ~45% to ~85%).  For employees making under $30,000, participation nearly quadruples.

As head of OIRA, Sunstein could implement this nudge as well as a passel of other ones outlined in his book.  They’re subtle adjustments in “choice architecture” that deliver outsized benefits.

Tax Cuts in the Stimulus

Obama has taken some flak from the left for including $300 billion worth of tax cuts in the stimulus package.  Tax cuts have traditionally not stimulated an economy during recession, as people shovel the money under their mattresses instead and aggregate demand stays flat.

In this crisis, however, people need money to pay for essentials like their mortgage payments.  The tax cuts target that socioeconomic bracket; the incoming Obama administration thinks that no one from this group can afford to save the money.

It’s also important to note that there’s a surprisingly low ceiling to infrastructure investment. Doubling the current federal infrastructure budget would compose only eight percent of a $75o billion package.  The rest of the stimulus needs to go somewhere, and tax cuts are not only politically beneficial but ease the recession’s impact on the less well-off.

Chief Performance Officer

This Wednesday, Obama introduced Nancy Killefer as chief performance officer, “who will work with federal agencies to set performance standards and hold agency managers accountable for progress.”   Often in government bureaucracies, standards aren’t as high as they would be in a corporation, and managers can skate by with lackluster records.

With this appointment, Obama tries to change that tradition, carrying over a critical concept from the election.  In a post-election interview with Portfolio, campaign manager David Plouffe said, “We were an organization about accountability. Down to the entry-level staffer, we measured their job performance based on metrics.”  That business-like attention to data played a major role in the ground game’s success.  Implementing a similar philosophy in government should pay dividends as well.

Holiday Wishes

(Via Barry Ritholtz)

A Confused 41

Washington Whispers reports:

When the subject of Palin came up during their chat, [H.W.] Bush told of twice phoning her office but never receiving a call back. The first message was left at McCain HQ after she was picked to be Sen. John McCain’s veep; the second with the governor’s office after the election was over. He shrugged it off as staff error, but our source says he was clearly perplexed.

Somehow, Palin’s scheduling team found time for two radio jockeys from Montreal, but couldn’t return a former president’s call.  Mistakes like that understandably led the governor to lose trust in her staff, but even the best team can’t entirely mask a candidate’s deficiencies on the national stage.  Vice presidential nominees must do interviews, debates, and more, which are all opportunities to puncture a facade.  Unfortunate for Palin, otherwise she could have run one of those “front porch” campaigns.

Another Ponzi?

(Via About.com)