Wednesday, October 15, 2008

A Letter to Consumer Reports

In response to an e-mail petition from Jim Guest (from Consumer Union, the non-profit publisher of Consumer Reports), I replied with the following letter:

Dear Mr. Guest,

I am afraid I cannot support your request to join your petition to Congress, and I must express my disappointment that this letter has emerged from Consumer Reports Advocacy.While each paragraph between links is riddled with error stemming from an apparent misunderstanding of the situation at hand, I am most opposed to your claims that there were “no cops” and “no rules” in the financial markets due to deregulation.

In fact, much of this crisis is due to the various complexities and perverse incentives created by the extensive regulation and government interference in the financial market. It is not that there were “no cops” and “no rules,” but that there was strict enforcement of bad rules. You would see your goals more quickly realized if you were to advocate the removal of bad rules, rather than creating petitions asking for concerned citizens to blindly request their politicians to “do something.”

Of all organizations that should understand the emergence of voluntary regulatory agencies in markets, I would think Consumer Reports should be at the top of the list.Firms clamor for your approval and parade it in front of consumers when they receive it. These reputation and brand building effects have made America home to the safest and affordable products in the world. Your intentions to undermine it have caused me to cancel my subscription with Consumer Reports, but if you are successful in your endeavors for government regulation, I will have no better options.

Justin Ross
Professor of Economics
Indiana University, Bloomington


Anonymous said...

Bravo! I was appalled when I received this email. I know Consumer Reports doesn't endorse products, but they seem to have no shame in all but endorsing candidates! If they truly wanted to accomplish some of the ends they endorse in the email they would be advocating for more freedom for consumers (esp. in health care) and more opportunity for markets to work.

As you point out - it certainly wasn't that there was no regulation - it was inept, experimental and politically motivated regulation. It was government telling banks, et al, they HAD to give loans to people, regardless of income, debt, previous financial history, etc.. Gov't. helped raise prices to an artificially high level and now promise to work on keeping them there - all for our 'collective' good.

And, as for those who've waited patiently for the bubble to burst so they could purchase a home? Too bad, only the reckless apparently count for anything politically.

Anonymous said...

I, too, cancelled my subscription after receiving this email. I thought the basic premise of Consumer Reports was to serve as an independent, unbiased resource. I didn't know they were also a political lobbying organization. Very disappointing.