The new rulings announced by the Department of Transportation to force airlines, among other things, to return the fees for checking baggage if the baggage is lost, to post full prices including taxes, and to raise the compensation for being bumped involuntarily from flights, are not very onerous to airlines. However, they do add to the many rules that already require airlines to post various prices, to compensate passengers for bumping, and to engage in other behavior that is supposed to protect passengers. The new and old rules regarding passengers, and many rules of behavior imposed on companies in other industries, such as the so-called consumer protection components of the Dodd-Frank law on financial regulation, all reflect a fall in government confidence in the ability of consumers to make reasonable choices.
I believe this lack of confidence greatly underestimates the capacity of the great majority of consumers to make forward-looking choices in their own interests. It also underestimates the degree to which the forces of competition protect consumers against the consequences of the bad decisions they do make. I briefly defend each of these claims.
