New budget chief has wide intellectual range, bloggy instinct

Orszag favors cool head, warm heart

WASHINGTON - Harvard Medical School invited Peter Orszag, then director of the Congressional Budget Office, to give its prestigious annual Seidman lecture in October because it wanted a speaker who would be influential on medical policy. As head of the agency offering fiscal expertise to the House and Senate, Orszag was primed to play a crucial role in determining the price of any new healthcare legislation.

When Orszag's PowerPoint slides began snapping, faculty members were surprised to see that he had far more to offer than a look at the federal ledger sheets. Offering suggestions on how to cut healthcare costs, Orszag presented bar graphs measuring the relative placebo effects of antidepressants and showing how a Michigan hospital's introduction of a five-step checklist for doctors catheterizing patients reduced rates of infection.

"The thing that I was impressed with is how he is able to pick up clinical medicine for someone who is an economist and not a doctor," said Barbara McNeil, a radiologist who heads the medical school's Department of Health Care Policy, which organized the lecture. "For someone who had as wide a portfolio as he had at CBO to have that understanding of health is unusual."

Orszag, who was named yesterday to run the Obama administration's Office of Management and Budget, has a wide intellectual range and a bloggy instinct - relentlessly curious, allusive, drawn to unlikely connections - rare within the green-eyeshade set. A year ago, he launched his own blog, the first on his agency's website, that has touched on everything from avian flu vaccines to the Navy's shipbuilding program.

It remains unclear whether there will be room for a blog - or more importantly, the accompanying sensibility - in the White House. (An aide this week said Orszag was not available to speak about his plans.) If the congressional budget chief is by definition a critic and gadfly, the White House counterpart has one overriding responsibility: formulating the president's budget.

"The CBO director is in the end a think-tank director for the Congress. He's not an advocate and he has no management responsibilities," said Doug Holtz-Eakin, who preceded Orszag in that post, leaving to become a policy adviser to John McCain's campaign. "The OMB director is an advocate for a president's policies."

Orszag, who turns 40 in December, has worked for a president before. A decade ago, he was the senior economic adviser for Bill Clinton's National Economic Council and afterward followed many Clinton alumni to the Brookings Institution. He is viewed as a political moderate among Democratic economists.

Nearly two years ago, Orszag identified himself as a defender of what he called "coolheaded, warmhearted economics," cautioning against policies that interfere with markets while encouraging those that cushion individuals against "the blows that inevitably occur in the process of creative destruction," as he wrote in a Boston Globe op-ed.

Much of Orszag's current thinking is shaped by the study of how human behavior intersects with economic decision-making, recently in vogue among academics but long kept at a distance by policy makers. "We need a bit more 'Psych 101' in addition to 'Econ 101' in the design of public policies," Orszag has written.

He meets similar minds in the new White House. Obama's chief economic adviser during the campaign, Austan Goolsbee, is a leading behavioral economist at the University of Chicago and is expected to sit on the president's Council of Economic Advisers. Another Obama friend and informal adviser who may play a role is Harvard Law School professor Cass Sunstein, a legal scholar whose newest book, "Nudge," considers how governments should change the choices offered to individuals to push them toward better decisions.

Orszag has demonstrated a yen for similar policy solutions. Testifying about Social Security before the Senate Finance Committee in 2005, prior to joining CBO, Orszag proposed altering 401(k) plans to automatically enroll workers and to create efficient options for them to move their income-tax refund directly into savings.

In his lecture at Harvard, he condemned the opacity of healthcare pricing: few consumers know what procedures cost and who ultimately pays for them. Orszag described experiments that showed people slurp more soup when they are unable to see the bottom of the bowl in which it is served, and munch more stale popcorn when it is served in a large container as opposed to a small one.

"Just as the field of economics suffered for ignoring psychology for too long, so too has much of medical science and health policy largely ignored the crucial role of expectations, beliefs, and norms," Orszag wrote recently on his "Director's Blog."

Orszag started his blog after seeing other executive branch agencies, including the Library of Congress, launch their own as an inexpensive way to communicate with the public. Along with the traditional media favored by his CBO predecessors - policy papers and congressional testimony - it has allowed Orszag to muse on a range of issues, from the cost of producing Chinese goods to the risk of workers overinvesting in their employer's stock.

In many cases, Orszag ends up weighing whether government can best influence the behavior of consumers with strict market solutions or through the "creation of new social norms." In his writings on climate change, Orszag has examined whether gas prices would have any serious short-term effect on driving habits given the "cultural, historic, and geographic considerations" that lure Americans toward larger and more powerful cars.

"He is a great policy economist but as a blogger - and leader of a bureaucracy - I suspect he is not in a position to be as frank as a good blogger should be," said Tyler Cowen, an economist at George Mason University who maintains his own blog, called Marginal Revolution. "I like his work but I stopped reading his blog pretty quickly."

Orszag's influence may become clear when he introduces Obama's first budget early next year. During Ronald Reagan's administration, Richard Darman used the perch to become a major player in policy negotiations. Those who ran the office in George W. Bush's administration had a much lower profile, largely because the White House counted on Congress to design legislation.

"The OMB director is as important as the president makes him or her," said Holtz-Eakin. "If you have a president who tells other Cabinet agencies to go through OMB, the director is a player in every trade-off you have to make."