Libertarian gadfly Tyler Cowan, along with George Mason University colleague Alex Tabarrok, recently wrote an interesting think piece over at Cato. They argue that today we don’t really need government regulation anymore because, basically, the glory of the Internet means that everyone now has equal access to information. As they put it:
Market institutions are rapidly evolving to a situation where very often the buyer and the seller have roughly equal knowledge. Technological developments are giving everyone who wants it access to the very best information when it comes to product quality, worker performance, matches to friends and partners, and the nature of financial transactions, among many other areas.
These developments will have implications for how markets work, how much consumers benefit, and also economic policy and the law. As we will see, there may be some problematic sides to these new arrangements, specifically when it comes to privacy. Still, a large amount of economic regulation seems directed at a set of problems which, in large part, no longer exist.
The “asymmetric information” that once allowed companies to screw customers has been solved since we now pretty much have everything we need to protect ourselves and police the market. Who needs the Consumer Financial Protection Bureau?
These changes also cast new light on the costs of a political system that produces many new regulations but repeals very few old ones. The American regulatory apparatus is increasingly out of date. It is geared to problems that peaked in the previous generation or even earlier.
Not really, guys.
David Auerbach over at Slate looks at the intellectual problems with the game they’re playing here. The trouble, as he puts it, is that good information is “cut with inferior data ranging from unreliable accounts to deceitful garbage. The problem is not even noisy signals per se, but too many signals.” And there’s no reason to think this problem is going to go away anytime soon.
But there’s a much more simple reason to understand how this argument is bullshit: despite all of this new information, people are still getting screwed.
Witness the enormous mess that is Corinthian Colleges, the for-profit education company that saddled its students with gigantic loan burdens and no real job prospects.
How did that happen? Well, according to this piece in the Washington Post:
The school has been accused of falsifying job placement records, lying about graduation rates and steering students into high-cost loans dating back as far as four years ago. Yet it wasn’t until June that the Education Department cut off the schools’ access to federal aid, forcing it to sell or close. And even then, lawmakers and consumer groups called for tougher action.
Consumers have had “information” about the company for years. Somehow the problem didn’t go away.
The department found 947 cases of false placement rates given to students and accreditors. In some instances, Heald Colleges paid temp agencies to hire its graduates to work as few as two days, and counted those students as having found jobs. The government said there was even a case of one campus counting a 2011 graduate of an accounting program as employed in the person’s chosen field—based on a job behind the counter at Taco Bell.
“Instead of providing clear and accurate information to help students choose which college to attend, Corinthian violated students’ and taxpayers’ trust,” undersecretary of education Ted Mitchell said in a statement. “Their substantial misrepresentations evidence a blatant disregard not just for professional standards, but for students’ futures.”
And yet somehow the institution kept signing up more students. Perhaps “the American regulatory apparatus is increasingly out of date” but it seems the big problem here was that government regulations weren’t robust enough, not that the “political system… produces many new regulations but repeals very few old ones.”
So what finally brought Corinthian to make changes? Not “equal access to information” but just good, old fashioned government intervention:
Within months of losing access to federal aid, the Consumer Financial Protection Bureau sued the company for steering students into private loans, known as “Genesis loans,” with interest rates as high as 15 percent.
Around the same time, attorneys general from California, Massachusetts and Wisconsin either launched investigations or filed lawsuits against the company.
More information is surely changing a lot about consumer behavior and how businesses operate. But so far there’s no reason to think government regulations in place are unnecessary and we’d be better off without them.
At least in the case of for-profit colleges, regulations were not “geared to problems that peaked in the previous generation or even earlier.” No, these problems peaked in like 2007. And it wasn’t consumer access to information that addressed this problem; it was actually just government regulation. The federal government just needed to step up enforcement.