In invoking the need for stringent economic regulations, their proponents regularly bring up the case that without these regulations the dumb consumer would fall prey to food poisoning, faulty production and all other sorts of calamities and disasters. In effect, they are saying that the consumer is far too stupid to have the capacity to actually choose, and instead needs the guiding hand of the coercive state to do it for him. I call this the dumb consumer fallacy.
Why is it fallacious? Well the major problem with this line of thinking is that the ills the proponents of regulation claim will happen already do happen in our regulated environment. Malpractice by doctors, food poisoning from restaurants who get inspections from health and safety directorates, shoddy production quality and planned obsolescence, etc. all occur to quite a large degree today. Now some proponents of regulation will say that’s because the regulations in place aren’t stringent enough and that they don’t work the way they’re meant to. However, at what point do we simply nationalise these areas of the economy before we realise that regulation by the state is the fundamental problem? How many licenses need to be rescinded from doctors before it’s realised that maybe the problem goes deeper than simply licensure?
The real problem consists of two things: the knowledge problem of centralised structures, and the realities of choice under modern capitalism.
The first problem, that of knowledge in centralised systems, is what makes regulations ineffective no matter how many are piled on to each economic sector. The state, the main regulator in the modern economy (alongside some international institutions like the EU and the WTO), cannot possibly know every form of production, cookery or health issues that affect particular localities. These types of knowledge are decentralised into multiple individuals present in such locations, and cannot be collated into some homogeneous totality. In relation to the dumb consumer fallacy, this means that consumers will still have issues with products, whether it’s related to health or quality, so long as regulations are determined by a centralised system that sees an economy as a homogeneous blob, rather than a collection of multiple forms of knowledge and action that aren’t patterned the way the state wants them to be. This is why we still see significant levels of food poisoning from large fast-food chains, and planned obsolescence in many of the electronics of today (such as smartphones and laptops). The state cannot possibly know all the interstitial knowledge of production processes and food preparation that conforms to each consumer’s wants and needs, and by trying to do so it doesn’t solve the fundamental issues so much as centralise power to particular vested interests who can still create bad products but with little action brought against them if they do.
This then leads to the second problem, that of choice under modern capitalism. Due to the state centralising economic power and allowing for regulatory capture by vested interests, the economy moves toward oligopoly power, with winner-take-all markets predominating over clustered freed markets. Inevitably, choice becomes extremely restricted under this system, with consumers really only picking between monopoly interests in major areas of their economic existence. When it comes to consumption, bland (but competitive) products are replaced by mass-advertised, mass-produced goods which only exist due to international distribution chains (which allow for significant cost mark-ups) and major control of media outlets, which means they can advertise their products and present an illusion of choice for the consumer. Thus in saying the consumer is dumb, we ignore the large scale state intervention which has led to a situation with very little consumer choice and the capture of regulations by multinational corporations and assorted other interests.
What plays out is the modern economy. The limitation of tort and malpractice suits by individuals through increasing the cost of legal fees in state courts and increasing the stringency of limited liability laws means consumers do not have adequate redress against those who can produce bad products. Further, entry barriers are created through regulatory capture as smaller businesses cannot afford the regulations and licenses that need to be complied with to actually compete. The competitive impetus in markets is limited by such regulation, leading to oligopoly power and control. In the end consumers get shafted, as their choice is limited and their ability to redress this is also limited.
However, even under such a centralised system, consumers still make intelligent choices. Bland supermarket brands in areas like food and drink are still very popular despite the fact that mass-advertised brands are sold alongside them. People still buy local products due to their higher quality, particularly when it comes to meat and vegetables. What this tells me is that consumers still hold ideological positions when it comes to their actions in buying and consuming. They are not the dumb consumer that economic models suggest they are.
Even in the realm of regulations, consumers are creating their own systems through the power of civil society. Things like the labelling and Fairtrade movements are pushing for better labelling and production quality for food and other consumables. This can be independent of the state, and means a direct engagement between consumer and producer, rather than their artificial separation which state regulation imbues. Individuals’ ideological choices are able to be placed within the paradigm of production and consumption without the need of the state. These civil society groups are effectively creating forms of associational democracy that involves consumer groups, trade unions and local producers in creating regulations that fit their needs, instead of creating homogeneous regulation, or “harmonisation” as it is termed in phony “free-trade” agreements. They are bypassing the state and actually treating the consumer as an independent individual with subjective choices and axioms.
The idea that consumers are dumb or stupid is plain ignorance on the part of economists and policymakers. Certainly people may make irrational decisions, but this won’t ever go away no matter how much state regulation you pile on. Indeed, the more state regulation that is created, the more it’s open to vested interests and capture, which endangers the welfare of the consumer to a greater degree. By getting the state out of the way, consumers can become truly empowered as subjective market actors and members of a bolstered civil society.