Regulators Are Not Heroes

Amazon is suing thousands of “fake” reviewers, who, for a fee, have posted positive reviews for various products. These pseudo reviews violate the spirit — and possibly the functionality — of Amazon’s largely self-governed rating system. Customers rely on reviews to guide their own choices, and a wave of sponsored reviews can mislead them into choosing inferior products.

A similar theme plays out in George Akerlof and Robert Shiller’s newest behavioral economics-cum-self-help book, Phishing for Phools. The authors, both Nobel laureates, claim that an unregulated market leads to massive amounts of manipulation and deception. Just how much remains unspecified, but the general thrust of the argument is that regulatory heroes are needed to rein in villainous dealers.

Heroic Regulators?

It is no surprise then that the authors favor heroic efforts of an older progressive sort, such as the works of Alice Lakey or her modern-day counterpart Elizabeth Warren. Their work, respectively, led to the establishment of the Food and Drug Administration and the Consumer Financial Protection Bureau. These progressives are seen as heroic for taking “action not selfishly but for the public good.” The trouble with such heroes, however, is that they invariably focus not on educating consumers so that they may make better choices but on corralling the cat herd of bureaucrats and politicians into ever-expanding spheres of regulation.

While it is true that consumer regulation can provide focal points that help buyers and sellers interact — in fact, Amazon appealed to just that in its lawsuit — this truth nevertheless misses the pivotal point (and a…