Assume You Don't Have a Can Opener
Last week, I lamented the apparent death of the "plain vanilla" provision in the financial regulation package but noted that the policy "was never likely to do that much. The fact that a bank had to offer a basic card didn't mean they had to advertise it, or steer you toward it."
Stephen Waldman, who's sort of the Marilynne Robinson of financial blogging, offers up an argument to the contrary. "Rather than being anti-market," he writes, "vanilla financial products would help correct very clear market failures that arise from imperfect information and high search costs. It is the status quo that is anti-market."
He's correct, of course. My comment was really about the politics: Before the provision was killed, it became clear that it would be grievously weakened (by the same forces and politicians who killed it, natch). If the banks had to offer simplified products but didn't have to label them clearly, or tell consumers about them, or explain them, and consumers had no real way of knowing why one product was cheaper than another, the provision wouldn't have made a great deal of difference.
But this is the inverse of the old joke about the stranded economist who finds a can of food and tells his distraught companions, "okay, assume a can opener." In politics, we often do the opposite: We assume we don't have a can opener, or more to the point, we assume we don't have a smoothly functioning Congress able to resist pressure from special interest groups. Under that set of assumptions, most policies don't work. But it's not the fault of the policies. It's the fault of the policymakers.
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