Akerlof & Shiller's Phishing for Phools

by Jeff Sovern

I recently listened to the audio version of a book authored, by two Nobel Prize winners, George A. Akerlof & Robert J. Shiller, titled Phishing for Phools: The Economics of Manipulation and Deception.   Their basic thesis is that while free markets have the salutary effect of encouraging sellers to provide things that consumers want, free markets also encourage sellers to trick consumers into thinking they want what sellers provide.  Much of the book consists of instances of this latter phenomenon.  A familiar example: when researchers began showing that smoking caused cancer, tobacco companies financed research to cast doubt upon the evidence, thus deceiving consumers into thinking smoking was safe, so that consumers continued buying cigarettes. A more recent example along the same lines is Vioxx, which probably killed thousands of consumers.  Still other examples involve addictions to harmful things (alcohol, gambling), foods (the manipulation of salt and fat in potato chips, Cinnabon buns), credit cards (consumers spend more using credit cards than when paying cash) and subprime loans. With all of these, the authors argue, sellers benefit when they manipulate and deceive consumers into behaving irrationally.  The book thus makes a powerful argument for regulated capitalism, rather than unfettered capitalism.

The authors describe similar manipulation in politics.  They use a quote from Les Aspin, a former Congressman and Secretary of Defense: "If you give Congress a chance to vote on both sides of an issue, it will always do it,"  to explain how politicians like to vote one way to garner donations and another way to garner votes.  The authors didn't use the Fair Credit Reporting Act's furnisher liability provisions as an example, but they might as well have.  Section 1681s-2(a) bars furnishers, such as credit card issuers, from reporting to credit bureaus information about consumers that they have reasonable cause to believe is inaccurate. Sounds like a provision that might get votes from consumers.  But the furnisher can avoid complying with that provision if the furnisher provides consumers with an address to use to notify the furnisher of errors--meaning that furnishers can avoid liability even for telling credit bureaus things they have reasonable cause to believe is inaccurate--and in any event, consumers can't bring private claims for violation of the provisions. Sounds like a provision that might elicit contributions from the financial industry.  So politicians can get credit both for protecting consumers and banks, and voters/consumers are phished for phools.

One comment about the audio version: the reader mispronounces names that you would think he would get right, like Scalia and Keynes.  But worth listening to just the same. 

 

Comments

[Jim]

Robert Shiller has been one of my favorite Economists for the past decade or so. The man always presents a very clear, very telling argument about the direction of the economy. He is truly a visionary that deserves all of the adoration that he receives.