Thursday, January 13, 2011

The business model of the con artist

Libertarians like to claim that markets correct themselves without government interference. Therefore we don't need government regulation. That claim is based on some flawed assumptions. Here's why we need regulation.

* Many times consumers are not rational. They base purchasing decisions on a wide variety of irrational impulses -- if I buy that product I'll be just as cool as the model hawking it.

* Even when consumers want to be rational they are faced with situations where it is impossible to get enough reliable information to make intelligent decisions. Celebrity endorsements work well here -- if the product makes that athlete better it will help me too.

* Libertarians are also irrational at times -- just ask them about global warming.

* Those who make stupid choices (such as when they can't get reliable information) deserve the consequences. Bad things don't happen to just the stupid. The standard of justice does (or should not) be based on whether someone has occasionally made stupid purchases. If your economic model is based on people getting ripped off, it is not self-regulating.

Put it another way, only the con artist wants deregulation.

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