Associated Press file photos of economists Robert Shiller, left, and George Akerlof.
Associated Press
George Akerlof and Robert Shiller are Nobel Prize-winning economists with an unusual gift for writing in clear, often entertaining English.
They collaborated about five years ago on “Animal Spirits,” a book about consumer psychology’s role in how global economies function. And they have fleshed out their theories in the forthcoming book “Phishing for Phools: The Economics of Manipulation and Deception.”
The “ph” in the title and throughout the book comes from “phishing” emails, Web sites, phone calls, and other attempts to lure passwords, credit card and banking details, or other sensitive personal data from the unsuspecting.
Mr. Akerlof and Mr. Shiller write that markets, whether on or off the Internet, are full of phishing behavior and that tricksters are not just one-off crooks who need to be monitored and captured but have long been and will remain part of capitalist economies.
Through mountains of examples–as varied as the putrid meat uncovered in Upton Sinclair’s classic “The Jungle” and the fine print in many financial documents or politicians’ routine misstatements–the authors argue that without proper supervision and enforcement, markets will go awry and people will be hurt. In the worst case, they say, phishing can trigger a financial crisis, as we saw in 2008 with subprime mortgage lending.
Readers might want to argue: What about all the goods and services sold by honest firms? Surely, the market can’t be all bad. Mr. Akerlof and Mr. Shiller would probably agree–with a caveat: The risk of punishment for cheating plays a role in checking potential missteps and reining in underhanded behavior.
In today’s climate of mistrust of all sorts of institutions, this book is likely to resonate with many readers. But amid condemnation of the market’s failures it’s worth keeping in mind that government fails, too, for all kinds of reasons. Regulators can act selfishly, sometimes wanting to build empires; others act with imperfect information, which can lead to mistakes.
Mr. Akerlof and Mr. Shiller argue that many faults in Congress can be traced to the outsize role of money in politics. In recent years bitter partisanship has led to gridlock on so many pressing issues that such ordinary business as passing a budget has devolved into a new normal of threatened government shutdowns. Disgust with partisan infighting and gridlock, as well as concerns about their economic futures, are among the reasons primary voters appear to be attracted–at least at this point in the 2016 cycle–to non-political candidates.
Another book has been written about this: “Why Government Fails So Often,” by Peter Schuck. Like both books by Mr. Akerlof and Mr. Shiller, Mr. Schuck’s is published by Princeton Press, which has been a pioneer in producing highly readable works on complex public policy issues. (Actually, that’s all the more reason Mr. Akerlof and Mr. Shiller might have acknowledged Mr. Schuck’s work in their new book.)
Before readers swallow the many persuasive arguments in “Phishing for Phools,” they might peruse Mr. Schuck’s more academic book. Meanwhile, the challenge for policy makers is finding a balance between allowing the market to do its thing with (at least) some regulatory oversight while bearing in mind that government, too, is far from perfect.
Robert Litan is a nonresident senior fellow at the Brookings Institution and the author of “Trillion Dollar Economists.” He is counsel to Korein Tillery, a law firm based in Chicago and St. Louis that specializes in complex litigation. He is on Twitter: @BobLitan.
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