Arnold Kling  

Consumer Protection

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Richard Posner and Gary Becker have a rare disagreement. Posner writes,


There are three possible responses to the problem created by consumer information costs. The first is to require producers to provide more information; the second is to ban products upon on the basis of a judgment that if consumers knew the score they would not buy the product in question; and the third is to leave the burden of information on the consumer, thereby increasing the incentive of a consumer to inform himself about the products he buys. Often the preferred ranking will be 2, 1, and 3. Banning the product eliminates information costs, though to justify so drastic a measure requires a high degree of confidence that informed consumers would not buy the product if they knew the facts about it. If as I believe trans fats have close and much more healthful substitutes that cost little more than trans fats, the attempt to ban trans fats in New York City restaurants made sense.

Becker writes,

This pressure toward greater regulation of consumer choices is not the result of consumers finding it more difficult to get information about products and the consequences of consuming them. Nor have the cognitive defects referred to by Posner become more prevalent or harmful. Instead, the movement toward increased regulation of consumer choices reflects in large measure greater reluctance among some groups to accept these choices. It is unacceptable to many persons both inside and outside the medical profession that some individuals want to smoke or eat a lot and become overweight, even if they knew and possibly exaggerate the negative health consequences of smoking and overeating. The increase in weight of teenagers, for example, is not explained by cognitive biases, but by sharp declines in the cost of fast foods, and the development of Internet and other sedentary games.Increasing intervention in consumer choices also reflects the erosion of individual responsibility (see my discussion on March 16), so that consumers and their advocates blame others when consumer choices turn out to be harmful and costly.

Suppose that the relevant margin is this: the city of New York can put out an official statement saying that trans fats are really, really bad for you, and that consumers and restaurants should take this into account; vs. the city of New York bans trans fats in restaurants.

In moving from the official statement to the ban, what are the benefits? What are the costs?


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COMMENTS (10 to date)
Tom West writes:

To me, it seems to boil down to the question of whether human society would self-destruct given unlimited freedom. If you believe that, then you believe that bans are justified and from there it is only a matter of degree. (Unless you're a radical libertarian, in which case the only moral choice is to let most of society kill themselves.)

For those who believe only a small minority would knowingly self-destruct, bans are an arbitrary restraint on freedom.

Fortunately (or unfortunately), we aren't likely to see a society with that degree of freedom to see whether the presence of (for example) cheap narcotics with aggressive advertising could cause the collapse of society and the destruction of most of its people.

SheetWise writes:

I've never seen a pack of cigarettes, bottle of liquor, or a jug of fat with a recommended dosage. And they're not all dangerous at all levels of use -- some are even beneficial. But the government wants to claim they are unsafe at any level simply because some people abuse them. If we start to put together a list of things that can be abused (schools are now banning peanut butter), it's going to be a very long list.

Carl the Sailorman writes:

The common underlying presumption in consumer regulation is not just that the regulator knows best, but that s/he knows with probability one that bad things will happen. If that's the case, why is probition even necessary? You don't need to prohibit people from eating cyanide, now, do you?

So the issue revolves around uncertainty, because the regulator doesn't really know for certain. As we have seen frequently in dietary matters, regulators don't know all that much, because they keep changing their recommendations.

Which leads me to ask whether I can trust the regulator, and that's another uncertainty problem. As a basic public choice guy, I have absolutely no reason to trust any regulating institution to get the costs/benefits right. I don't think the American public trusts them any more than they trust their neighborhood capitalist pig.

So, why should government agencies ever be more empowered than to give recommendations based on clear statements that they only know so much but not all and it could change tomorrow anyway? If we're sure something is really, really bad, I don't need the govt to tell me; and if they're not sure, why should I trust them more than anyone else, including myself?

liberty writes:

hm. I've never met a pig that I knew to be capitalist. How can you tell? Do they taste different?

On that note, of course, there were some famous communist pigs, at least on one farm.

Dick King writes:

Although I don't agree with school peanut butter bans, their goal is not to protect the would-be peanut butter eater from hirsef, but to protect people in hir vicinity who are exquisitely allergic to peanuts. This ban has no relationship to the proposed trans-fat bans and the like.

-dk

Dr. T writes:

Carl the Sailorman is correct. Regulations and bans of products based on questionable determinations of risk give government far to much power over consumer behavior. The trans fat situation is a good example. Trans fats appear rarely in nature, so our bodies are not good at handling them. Ironically, trans fats got into our diet due to inappropriate disparagement of saturated fats by our government and by many health care professionals. Trans fats were produced to replace saturated fats for deep frying. We now know that trans fats are more likely to promote atherosclerosis than saturated fats. However, the difference is not huge, and it is based on population studies. Some individuals will not be adversely affected by trans fats, but we cannot easily identify these individuals.

That last statement is key: NYC used that as its excuse for banning trans fats. NYC (a blossoming nanny state government) could have just issued a warning, but chose to use power and prevent restaurants and customers from having a choice. Some people (those who can handle trans fats but get atherosclerosis from saturated fats) will be harmed by NYC's decision, but that fact never stops the government regulators.

TGGP writes:

Robin Hanson is good on this topic.

Grant writes:

If government does nothing, individuals stand to capture all the gains from knowing the relevant and correct information. Thus there are incentives for individuals to learn more about the products they buy, because the benefit of doing so is a "private good".

If government takes responsibility to prohibit certain products, individuals do not stand to capture all the gains from knowing relevant and correct information. Despite the costs of doing so, they benefit very little. Thus there are no incentives for individuals to learn more about consumer regulation, because the benefit of doing is a "public good". These individuals will therefore not vote knowledgeably, and government will eventually have no incentive to make good decisions.

I can see democracy working in this instance for really obvious issues, where the cost for voters to gain the relevant knowledge is very small. But for most of those cases, prohibition isn't needed in the first place.

Government requiring producers disclose more information seems much less damaging to me, but some of the problem still remains: How do we decide what information consumers desire, and what information they do not? I'd imagine democracy works pretty well here, but I'm still skeptical that it produces better results than market forces. Overall it seems like a wash, since consumer information seems to be provided well enough regardless of who is asking for it.

Heather writes:

While I'm not sure I like the idea of banning transfats, the problem has always been trying to ensure good information is transmitted to all the people. To do this, the government has enacted many different laws, including truth in advertising laws. There is value to the society in making sure the population is informed, but that is not always possible. A large number of people don't read much or pay attention to the news in any form.

The question then becomes, how do you inform these people? Is it survival of the fittest? Do you regulate?

The primary flaw in much of the reasoning above is that it assumes a rational person. As far as I know, a large percentage of the population does not meet this standard.

Grant writes:

Heather,

Neither does the government, which is made up of people. Voters in their capacity as voters tend to be far less rational than they'd be in situations where they stand to gain from being rational.

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