There's a very interesting article in this week's TIME magazine explaining how President Obama is using behavioral economics as opposed to neo-classical economics to achieve the changes that were promised.

As the article states, "Neoclassical economics — a University of Chicago specialty — has ruled our world for decades. It's the doctrine that markets know best: when government keeps its hands off free enterprise, capital migrates to its most productive uses and society prospers. But its elegant models rely on a bold assumption: rational decisions by self-interested individuals create efficient markets. Behavioral economics challenged this assumption, and the financial meltdown has just about shattered it; even former Fed chairman Alan Greenspan confessed his Chicago School worldview has been shaken." Clearly, the economic situation that we find ourselves in today is the result of irrational behavior by lots and lots of people, corporations and even governments.

What the article explains is how the group of behavioral economists within the Obama administration plans to achieve the necessary changes to correct the problems caused by the steadfast allegiance to neo-classical economics over the last several decades. There can be no argument that the economic approach of the last 30-40 years hasn't worked. Maybe this new approach--behavioral economics--will work to achieve the changes so obviously needed.

What is interesting is to understand the differences between the two schools of economists and then observe how decisions being made by the government are following the precepts of the "behavioral" school.

Read the entire article at...

http://www.time.com/time/magazine/ar...9153-1,00.html