Obama Pushes iPod Government

To understand the intellectual underpinnings of Sen. Barack Obama's plan for reinventing government, it's useful to read "Nudge: Improving Decisions About Health, Wealth and Happiness."

A new book examines several of Sen. Barack Obama's, D-Ill., "iPod government" programs including those regarding Medicare, taxes, and savings.

(ABC News Photo Illustration)

The new book by two University of Chicago professors who serve as informal advisers to the Democratic Illinois senator explains how a "libertarian paternalist" government can preserve freedom of choice while moving its citizens in directions that will improve their lives.

Obama's iPod Government

"His campaign has referred to a beautiful phrase 'iPod Government,'" said law professor Cass Sunstein in an interview with ABC News. "We don't use that phrase in the book, but iPod government is very close to what we have in mind. Those who are concerned about choice architecture love the idea of iPod government because it's user-friendly, the default rules are sensible, you can adapt as you wish but if you don't adapt, things are going to be fine."

The premise of Sunstein's book, which he wrote with behavioral economist Richard Thaler, is that people are less than rational when they make economic decisions. In the lingo of the book, there is no such thing as "economic man." Humans are influenced by the power of inertia.

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The authors believe that once it is accepted that some nudging is inevitable, the body politic can move on to consider how nudges can be used to improve people's lives.

"Obama is very alert to the idea of choice architecture, which has to do with the fact that there's a context against which people make decisions and the context can be confusing and harmful or straightforward and helpful," said Sunstein.

Economic Savings

The clearest example of how Obama plans to construct default rules to alter behavior is his automatic savings plan.

At present, millions of Americans are given the option of joining employer-based savings plans but do not exercise the option. Test studies have shown, however, that if employers automatically enroll their employees, enrollment rates shoot up dramatically.

In order to take advantage of what behavioral economists call "the status quo bias," Obama would require all employers to enroll their workers in a direct deposit retirement account that places a small percentage of each paycheck into the account. This is the paternalistic part. The libertarian part of his proposal is that employees would still have the choice of opting out.