Ten years ago, Edward Stringham wrote an important book, Private Governance. In that book, Stringham noted that the solution to many problems that appear to be pushing us toward chaos are actually opportunities for someone to come up with a governance system that works almost automatically. The general problem of trust games, or assurance games, appear to vex potential buyers: I can’t be sure if a used car is good, or a lemon, because cars are complicated. What is a confused buyer to do? Stiglitz would say that, to avoid pandemonium and gridlock in auto markets we must have state officials use force to impose order.
But notice that the problem that appears to vex the buyer is actually a problem for the seller. No one will buy my cars at a high price, even if they are in fact high quality cars, because information about the car’s quality is hard to judge. Rather than have government inspectors certify quality, however, the sellers in used car markets came up with two solutions, warranties and brand names. A warranty says that I will pay to fix whatever is wrong with the car, for a period of a few years, which is long enough to find out if the car has serious flaws. A brand name is an economic hostage, a capital asset that depreciates if the seller’s promises are not kept.
GMU Econ alum Liya Palagashvili asks: “Is dynamic pricing unfair?”
Fabio Rojas recommends Edward Banfield’s 1951 book, Government Project.
Justice Alito [writing in dissent] stresses that the CFPB boasts a combination of legislative and enforcement power, unlike the early Post Office and other historical analogies cited by the majority. “In the last several months alone, the Bureau has announced plans to effectuate not one, but three major changes in consumer protection law,” he notes.
“These may or may not be wise policies, but Congress did not specifically authorize any of them, and if the CFPB’s financing scheme is sustained, Congress cannot control or monitor the CFPB’s use of funds to implement such changes,” the Justice writes. “It is not an exaggeration to say that the CFPB enjoys a degree of financial autonomy that a Stuart king would envy.”
We agree. The majority’s ruling will encourage partisans to contrive new ways to insulate agencies from Congressional control. Don’t be surprised if the Justices have to clean up after this case in the years ahead.
Juan Londoño tells of how the the video-game industry was helped by globalization.
GMU Econ alum Dominic Pino talks with Erica York about the damage done by tariffs.
