John Cochran Makes The Case For Selling Snake Oil

This article reviews an article that John Cochran posted against usury laws, and against the need for a financial consumer protection agency. His arguments illustrate the libertarian perspective that prevails at the University of Chicago. He argues that usury laws hurt the people they were designed to protect because they will turn to loan sharks when they need money and be worse off. Libertarians make a similar argument about minimum wage laws. They argue that they reduce employment for the people they were designed to help. Research does not support that view, but it is always with us because it is supported by libertarian assumptions that government intervention will always have negative unintended consequences. Cochran makes that argument against the need for a financial consumer protection agency. His point is that markets are not always right but government policies are subject to the same biases that financial consumers have. We are better off with imperfect markets than with government regulations that are less perfect and distort markets.

Underneath Cochran's libertarian perspective is the notion of consumer sovereignty. Markets work by giving consumers what they want, and they are better judges of their needs than government. Under this assumption there would be no need for government intervention in any market. I think we are better off with the FDA than we were when we had snake oil peddlers selling worthless, and potentially harmful medicine to consumers. The mortgages that were sold to unwary consumers, and turned into securities that were sold to unwary investors make the case for more extensive government regulation rather than less. Indeed, there will be efforts made by businesses to capture the regulators, and the regulations may not be as effective we would like. That makes the case, however, for democratic supervision of regulators, and not for their elimination.