Consumer Protection: An Interview with Robert Murphy

0:00For the purposes of the Mises Home Study course, today we'll be discussing consumer protection with Robert Murphy, professor at Hillsdale College, who's going to be discussing economics, politics, and historical aspects of consumer protection. And I'm Jeff Tucker, general editor at the Mises Institute. I'm going to start by asking Professor Murphy what – is there a generally accepted definition or understanding of what constitutes consumer protection so that when we talk about consumer protection, what are we talking about? I'm not sure that I would say there's a generally accepted definition that you would see in a textbook per se, but the sort of thing that we're going to be talking about today is measures that the government takes, if it's in terms of government efforts at consumer protection, to ensure the safety or quality of goods and services that consumers get.

1:00and so just you need to distinguish it so it's not the same thing for example as workplace safety all right so those are different fields and we have in mind things so when you go to the store and buy a product that you have some degree of assurance that it's not poisonous or that if it is it's clearly labeled so examples of things would be government measures that require firms to label their products and that if you buy something you go to a restaurant and you get food poisoning that the government has Laws in place, so that you can go sue the relevant firm, because the idea is the standard idea that, oh, if it weren't for these measures, then the free market would just have businesses out there, you'd have adulterated products, and people would be dying in the streets after they come out of the restaurant, and there'd be no recourse, were it not for these consumer protection measures.

1:53So we are talking about the retail sector. Yeah, I would think so. Well, retail, yeah, that's what I have in mind by that. Wow. Yes. There's several aspects to this, and so let me just start out initially just to give some idea of what the free marketeer could say in terms of mechanisms that the free market has to ensure consumer protection. And so here, of course, we mean in the generic in the sense of things provided by the government to show that the government doesn't need to provide so-called consumer protection measures and I'll try to rank them in order of things that a greater number of people would agree with and then as I get further in the list they'll get things that are perhaps more subtle but that I think if we think about them that really the free market could provide these things so first and foremost that I think everyone can understand is if the primary mechanism is that if you

3:26a value jet crash in the Everglades and so there are all these calls for you know we need to beef up funding for the FAA and look at this is what the what the free market gets you and I remember it was in response to my letter to the editor which they actually allowed me to write a bigger piece was in response to there were claims people saying op-ed writers things like you know libertarians clamor for the free market but after the this crash in the Everglades you know and the rest of us are want the government inspectors to work overtime and so that's the the popular idea here that whenever anything bad happens that it just shows look at that's what the market gives you and anything good is of course because the government regulations that are in place but anyway just to I'll come back to that later but to just finish out the train of thought so the in response to that particular letter that I wrote or that piece that I wrote from my paper someone wrote a letter to the editor in response to that and

4:23in one sense, Mr. Murphy is right that if Value Jet keeps killing its customers, it's eventually going to go out of business. And that was supposed to be the ultimate put down, but that's, I think, a very valid argument that, of course, businesses aren't going to continually sell products that are going to endanger the lives of their customers. And what goes along with that, the way businesses try to capture the benefits of that is, of course, name brands. And so, it's true that fly-by-night organizations or companies, it's possible you could come up with scenarios where if there's no other ramifications, they might make more money by selling some type of product that, you know, promises to cure cancer, but really it's snake oil, and that, you know, oh, the free market alone, what sort of incentives are in place to punish that sort of activity, and perhaps so, and later on we'll talk about more subtle mechanisms that might address that sort of concern. But of course, clearly these huge corporations

5:19And so that's in the same thing with child safety caps and things like that that people think, oh, if it weren't for the government, you know, all these toddlers would be choking to death because there'd be no child safety caps. And again, that's, that's not necessarily true to the extent that that stuff really is justified and is good for consumers. And all these toddlers would be choking to death because there would be no child safety caps. And again, that's not necessarily true. To the extent that that stuff really is justified and is good for consumers, why would we think that companies would overlook that? And again, particularly huge companies with name brand recognition. And there are examples where companies do have massive recalls of products that have been found to be unsafe, where they take them off the market and try to contact people who have registered and get them back.

6:08And of course, the critics are going to say, oh, that's only because of the government measures, but again, to the extent that you want to have continuing business with particular customers, I think that those sorts of things are in place, and that would happen even if it weren't out of fear of government-sponsored lawsuits. I should just mention here, in the few cases I know about, it's usually the industry that alerts the government, not vice versa. Yeah, so, I mean, to people like you and me, where we have a general, you know, we're friendly towards voluntary activities, that just seems like, yeah, that's the free market in action, but of course, the critics are going to say, oh, it's only because the government's got that club, and that if they didn't do that, but, so as I say, as we move on, we'll try to see why I think our response to that is the right one, our interpretation of how to look at those. The other, another major category, I think, is the function of intermediaries, or what's commonly called middlemen, and this is something, too, it's just

7:31If you buy pork chops from Walmart and you go home and your family's thrown up all night, you go and you complain to Walmart. And whether or not there's a legal right that they have or that you have a legal action against them, certainly to keep you happy, they're going to want to minimize that sort of activity. And so when they go out and buy meat from the butchers and whoever the meatpacking plants, they're going to have their own experts analyzing it and they're going to, you know, send inspectors to these places and say are you using processes that would ensure that your product is a good one. Alright, so it's this idea that that some people have, depending on how naive they are, that it's really the consumers against everybody else, is of course, well in that case Walmart in a sense is the one buying it. And this gets back to what you were talking about in the beginning, that yes, consumer protection I think in the popular usage refers just to the

8:23retailer, but of course there are huge businesses that are in the chain of of Purchasing. And it's in their interest too to make sure the product is safe. And just some other examples, a legal firm, you know, a big law firm. And of course, that's also not something that the average person thinks is on their side. But you're not, the average person, of course, doesn't need to be an expert in law to hire an attorney. And again, what one of the major mechanisms for ensuring that sort of name brand recognition is you go to a big law firm, and you don't need to know the particular attorney that you get assigned, what was his track record, Let me go see where he got his degree from. How'd he do on the bar? You don't need to do that. All you need to do is if you have the money, and it's that important to you, that you go to a reputable law firm. And then they're the ones who, when they hire somebody, go and say, okay, how did this guy do on the bar exam, and so forth. And so they're the intermediary where their experts ensure that the services you're getting as the final customer are more likely than not to be good ones. And of course, if they do have somebody who's a drunk, he shows up to court and is terrible, and, you know, his clients are awful,

9:57and the biologist. That would be crazy. And so the naive person would think, oh, so we need to have government involvement in picking curricula and setting standards for education because otherwise, you know, these schools would be hoodwinking parents and how could they possibly know? But again, parents are competent enough to know, to do enough research to say, well, this school's graduates, they get placed much more than this other schools and so there must be something to it. And again, it's there. Ultimately, it's the businesses that hire graduates from from that school. They know what they need to have for success in the marketplace. And so it's again just this intermediary function that ultimately, so when I want to apply to teach economics somewhere, it's not really the parents of the students that I'm teaching classes to who are determining whether I'm good or not. It's the peers and the other people in the economics department that interview me and I give a presentation and they see

10:53The Theory of Money and Credit

11:53Well, probably no matter what the government or anyone else tries to do, you're going to be taken in if you're that naive and so they, again, that what would be required of someone in a free society is nothing more than for things where you're really not an expert and you personally can't distinguish frauds from legitimate experts, then get somebody else involved, go through an intermediary. And the last one that I hadn't even thought of until recently, there was an article in the Freeman and then actually on Mises.org I think, about credit cards and how in modern society, at least capitalist society, that when you buy something on a credit card, there's actually, in a sense, the whole credit card company is on your side, and that if there's a dispute, if you buy something over the internet and it doesn't get shipped to you, that you can complain to the credit card company, and often they will just remove those charges from you, and then they know, okay, we've gotten a lot of complaints about this particular website from our customers, so let's alert somebody else, or let's warn our customers,

12:53So, again, this is another example of intermediaries coming into play. Another aspect is trade associations. And here, the analysis is a bit tricky, because if we're talking about the completely free society, it's not clear whether these things would exist or what form they would take, things like guilds and trade unions, because of course they wouldn't be allowed to go on strike and form a picket line and prevent so-called scabs from coming in. The extent that there are voluntary associations of professionals, that those also would be a signaling mechanism and so, for example, doctors or other sorts of professionals could join this voluntary union and then advertise that to customers to say, oh, I'm a member of, you know, the excellent surgeons of Cincinnati Association and that those, so their record would speak for itself and so people would know it's true, they wouldn't know I've never heard a bad thing about anyone in that group and that if he does screw up, then that group is always quick to pay compensation and to keep their customers happy and they wouldn't let quacks into their midst because that wouldn't be good for them and so that's another mechanism by which experts could sort of coalesce and signal to the rest of society that we really know we're talking about as judged by our peers. Mises Institute adjunct scholar.

14:23And then the last one that I think most free marketeers would agree with, and then we'll get into the more esoteric mechanisms I think in a free society, but the second last one would be just these organizations that give independent ratings, so thus far I've mostly talked about why the people providing the goods or the ones who are somehow involved in the chain of delivery have incentives to provide quality for customers, but we've also got things like Consumer Reports magazines that provide supposedly objective ratings and I say supposedly because even there the critic depending on how hostile you are to a market setting you could say oh well the big businesses would just pay Consumer Reports to give biased reports on a particular product and yeah in principle that could happen but again once that sort of thing gets out then Consumer Reports loses its whole function and so it's really not in its interest. And so if you do have a huge magazine like that or what other the

15:29rating is, what is it the Underwriters Association if you've bought electrical products and they have on the back the little UA and that's to signify that this has been inspected by this association and so on and that it meets our standards of excellence. So in order to be to gain that sort of widespread trust you would have to have a record of objectivity and that's again something customers can go to and then another example with the internet it's it's even easier there's this site called ePinions that my wife goes to a lot when she wants to buy something before she buys something online and recently she she ran into this cooking club club scam where there was just a quickly boil down the story there There was this, it was $12 a year, and they would send you these recipes and things like that in the mail, and you would just try new products, so they would send you new products that they wanted to write up and use in their recipes, and so that was the point of you

16:29being a member, is you'd get this free stuff in the mail, and again, it was $12 a month, but for some reason, just before she sent in the money, she went to this ePinions and typed in the name of this club to search for it, and there was all this negative reaction The Theory of Money and Credit

17:12So at that point she did that. She sent the book back saying, I don't want this. Just cancel them and give me back my membership dues. And they sent her a check, apparently, as she tells the story, for whatever the balance was. But before she cashed it, she happened to read the fine print and there was an agreement that if you deposit this check in the bank, you are agreeing to a lifetime membership for $300 with our club. And so, I mean, it's just the nightmare that everyone's worried about. And I don't know if that is a legally enforceable thing that they had on there, but that's not the point. The point is my wife was smart enough to go to this ePinions and check it, so of course she didn't send them $12 in the first place and didn't get sucked into dealing with that disreputable company. And so that's just the point. And of course, yeah, there's use as possible, but there are these mechanisms in place to try to minimize it.

17:58So then the last issue, and as I said up till now, these are all things that I think any free marketeer would agree with. The last one now that has really only been stressed to my knowledge in the anarcho-capitalist literature, the literature focusing on the economics of a completely privatized society, is the role of insurance companies. And just to show that this isn't completely theoretical, just the other day there was an article in Slate, the online Slate magazine, talking about insurance in the the movie industry and how apparently the way it works is you're gonna make a major motion picture in order to get investors to go in and put the hundreds of millions of dollars in some cases into the film that they want to be assured well what happens if if it doesn't actually come to the big screen something could happen in the meantime and they want to have someone assurance and so there's a type of insurance that says if the film doesn't get

18:55completed and go to the theaters we pay off all the big investors and that's the that's what the policy is and it's the premiums are in the you know seven eight million dollars sometimes depending on how big the film is and one of the provisions for this type of insurance one of the the critical events that can trigger the insurance payoff is if there's a major actor or actress for some reason can't finish the film because that can just kill a project dead in the water and apparently Nicole Kidman in two of her projects I think it The Theory of Money and Credit

19:57According to this article, the insurance company was the one in there making sure that it was actually as safe as possible, given what they wanted the film to look like, and that they were doing things like, you know, putting on an extra harness, insisting, so it wasn't her agent that was in there working on her behalf, it wasn't Angelina Jolie herself saying, wait, this looks kind of dangerous, it was the insurance company, because they stood to lose tens of millions of dollars if she broke her leg, and they couldn't finish the film, and so, again, it's not altruism, it's just, of course you're going to do that, If there's millions of dollars on the line. So that's one instance. And then the last example I can give you is with the airline industry. And this was what I was alluding to earlier when I wrote that letter to the editor. You think, well, without the FAA, how could there possibly be safety in air travel?

20:45Because would consumers have to just monitor the plane crash record of every single airline? And that's crazy. These free market apostles are just naive and unrealistic if they think consumers are going to keep that kind of information and big business would cut corners, they wouldn't you know have an adequate maintenance record on their airlines and so forth and they wouldn't have pilot screening and then you would have drug addicts trying to fly planes around were it not for the FAA and every time there's a plane crash people point to that say see that's the free market and we need to have more government regulation so the so what would the completely free market do it in response to that and I think an insurance would be the major mechanism So your only responsibility as a potential flyer, it would not be to do, I mean you could if you wanted to, if that was your hobby you could go ahead and keep like Rain Man, if you remember that part of the movie where Dustin Hoffman doesn't want to fly because he knows the complete statistics of air crashes in the last 50 years, you could be like that if you wanted to and pick your carrier that way, but all you would really need to do was make sure that whenever you bought a ticket, part of what you were buying was a pledge that if the plane goes down and you're dead as a result,

21:54we will pay your estate whatever it is a million dollars compensation and so then just as with the the movie industry there would be these huge liabilities potential liabilities the insurers would then make sure before they underwrote an airline that it was a safe airline and they could even have surprise inspections you know they could say to the airline yeah we will guarantee your flights so that if there is a crash we'll be the ones paying your customers or their estates not you guys directly but in return for that of course you're gonna pay us premiums and also if you want to have lower premiums you have to agree that whenever we want we can send inspectors over there unannounced and show up we can go look and look at your you know maintenance logs and we can check your your screening processes for how do you how do you pick your pilots and things like that and so in principle it's possible they could have drug tests and

22:46things like that we don't we don't know exactly what would happen but in In principle, as long as it was all voluntarily agreed to before anyone worked with the company, that they could do that. So all of these measures that the government allegedly needs to implement in order to rein in unscrupulous airlines could be done by the free market. And, of course, we would have every reason to expect that it would be more efficient in that respect. How would you apply that to a case of something like smoking? My understanding is that insurers charge a lot more for life insurance for smokers, and that works to some extent to discourage smoking, so that you're perfectly free to smoke, but if you want to be insured, you have to pay a premium. Right, exactly. And there's that, and there's also just even to get car insurance, that you've been in more accidents and you have to pay higher premiums.

23:42And so you're right, the effects of insurance in getting people to internalize externalities, to use the jargon of mainstream economics, it's all over the place. Any sort of interaction you've ever had with your own insurance company just shows you that. Or just recently to get, I've just moved to Auburn for the summer and we had to get, we were looking at a renter's insurance and the guy asked me, He asked me, he said, do you have a fire extinguisher in the building? Do you have a deadbolt? And I forget what the third one was, but there were three things. And he said, oh, you need, you know, if you have those three things, then I can lower your premium for you. And so, you know, right there, there was incentives for me, and depending, it turned out we did have a fire extinguisher. Oh, a smoke alarm was the other one. And so, right there, of course, in order to get whatever the rate reduction was, I would have gone out, even though I'm renting, and bought a fire extinguisher, if it meant that I was gonna have that lower premium. So, yes, the very nice

24:34The naive person would have thought, oh, the government clearly has to pass a law requiring buildings of a certain size to have so many fire extinguishers per square footage. But no, I mean, the insurance company, if it's going to pay when the place burns down, it's in their interest as well. So yeah, I agree with you on all those aspects. I don't know if you want to get into this just now but let's say that you make the case that 99% of the time the market is capable of providing this consumer protection in a way in which is satisfactory for everybody, which you haven't addressed is the potential, the cost of regulation. But if somebody says, yeah, all that's true, but it's fine just to have, nonetheless, a kind of a legal apparatus, just in case.

25:20Right. Yes. What's the downside of that? Okay, yeah, that's, let me, I'll try to be a little bit systematic in how I go through that. So you're right. All I've really talked about thus far is what mechanisms are there so that the market wouldn't be completely helpless in the face of dangers posed to consumers. But you're right. It's, I think the common attitude is, okay, sure, the market could do some things, but it's not going to hurt to have the government help. And so why don't we have have the government do all this stuff and then you know on the margins if the market wants to fill in the gaps that's great and there's there's several objections we could raise and again I'll try to start with some of the the more obvious ones that I think most people would agree with and then as we get on I'll get into more refined ones that maybe only Austrians would really understand so the thing Milton Friedman points I think it was in free to choose

26:13is that the if you just look at the incentives facing for example the FDA The FDA, Food and Drug Administration, they actually have the incentive to be very conservative in what products they allow on the market. So if there's a new drug that has the potential to, just to exaggerate, to cure a certain type of cancer, for example, but the downside is every thousand people who use it, one of them is going to die from some side effect, that the FDA might not approve it. Because, of course, what's going to happen is if they do approve it and too many people die because of this drug, they're going to take the heat for it that, oh, why did you approve that unsafe product? Whereas if they don't approve it and keep it off the market, 999 people are dying from cancer who otherwise would have been cured, but that's not the FDA's fault. Oh, cancer killed them.

27:00And so the incentives facing the FDA in terms of avoiding political heat, that they don't really, it's not as if the people who benefit from a new drug pay some compensation to the FDA and say thank you for allowing me to use it, the FDA actually doesn't benefit except in the sense of feeling good for helping someone live, but they certainly do lose if they approve an unsafe product. and so there's the incentives facing FDA, it's their keep things off the market that and we see that all the time with arguments about why are certain drugs allowed in Europe but they're not allowed here and people complain about that. Another I think then this perhaps directly answers your question what's the harm of the government at least doing what it can is that it gives a false sense of security to the population that in other words given that If there is this regulatory framework in place where the government is allegedly ensuring your safety, then consumers, their guard is down and they don't bother being as vigilant as they would be if they really thought it's up to me to be sure that what I'm buying for my family is safe.

28:06Just one example would be the value jet situation, and that's part of what prompted me to write my original letter to the editor when I was a teenager on that, is that the person in that article in the op-ed piece who was complaining about the value jet crash in the Everglades and sarcastically saying, you know, the libertarians think that the market's capable of doing it, but we all want the government working overtime with their inspectors, she had an An offhand remark about how the only reason customers are continuing to fly value jet is because the government is there, you know, ensuring that now its operations are safe. The government's on the job and we went in there and now value jet's got its house in order. And so the writer didn't realize the irony of saying that, you know, here's this company that was obviously in her mind unsafe and the plane crashed when apparently it didn't need to.

28:59and that she was saying, instead of saying, look at the government was in charge from before this plane crash happened, it still is in charge, the government assures us, oh, the reason we're involved with the airline industry is to keep it safe and not in the dangers of the free market, there's a plane crash, and rather than saying, huh, the government's doing a bad job, she was saying, yep, see, the government is doing a great job, that's the market causing the crash, and you free marketeers are so silly for not realizing it's the government that encourages people to fly value jet in the first place, whereas that's an argument against it. Another example would be I remember there was an amusement park ride that had to be shut down temporarily it one of the I don't remember which one was Six Flags or one of those big amusement parks because I don't know if there was a death or not but so I think yeah I think there was I think a kid fell off the I think it was

29:46a Ferris wheel or something like that and then somebody fell off and so they they shut it down and they the inspectors come in and check it out and it was funny that there were there were lines is the day it reopened by which that meant the government finally said okay yep this is now safe there were huge lines of people waiting to pile on of this thing and of course none of those people went in and checked the safety log and said okay I see how by that kid two weeks ago died but now I'm convinced no the government checked it out it's okay and so there's this idea that or you know if you're walking down the street in a big city and there's a hot dog vendor I think a lot of people have the idea that well gee it smells bad and it doesn't look like this guy's washing his hands but come on the government wouldn't let him sell those

30:24The difference would be, that's a good possible objection someone could raise, the difference would be, first of all,

31:02where even people had this distrust of insurance companies and so and and even if you don't have that that bias against them just that for whatever reason people understand when things are done between private individuals that okay they have their interests we have ours and we're gonna have a voluntary agreement and we both benefit and just realizing that they're not there to help me but they're you know benefiting themselves and let's just make sure it's all voluntary and it's mutually beneficial and even beyond that just the fact that if there is an insurance company it doesn't Another example, and again I don't know in the grand scheme how important this is, but it's just something I noticed, is I think some of these government measures, although they sound good in the abstract, I think they really have a counterproductive effect, and so what I have in mind is, I don't know when it happened, but within the last, let's say, five years, I noticed these products on television, there'd

32:18be these ads for Claritin or whatever, and then at the end, they would have these disclaimers. I'm sure you've heard them, that the announcer's voice changes and he says things like, use of this product may encourage drowsiness, nausea, explosive diarrhea, da-da-da-da, and I remember the first time I heard a commercial I was stunned and I actually thought you know who would possibly you know it must be because of some silly government regulation forcing them to give these disclaimers and so I thought that was dumb because of you know just the principle involved that why you forcing these people you know if consumers don't have the you know the foresight to check up on these things and that's their own fault but but I also I was puzzled as to why would you pay to rent out advertising on television if If you were forced to admit at the end that this product may cause you to have sexual problems or whatever, some of these things that they're forced to say are ridiculous.

33:09And it just shows that I don't understand the way the world works fully because, of course, what happened was within a few months you had heard so many different products with all these outlandish warnings at the end that people just don't even care anymore. and that, you know, now it's just standard when you hear these allergy medications or whatever the medication is that's being advertised, they always have these ridiculous, horrible things at the end that the announcer's voice changes and he says may cause, blah, blah, blah, blah, but nobody cares because it's, oh yeah, the government makes them say that and it's probably, you know, they injected a thousand times a dose in the lab rat and it became sterile, but who cares? I mean, the government wouldn't let them sell it if it were really dangerous, right? And so that's, so it's ironic that because the government, and again, I don't know the specifics, in the Pacific, but I'm sure there must be some regulatory change that why there

33:56all of a sudden this flood of commercials on TV like this, whereas before there weren't. It must, depending on, of course, we can't be naive that who knows what the actual reasons for the legislation were, but assuming people really did think this is gonna make products safer and we don't want people to advertise unsafe products, it's had the opposite effect that now people I think tune out those warnings altogether because they hear it so much and it just you know it's not as if that the commercial has to give the details of the specific peer-reviewed studies and what actually happened and what was the sample size and how many people got sick and they just give the you know may cause and people just tune that out so it's it's ironic then that if anyone were concerned about their safety that I think the fact they have those disclosures they would it gives them the sense okay well look the government's on the job they're doing you know they're looking into these companies and they're keeping them honest and so now I'm gonna go buy this product when if it weren't for that people they're

34:52natural suspicion they might do their own research or they might look at consumer reports and see what the what the real distinguishing features were of the various products there's a couple other things that economists bring up a lot for example when you have licensing restrictions and there the idea is you don't want to have quacks going into medicine and so the government has to get involved you have the AMA to restrict services to those who are truly And it's not surprising given the nature of government is that it ends up being a measure to just restrict the number of practitioners so they can raise their salaries. And so that there's all sorts of ridiculous qualifications, hurdles you need to jump over in order to get the license from the state in order to practice this.

35:44and the silliest one there was and so I forget the state but there was some state where they had in order to become a florist you needed a certain you need to pass this licensing exam and you had to do things like arrange flowers in certain ways and on the test you had to study for techniques that apparently were no longer used just consumer demand had changed and it was just some obsolete when the test was designed it was a floral arrangement that people purchased The State of the State is the largest but fifty years had gone by and nobody ever wanted that sort of arrangement anymore but yet it was still on the test. And, of course, the reason was that it was weaning out potential competitors. And of course, the people who have the largest input to the state to design these licensing tests and requirements are the current practitioners.

36:30I mean it stands to reason. Who else would the state turn to to say, what does someone need to do to receive a license to be a brain surgeon? and Brain Surgeons, who else are you going to ask? But of course, they're the ones who have every reason to restrict the number of future brain surgeons because they're their direct competitors. So it's a cynical view, of course, but I think anyone who's seen this in practice knows that it does happen, and it may even be largely subconscious, and maybe most of the people putting the input in for these licensing exams and so forth think that they're acting in the public interest. So you might say in this case, consumer protection becomes a form of producer protection.

37:33that if you if you see that what you need to actually do to get the approval often cases it's it's not something directly tied to the how much knowledge you've imparted to your customers then so we we can sort of break up the the objections against the government into I've talked mostly about the incentive problem that there's monopoly and that the government you know a public choice analysis if you will that why would the government do things to act in the common welfare if given that they're human beings and they're and in fact people who go into the government service or government rule in order to lord it over subjects that why do we there's this idea that people who go into government are there they do that to selflessly serve others whereas the public choice school has been big on analyzing government actions assuming the politicians are just like other actors in the marketplace and that given that it's easy to see why these

38:35things would be suboptimal from a narrow efficiency viewpoint and then there's also what you might call the Hayekian knowledge problem that okay let's just assume that the people in the FDA and the FAA they really are out to help consumers and they really do want to do the best thing again there's this knowledge problem that Hayek is is linked to and that how is the government The people actually setting the rules, how are they going to get all of the dispersed knowledge that, how do they know, for example, just to give you an example of the trade-off, when it comes to those safety caps, those child-resistant safety caps, one of the biggest problems with them, apparently, is that elderly people can't open their medication, because those caps, you know, if you have arthritis, you can't get those caps off, and so what they do is they just keep all the caps off in their medicine cabinet, or they dump them out into different containers, but that defeats part of the purpose of, you know, keeping things in the container,

39:58The Four-Year-Old Tommy from getting into his dad's medication and so that's what you could call the Hayekian problem of when the government sets up a monopoly and has a one-size-fits-all approach that all the little feedback from different people who see various aspects of the problem and have insight that can't possibly in the real world be communicated into the people-setting policy. Airbags come to mind in that case. Here's a case where there's an attempt to protect adults. Right. Exactly. Exactly. And then you have the issue of, you know, People are they legally allowed to disable the airbag and it's it's just a nightmare in terms of that and then but I think more fundamentally and this would is something that the Austrian School is I would say has a monopoly on but I think that they're the ones who have had the most insight into this is what's called the calculation problem that goes back to Ludwig von Mises arguments against socialism and so this takes it even one step further so we'll give them the incentives we'll just assume that the the people setting the policy are benevolent and they want

40:58to help consumers and they're not just out for you know for winning elections okay so we can concede that we can even concede the Hayekian knowledge problem and assume the planners have all the relevant technical information that they know that okay if we you know make the child cap a little bit harder to get off and this many old people are going to be affected and if we make it a little easier than this many toddlers are going to now be able to pry those things off and they have all sorts of the medical and technological information even so So there's a calculation problem that's still not enough to know what's the so-called correct thing to do, what's the correct regulation. Just to give you some examples, if it comes to the roads, that in a sense a road can be viewed as a consumer good, and at least insofar as you are just a motorist and that's the final good for you, and so how do we know how many stop signs to put, or should there be a stop sign at a given intersection,

41:52The Theory of Money and Credit

42:22and the decisions that the bureaucrats have to make when it comes to road management that have definite effects on safety. I remember I was a low-level grunt when I just graduated in an engineering firm in Chicago, and that was part of what they worked on, were roads, and that was one of the things they did, and they would go and look and rank intersections in terms of fatalities, and then, you know, if there was one where, gee, a lot of people have been dying on this place, they'd look at it and say, what can we do? okay so they do have measures but the point is that alone is not enough you might think oh well it's it's the intersection that has the most fatalities they clearly need to have a stop sign there or something like that but maybe not maybe that would cause so many people if it's a really busy intersection maybe that would cause so many people to be late to work you know just a slow

43:08commute times or maybe that people knowing that they just put a stop sign there let's go to this other place you know in terms change our route to work and maybe then there'd be even more fatalities because maybe originally people were using the safe road in terms of its conditions but now because of that stop sign there that the government thinks it's trying to help us well now I'm gonna you know get to work a different way where it's really dangerous so there's all these things that that need to come into play and the point is there's no way the government even if we can see that they had all that information even if we can see they really did want to help people there's all these trade-offs involved and there's no way to know what's the correct answer whereas if it were all privatized then you would at least have the market test of profit and loss and that there would be some criterion of success it wouldn't be perfect as Mises himself concedes it's

43:55not that the monetary test of profit and loss is the end of the story and that there aren't other values to be weighed against it but at least you would have some benchmark to reduce all of these different values to some common denominator and so it would be the same thing with with safety in general that If you had, just to give you a different example, right now when the government, one of the major forms or manifestations of consumer protection is the amount of fines that people have to pay if they harm consumers, so that if a company is convicted of selling an adulterated product, what do they do? So they have to pay fines to the government and also generally huge compensations to the aggrieved party, but the level of the fine, that's something the government determines.

44:45And so it's certainly not an objective fact of medicine, you know, how much should a company be charged or be fined if one out of every thousand people that goes to their restaurant dies of food poisoning that you don't know. And again, that's not a number that just drops out of the analysis. That's an economic question and maybe in a third world country, their standards would have to be lower, that they couldn't insist that every employee has, you know, proper gloves and that the grill is cleaned methodically every six hours and things like that. Maybe that if they did that, the place wouldn't be able to operate profitably. And then maybe people would go to the river to drink water and they would get sick that way or something. So these questions are Related to economics, it's not merely a matter of what do the doctors say or what do the health experts say.

45:35And so that's why you need it to be intertwined in a private property framework or else there's no way to come up with an objective answer to these things. The point is that regulators would tend to concentrate on engineering questions and on certain absolutes. Is it safe? Is it not? Whereas in the market, you're always considering trade-offs, relative benefits. Right, exactly. And it just occurs to me that I'm focusing on these real particular areas just to sort of show how the economic theory relates to it. But in the real world, if you just step back and think about it, in what sense, it's just crazy to think that the government is providing safety that in terms of the product of education, for example, if you go to government schools, you might get shot.

46:28The Theory of Money and Credit

46:58do I'm sure many people do that that wouldn't happen nearly as much if education were in the private sector and particularly if people weren't forced to go to school who didn't want to be going to school in the first place I don't think there'd be nearly as many school shootings or bullying in general so in that trivial sense that of course education would be safer in terms of the you know the good being provided to consumers if the government didn't get involved or just you know the drug war and the way that that causes you know going to your local market in the inner city could be hazardous to your health you know so there's so we can certainly argue and I think it's true just thinking of consumer protection laws per se why they make things less safe but in terms of why is the world such a dangerous place in the first place you know if you're if you're in Iraq one of the dangers is you might get hit by US

47:48The idea that the government is out there to make the world safe, I think just on the face of it, if you consider the government in its totality, is not nearly as obvious as it is to some people. And the presumption, too, that somehow the government is the best institution for assuring our, for protecting our interests. We might then look at the consumers of government services as in general better off than the consumers of private services, but that's just manifestly untrue. Right. And I don't know. It's just this attitude. I guess I'm used to it. But just to point it out, again, whenever something bad happens, oh, that's because that's human nature or that's the market.

48:33and then when the government needs to take measures just this this example I brought along this excerpt from Paulina Berserk who had that that book cyber selfish now this this excerpt I think came in a column she wrote after that and so she's she was going on a tirade about you know these these moronic libertarians and so she says here I will instead mention a recent nasty epidemic of food poisoning that just erupted at a Mexican restaurant in San Mateo County turns out the But the restaurant hadn't been inspected in more than a year because, surprise, it turns out budget cuts made it impossible to hire enough health inspectors. But hey, government is the great Satan, and we all believe in self-regulation, and who needs taxes? Okay, so she's, you know, she's being very sarcastic there, and she's pointing out this example of a Mexican restaurant that there was food poisoning because, you know, the government had to cut its budget, and so in her mind, this just shows you these moronic

49:25libertarians, they want to cut taxes and leave it to the market, but there's an example, you know, where it failed. But again, the government never said to anybody, we're going to take over regulating food, and don't worry, in 20 years, we'll finally ensure safety, but just give us some time. No, the government says right now, you are safe because of us. And yet, here's an example of where the government obviously failed. And so it's, again, it happened with September 11th, nobody, well, very few people said, oh, yep, see, that's what happens when the government provides safety for you, that, you know, the planes get hijacked. No, everyone said, oh, we need to have the government step in and nationalize the the searching process. So it's, again, I don't, I don't know why that is, but I can just point out the fact that for whatever reason, whenever anything bad happens, it's the fault of the market, even if it was something that was totally regulated by the government, initially.

50:15Yeah, actually, let me mention something that strikes me as ironic. In all the work of Mises, you get again and again this constant focus on the great merit of capitalism is that it serves the consumer. This is his continuing theme. I mean, it seemed like in his own mind, this was a decisive argument for the market. How did it come to be that we associate consumer welfare, consumer interests, consumer protection with the public sector? I don't know enough to give a definitive answer. I imagine part of the, or perhaps the main thrust occurred during the progressive era, and I don't know the specific dates of various government regulations, but I'm sure a lot of the, you know, the foundation of what we now look at as the government's mechanisms for consumer protection probably originated back then. And I think part Part of it is, at least from interacting with members of my family who are certainly inclined towards government paternalism.

51:19I think some of it at least is that they're very suspicious of people in general. And so they rightly, when someone, you know, a laissez-faire economist extols the virtue of capitalism, the free market, they're very suspicious. And they think, no, no, I've dealt with credit card companies and I've dealt with insurance companies. with Insurance Companies. I know those guys are shady and you know that you shouldn't trust them and that in and of itself is fine and I think that's that's good and you should be you know I've had bad dealings with some credit card companies as well and I just try to not do business with them again but for whatever reason then they just leave themselves wide open to and therefore let's turn to the government to protect us from these people and so it's I don't know why it's just I guess an inconsistency or failure to apply their cynicism across the board where a lot of people just they perhaps they've been

52:08had a bad dealing with a particular business and it just sours them but they don't realize that yes it is possible no one at least no responsible advocate of the free market is ever going to maintain it's impossible for there to be an unscrupulous business person but there's mechanisms in place to limit that person and eventually drive them out of business whereas with the government there's yeah you could try to vote them out of office but I don't think any politician ever got voted out because of some regulatory practice of You've given a great theoretical apparatus and many practical examples for understanding the consumer protection through the market and consumer protection through the public and yet still you will have people that will respond to everything you've said with a line something like a private enterprise just has a tendency to put profits before people. Well I think there's there's two ways to answer that so the one way is just to take it head-on and say yeah it will but it just

53:23so happens that in a free market the way you earn profits is by catering to your Customers and that this alleged dichotomy between well on the one hand I want to earn profits by the other hand you know I may have qualms about killing my customers well no they're in practice it's not gonna come up you're never gonna have to make that choice at least as a as a business person who's catering to you know a wide market as I said of course if you have some real shady scheme and you're just trying to bilk a few people out of somewhere and skip town then maybe you can come up with scenarios where it would be in your interest to skimp on costs and safety and try to get out of out of town before people catch on but that's not really going to characterize a large fraction of what would happen in everyday commercial transactions and precisely because it's not a very profitable living to be doing that that it if you

54:13really want to make money what you do is you set up a big factory and you establish a customer base and then the other response to that again is just to say it's true what that's pointing out is there are people who would rather earn money than you look out for their well-being other fellow men or to put another way if they had a choice between having an extra thousand dollars and and doing something that might prevent someone from from getting sick or injured that a lot of people would just take the money and that's true but by the same token there are plenty of people who would do something that would allow them to win an election or to you know gain favor with their superior in in Government, even if it meant putting people's lives at risk. And so, again, it doesn't clinch the argument just to say, no, no, there are unscrupulous people out there who would put profits above safety.

55:04By the same token, there would be people out there who would put political power above safety. And so the question is, which mechanism do we think is going to limit those people and sort of eject them from positions of influence in the first place? I have one final question, unless you have some other things. It relates to fraud. Now, most market economists say that, you know, fraud is not part of the market. And yet, there do seem to be, it can get ambiguous what constitutes fraud or not, right? Like, for example, ingredients in food packages. Yeah, so it's true, for example, Rothbard and Man Economy and State, the first 11 chapters he devotes to an analysis of the pure unhampered market economy, and then only in Chapter 12 does he get into the economics of violent intervention.

55:57And there, and I like the way he explains that, motivates it, he says, look, it's not that we're assuming, as many people allege, that the market doesn't have violence in it, the real world market, that's just, it is a definition that, first of all, let's understand the way the pure market works, and then once you learn those mechanisms, then it's easier to look at the real world where there are unscrupulous individuals who have no problem initiating aggression when they think they can get away with it in order to understand the effects in that situation. You raise an interesting point about fraud because I've often wondered that just in terms of applying libertarian or Austrian economics to certain issues because some of the definitions of fraud I think people need to be careful about. For example, something like a fortune teller, you know, from a certain point of view, what the person is claiming, that's false advertising, you know, that clearly they're not reading the future or at least in my metaphysical view,

56:55The Theory of Money and Credit

57:25The first principles spin out an entire theory of it because there's all these little borderline cases where it's really not clear and so I think again a lot of this stuff it's we can certainly argue on the margins about piecemeal reform and that wouldn't it be better if the government just got rid of the FAA and let the airline industry be self-regulated or regulated by insurance companies if you want to use that terminology but I think ultimately you would have to have a complete private legal system where these penalties and you know what what's the penalty for killing and the customer and that where that's set not by government edict but rather by the competing agencies in a private legal setting so so yeah it in the same thing with fraud that what would be the definition of fraud I'm certainly not a legal expert and no individual I think could spin out an entire theory of it that you would need to have competing scholars offering legal tracks in a private contractual legal framework and that would what we mean by fraud in certain cases would just arise

58:25The whole hysteria about peanut dust in food, which apparently appears in strange places you don't expect, is it fraud to not disclose the fact that there may, there's a tiny, tiny chance, there's just peanut dust in it.

58:55dust and this bag of corn chips, you know? Right, yeah, because the language now, it says things like, this product was made on equipment that has been used to produce peanuts or something. So it's not even that your food has peanuts in it, but it was touched by equipment. So yeah, at some point, you could just push that stuff back indefinitely and everything's got peanut dust on it. So yeah, so it's, you know, that's the whole point. It strikes us as absurd and clearly there are examples where we can just objectively, if you will, I think I'm going to assign the first half of the chaos theory book because that's where I'm getting into the insurance companies and their interactions.

59:51I might also look to see what Rothbard says in For a New Liberty, though. I haven't refreshed my memory of that, but I'm sure he's got good stuff there. The definitive account, the Austrian account of consumer protection is yet to be written. Oh, right. I don't think anybody has set out to do that topic in and of itself. You've got your next job. Thanks. Thanks for having me.