Thursday, July 19, 2012

Don B. vs. A. Kling on the CFPB

For the posts in question, start with Arnold Kling's remarks here, Don Boudreaux's challenge here, and Kling's rejoinder here.

For those not interested in wading through the click-through, Kling gives a thumbs-up to the CFPB for shooting down some shady practices by Capital One. Boudreaux asks why it's okay to force taxpayers to protect people from their own stupidity. Kling responds with a proposal that might allow us to partition part of the [Euvoluntary]-[Merely Voluntary]-[Voluntary but Possibly Exploitative]-[Outright Fraudulent] spectrum, though

So I think I have a test that would allow for some consumer protection without heading down a slippery slope toward paternalistic regulation. That test is, "Can you imagine a set of preferences that would make you want to buy this product?" If the answer is "no," then regulation is justified. However, if you can imagine a set of consumer preferences that would make you want the product, then regulation embodies paternalism and should be subject to libertarian opposition.
Is this a good test? For me, it certainly passes the giggle test with flying colors, but I'm at least a little skeptical when it comes to imagining the preferences of others, especially when you grant that authority to a bunch of career politicians or bureaucrats. The gentlefolk who work across the Potomac aren't especially well-known for being in touch with the rest of America. You're asking regulators to be a bunch of Deanna Trois, not what I'd call a recipe for success. As a thought exercise or a classroom example, this works very well. As a practical guideline for the limits of regulatory agency, I think I'd like to see a clearer set of rules.

The common law has decent (compared to civil law, anyway) guidelines to this sort of thing, but the thing about regulatory agencies is that they are very much civil law-type organizations. They're all often[ed.] about prior restraint rather than ex post compensation.

Edit: As Dr. Kling rightly notes, it's hyperbole to claim that regulatory agencies always act presciently. I thank him for the reminder. It also sort of makes me wonder about the EE and the economics of fraud detection and prevention. This is good, since good topics can be hard to come by.

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Do you have suggestions on where we could find more examples of this phenomenon?