\u00a0 In their new book, Phishing for Phools<\/em>, Nobel-prize winning economists George Akerlof and Robert Shiller use a behavioral economics approach to criticize the \u201cmanipulation and deception\u201d that can exist between businesses and consumers.<\/span><\/p>\n\u00a0 According to Shiller,<\/span><\/p>\n\n\u00a0<\/span>[a] fundamental concept of psychology is that people often make decisions they\u2019re not happy about. [\u2026] If businesses have a chance to profit by tempting us into making decisions that are good for them but bad for us, they will take it. They have just as powerful an incentive to provide us with what we don\u2019t want as to provide us with what we do want.<\/span><\/p>\n<\/blockquote>\n\u00a0 \u00a0<\/span>According to the Wall Street Journal, this is one of the main contributions of the book: the market is the best mechanism to offer people things they do not want to have.<\/span><\/p>\nWe Do Not Buy What We Do Not Want.<\/strong><\/span><\/p>\n\u00a0 No one denies that sometimes we do things we later regret. Most of us once bought something that we later regretted spending money on.<\/span><\/p>\n\u00a0 However, the fact that these errors in judgment may occur \u2014 on the part of the consumers \u2014 is not evidence that businesses attempt to sell products that customers do not want.<\/span><\/p>\n\u00a0 It\u2019s important to understand that individual decisions are made prospectively, looking forward in time. When an individual buys a product or service, he does so because he expects it to remove his \u201cuneasiness.\u201d At the time of the transaction, this person making the purchase is indeed revealing his desire to have that good. Otherwise, he would not make the purchase. This does not mean that, in retrospect, our decision may be judged to have been a success or a failure, depending on whether it really served the purpose it was meant to serve.<\/span><\/p>\n\u00a0 But it doesn\u2019t follow from here that the market is as good at delivering what people want as it is at delivering what people do not want. If this was the case, then business would continue to sell audio cassettes, VHS videotapes, and other products to consumers who have been \u201cmanipulated\u201d into buying them.<\/span><\/p>\n\u00a0 Obviously, this is not what happens.<\/span><\/p>\n\u00a0<\/span>Who Regulates the Regulators?<\/strong><\/span><\/p>\n\u00a0 Another weak point in Akerlof\u2019s and Shiller\u2019s argument is their implied solution: government regulation. In a recent article, Shiller writes:<\/span><\/p>\n\n\u00a0<\/span>While we confirm the importance of free markets, we have found that market regulation has been crucial, and believe that will continue to be true in the future. [Standard economic theory] usually ignores the fact that, given normal human weaknesses, an unregulated competitive economy will inevitably spawn an immense amount of manipulation and deception.<\/span><\/p>\n<\/blockquote>\n\u00a0 \u00a0<\/span>One can\u2019t help but notice the central contradiction in this analysis. On the one hand, it is assumed that markets fail because of \u201cnormal human weakness.\u201d On the other hand, it is assumed that regulation, which must necessarily be implemented by human beings with equal or greater \u201cweaknesses,\u201d will somehow solve the problem.<\/span><\/p>\n\u00a0 Akerlof and Shiller simultaneously demonize human beings who operate in the private sector while idealizing human beings who operate in the public sector.<\/span><\/p>\n\u00a0<\/span>Lessons From South America.<\/strong><\/span><\/p>\n\u00a0 For evidence of the problem with this approach we need look no further than South America where government agents are quite adept at giving people \u201cwhat we do not want.\u201d<\/span><\/p>\n\u00a0 For example, we can note the fact that a process of impeachment recently began against the president of Brazil because, according to the allegations, she tried to hide the true extent of increases in public spending. Meanwhile, in Argentina, former Vice President Amado Boudou cannot leave the country because he is accused of misappropriating funds from the company responsible for printing pesos bills.<\/span><\/p>\n\u00a0 These are just some recent examples in a nearly endless list of corruption cases, and if democratically elected officials such as these are capable of such large-scale deception and malfeasance, why should we think that these same people can help reduce \u201cmanipulation and deception\u201d in the market place?<\/span><\/p>\n\u00a0 The situation we face in South America is exactly the opposite of the free-wheeling under-regulated markets described by Shiller and Akerlof. We live in highly regulated economies which are being suffocated and corrupted by an excess of political power.<\/span><\/p>\n\u00a0 Meanwhile, according to the latest IMF estimates, Venezuela, Brazil, and Argentina have been among the slowest growing economies from 2011 to 2015. Not surprisingly, all three of these countries have been implementing highly interventionist policies, boosting public expenditure, manipulating credit markets, and controlling prices of certain goods and services.<\/span><\/p>\n\u00a0 And, of course, South America is hardly the only place on earth that experiences political corruption.<\/span><\/p>\n\u00a0 The focus, then, contra Shiller and Akerlof, must be placed on how to dismantle this system, not in providing it with more weapons and arguments to continue growing.<\/span><\/p>\n<\/div><\/div><\/div><\/div><\/div><\/div>
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*Article provided by the Instituto Mises Brasil (p<\/span>ortugu\u00e9s version) \u00a0Mises Institute (english version) and Mises Hispano (spanish version)<\/span><\/span><\/h6>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>\n<\/div>
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