The standard argument is that if two parties voluntarily agree to a deal, then they must be better off with the deal than without it, otherwise they wouldn’t have agreed. And if the terms of that deal don’t harm any third parties, then the deal must be welfare-improving, and any regulatory restrictions on making it must be bad.
[. . .] Think about the controversial terms often found in credit card contracts, such as provisions by which being one day late with a payment or being one dollar over your credit limit jumps your interest rate to 29.99% forever, or in which cards with multiple balances at different interest rates pay off the low rate balance first. [. . .] Have you ever heard of such terms being in contracts negotiated between sophisticated parties? Shouldn’t this cause you to be much less worried about the consequences of simply banning them?
Another way to think about this might be to ask which is cheaper:
For credit service consumers to spend time and money educating themselves about how to avoid being tricked, and for credit service companies to spend time and money educating themselves about how to trick consumers?
Or, for a government to spend time and money deciding which contracts with credit service companies will not be enforceable, and for sophisticated parties (who would have educated themselves anyway) to not be able to use those contracts? (And for everyone to spend time and money educating themselves about how to trick citizens into getting the government to regulate contracts in their own favor?)
(Or, for credit service consumers to spend time and money educating themselves about the need to proxy some of their powers of contract to private organizations which can veto their decisions to be tricked? (And for private organizations to spend time and money educating themselves about how to trick consumers into proxying too much power to them?))
At least in the short run, the government may be a natural monopolist here.
(In a longer run, the culture might change.
Advertising, and manipulations of symbols like the American flag, seem much less effective on today’s Americans than on Americans of a hundred years ago. But are the differences a gain or a loss? Are our thoughts richer from improvement in collective epistemology, now that advertisers (and politicians) have exploited our irrationalities and removed some of them? Or are we experiencing extra overhead at the margin of bounded rationality, and it’s just that the higher costs from more effort (and more learned jadedness) pass beneath our moral notice because they are part of the background, just like so many dust specks in the eye?
When I try to think about arguments about advertising regulation, it feels like a game of “accusation-of-rent-seeking tennis” between consumers and advertisers: “You think that any exploitation is okay, as long as it wouldn’t take infinite computing power to avoid!” “You are making the insane demand to be freed from needing to think!”)
I’m not an economist, but pages 32-33 of David D. Friedman’s “Law’s Order”, about the social burden from pickpocket training and anti-pickpocket precautions, seem related.
Another way to think about this might be to ask which is cheaper:
For credit service consumers to spend time and money educating themselves about how to avoid being tricked, and for credit service companies to spend time and money educating themselves about how to trick consumers?
Or, for a government to spend time and money deciding which contracts with credit service companies will not be enforceable, and for sophisticated parties (who would have educated themselves anyway) to not be able to use those contracts? (And for everyone to spend time and money educating themselves about how to trick citizens into getting the government to regulate contracts in their own favor?)
(Or, for credit service consumers to spend time and money educating themselves about the need to proxy some of their powers of contract to private organizations which can veto their decisions to be tricked? (And for private organizations to spend time and money educating themselves about how to trick consumers into proxying too much power to them?))
At least in the short run, the government may be a natural monopolist here.
(In a longer run, the culture might change.
Advertising, and manipulations of symbols like the American flag, seem much less effective on today’s Americans than on Americans of a hundred years ago. But are the differences a gain or a loss? Are our thoughts richer from improvement in collective epistemology, now that advertisers (and politicians) have exploited our irrationalities and removed some of them? Or are we experiencing extra overhead at the margin of bounded rationality, and it’s just that the higher costs from more effort (and more learned jadedness) pass beneath our moral notice because they are part of the background, just like so many dust specks in the eye?
When I try to think about arguments about advertising regulation, it feels like a game of “accusation-of-rent-seeking tennis” between consumers and advertisers: “You think that any exploitation is okay, as long as it wouldn’t take infinite computing power to avoid!” “You are making the insane demand to be freed from needing to think!”)
I’m not an economist, but pages 32-33 of David D. Friedman’s “Law’s Order”, about the social burden from pickpocket training and anti-pickpocket precautions, seem related.