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With all the talk about the CFPB, Elizabeth Warren has been in the news lately.  The blogs too.  Most of the discussion has been about whether or not Timothy Geithner is a friend or foe to the Democrats’ preferred option of getting Warren nominated as the first chief of the CFPB.  Today, Megan McArdle started on what is a less interesting political topic, but a more interesting one for this blog with a long and detailed post on Elizabeth Warren taking on then-Professor Warren’s use of theory and data in the Two Income Trap and her controversial work on medical bankruptcies.  McArdle later doubled-up with a be re-posting Todd Zywicki’s WSJ op-ed pointing out the odd manner in which tax data are presented in Two Income Trap.  Put directly, Zywicki provides some evidence that the presentation (made in an attempt to show the increasing burdens of mortgage, car and health obligations) presents the data percentage terms in order to obfuscate the fact that changes in tax obligations play a much larger role in the economic burden facing the middle class than convenient for the story told in the book.

Read the full piece here. 

I’ve been, for some time, a behavioral law and economics skeptic.  Sometimes this position is confused with skepticism about behavioral economics, as in — believing that behavioral economics itself offers nothing useful to economic science or is illegitimate in some way.   That’s not true.  Now, I have some qualms about the explanatory power of some of the behavioral models as well — but the primary critique (in my view) has always been the threat that behavioral economics will be used as the intellectual cover for regulation judged by the preferences of the regulators rather than rigorous economic analysis of any sort.

Read the full piece here. 

The new Consumer Financial Protection Bureau is right around the corner  Talk has now turned to who might run the powerful agency and what it might do.  The WSJ names names…

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Judge Posner offers his thoughts on financial reform, mostly negative, at Bloomberg.   The thrust of the essay is that the financial regulation produced by the political process has, at best, a poor nexus to the actual causes of the economic crisis, and that what we are left with is primary reorganization and reshuffling to look busy.  Judge Posner discusses the political advantages to reshuffling as a response to government failure…

Read the full piece here.

Danny Sokol has posted the most downloaded antitrust law professors.  I come in 4th behind Damien Geradin, David Evans, and Herb Hovenkamp.   It is flattering to be in company like that by any measure.  Cool.  But, as Danny points out, what is even cooler is that George Mason is one of only a handful of schools with more than one faculty member making the list, with my colleague, co-author, and fellow Bruin economist Bruce Kobayashi coming in at #15.

Read the full piece here. 

Summary

Fresh off of the most substantial national liquidity crisis of the last generation and the enactment of sweeping credit card regulation in the form of the Credit CARD Act, Congress continues to deliberate, with a continuing drumbeat of support from lobbyists, a set of new regulations for credit card companies. These proposals, offered in the name of consumer protection, seek to constrain the setting of “interchange fees”— transaction charges integral to payment card systems—through a range of proposed political interventions. This article identifies both the theoretical and actual failings of such regulation. Payment cards are a secure, inexpensive, welfare-increasing payment mechanism largely unlike any other in history. Rather than increasing consumer welfare in any meaningful sense, interchange fee legislation represents an attempt by some merchants to shift costs away from their businesses and onto card issuing banks and cardholders. In particular, bank-issued credit cards offer a dramatic improvement in the efficiency and availability of consumer credit by shifting credit risk from merchants onto banks in exchange for the cost of the interchange fee—currently averaging less than 2% of purchase value. Merchants’ efforts to cabin these fees would harm not only consumers but also the merchants themselves as commerce would depend more heavily on less-efficient paperbased payment systems. The consequence of interchange fee legislation, as Australia’s experiment with such regulation demonstrates, would be reduced access to credit, higher interest rates for consumers, and the return of the much-loathed annual fee for credit cards. Interchange fee regulation threatens to constrain credit for consumers and small businesses as the American economy begins to convalesce from a serious “credit crunch,” and should be accordingly rejected.

Two weeks ago I highlighted the promising looking Cato Unbound forum on the new paternalism kicked off by Glen Whitman, with follow up posts and responses from the King (or co-King along with Cass Sunstein) of Nudge, Richard Thaler, along with Jonathan Klick and Shane Frederick.  I was really excited about the forum, because I have research interests in this area and consider myself a “skeptic” of the new paternalism generally (hey, the Weekly Standard says “prominent skeptic,” but even I don’t go that far).  So — now that the exchange is over — I find myself, well, better off for having read it but disappointed.  I’m going to blog about the disappointing part.  Don’t get me wrong, it started off really well.  Glen came out swinging, Thaler responds (there no slopes, paternalism is inevitable, and by the way, a really odd choice of example for the lack of evidence in favor of slopes: prohibition), Klick and Frederick chime in.

Read the full piece here. 

In a recent commentary at Forbes.com, former Clinton administration economist Robert Shapiro argues that some 250,000 jobs would be created, and consumers would save $27 billion annually, by reducing the interchange fee charged to merchants for transactions made by consumers using credit and debit cards.  If true, these are some incredible numbers.

Read the full piece here. 

The WSJ implies that the answer is yes in an interesting article describing the Obama administration’s changing views on behavioral economics and regulation.  The theme of the article is that the Obama administration has eschewed the “soft paternalism” based “nudge” approach endorsed by the behavioral economics crowd and that received so much attention in the blogs — especially as it related to Cass Sunstein’s appointment to OIRA, the Consumer Financial Protection Agency and a few other issues — in favor of harder paternalism and “shoves” including recent proposals for “regulating health-insurance rate increases, separating commercial banking from investing on behalf of their own bottom lines, and prohibiting commercial banks from owning or investing in private-equity firms or hedge funds.”  The article also points to a proposal for new regulations (that I had not heard of prior), that “would require retirement counselors to base their advice on computer models that have been certified as independent” as a precondition that must be satisfied before advisers can push funds with which they are affiliated.

Read the full piece here.