Advancing a Free Society

On Consumer Competence

Sunday, February 7, 2010

I believe that a Consumer Financial Protection Agency will hurt rather than help consumers. Despite the claim that ignorance induced many consumers with few resources to buy houses during the boom, consumers who bought a house then with almost no down payment and low interest rates were not displaying ignorance, but good sense. They put little of their own resources at risk, and annual mortgage payments were cheap, especially in an environment where housing prices were expected to continue to rise at a rapid rate. Lenders, the Fed, and others who made these loans, or helped keep interest rates low, made the mistakes and look foolish, not consumers who bought the houses.

In the vast majority of cases, consumers, even those with little education, know their own interests far better than government officials know them. Still, I have no objections to governments giving consumers information in situations where information is difficult to acquire, as perhaps in the restaurant food safety case cited by Posner. I can also accept putting information about the harmful effects of cigarettes on cigarette packages, although I doubt if that had much effect in reducing smoking.

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