Say No to Consumer Protection

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Consumer-Financial-Protection-Bureau

Yesterday Barack Obama spoke at UNC in Chapel Hill, NC where he highlighted the importance of higher education and referred to the new Consumer Financial Protection Bureau’s (CFPB) role in protecting consumers from deceptive, abusive and predatory loan products in the financial marketplace, with budding students cheering him on.

We can do better
Barack’s work in softening the blow of a $15.6 trillion in spending spree raked up by the legislation managed by previous administrations exacerbated by a spiraling down of the economy should be commended. But many of the new initiatives he signed off on and that attempt to artificially correct, optimize or prevent certain economic outcomes (we refer to as downstream optimizations) pacify the public in having them believe those measures will solve our economic malaise, have a short political shelf life and are prone to partisan repeal as quickly as a CEO changing the logo of his company shortly after taking office. If only to mark a partisan territory in history.

Separation of politics and state
But politics has no place in the development of an economic master plan, simply because the right economic master plan is designed to build and serve the dynamic meritocracy of all of our ideals and beliefs. Partisan division occurs because short of the aforementioned economic master plan everyone thinks their unique implementation and interpretation supported by quick scoring downstream corrections will magically erase years of blatant macro-economic ignorance.

Downstream economic optimizations like The American Jobs Act, Startup America, and the Consumer Financial Protection Bureau’s initiatives are comfortably floating in midair of public (open microphone: election) karma, blissfully ignoring that detached from a viable economic master plan those corrections will simply spawn a more fragmented and more opaque composition of new economic fallacies, circumvention and fraud.

Marketplace, not unilateral protection
So beyond being the wrong economic medicine, applied independently and unilaterally, consumer protection is also in violation of free-market principles. Because in the protection of marketplaces that adhere to free-market principles our forefathers envisioned for us, both demand and supply should enjoy similar and balanced measures that maintain the evolution of a self-regulating dynamic meritocracy. Meaning, one ought not to stimulate or regulate one side of the economic marketplace, but apply transparency so the fallacies on either side can swiftly be dealt with by the marketplace itself.

The role of government is to enforce the compliance to free-market principles in every aspect of trade. To ensure that those who lend money are just as protected as those who borrow. That the success of those “marriages” are just as transparent as their failures, to all marketplace participants (buy and sell). The only meaningful form of consumer protection is the one offered by a free-market.

The American Dream
The pursuit of the American Dream will never materialize if we keep violating the founding vision and economic principles our most beloved forefathers bestowed upon us. We need to stop deploying a plethora of unilateral regulations favored by flip-flopping party lines meant to artificially achieve a desired – yet temporal – political economic outcome, that then quickly upon implementation or change of government control requires a new host of perpetual corrections. We need to look for answers upstream.

The American Dream can only be achieved if we deploy a level playing field, in which the merit of those who establish viable marketplace marriages thrives and those who abuse the marketplace by virtue of transparency get ignored. It may surprise you that the majority of our financial systems today are in violation of free-market principles (a topic I substantiate on my blogs further), and thus the reason why our economy buckles under the obesity of finance eleven times the size of production.

A real meritocracy, for once
The American Dream starts with a new responsibility the President has to take on. And that is to ensure bilateral compliance of our economic and financial systems to free-market principles that can then with the magnificent resources we have at our disposal act as the petri-dish for a bright new meritocracy, in which all of us have not a dream but the ability to thrive.

Say no thanks to consumer protection if you demand better. We need to help our President develop a new economic master plan and compass, and short of a viable product by his traditional economists, we as entrepreneurs – used to thinking upstream – grabbed the bull by the horns and are building one.

 

We encourage comments that are relevant to our observations, conclusions and the specific topics discussed in this blog, either in agreement or disagreement. Leaving your insightful comments here will ensure others can learn from them too.  Keep in mind however this is not a place to spew your own theories (go write your own blog), but the best place to question or approve our observations.

About Georges van Hoegaerden

Georges is a serial entrepreneur, venture catalyst, 4x CEO, board director turned innovation economist (by fate). His ideas have raised $14M in venture capital and produced over $100M in returns. More.

  • Samuelsondoug

    Nonsense!

    Truly effective free market competition takes place within a framework of law, fairness, and protection of the property rights of inventors and entrepreneurs.  The U. S. tried unrestricted free markets in the late Nineteenth Century, also known, for good reason, as “the Robber Barons Era.”  We got the Sherman and Clayton Anti-Trust Acts and the Securities and Exchange Act, among other legislation, for good reasons, and with beneficial effects.  Russia also tried the unrestricted solution after the fall of Communism, with much the same results the U.S. got.   In short, appropriate consumer and investor protection actually promote business by preventing the formation of monopolies and monopsonies that stifle competition and innovation.  This is not to say that there are no objectionable provisions of the specific legislation — I haven’t studied it.  But that’s another topic.

    • http://venturecompany.com/ Georges van Hoegaerden

      Capitalism is a political system, not an economic model. Don’t confuse the two. One does not exclude the other, in fact a meritocracy provided by the governance of a free-market, in which the freedom of all is protected, is a fantastic fertilizer for capitalism. But it will re-establish the assignment of merit, which for the protectionists is scary. 

      Today, our economic system is a free-for-all, a Neanderthal implementation that promotes those who find ways to take advantage of the system, generally at the expense of others. A marketplace that is not in violation of free-market principles behaves like traffic. We won’t tell you where to go, but we will ask you to obey the traffic signs. Now, imagine traffic without signs, in which those who drive tanks get and take the right of way. The latter is the economic stupidity we deploy, that hurts the freedom of others who don’t drive tanks. 

      The reason why we have a financial system eleven times the size of production, in which financiers are perpetuating valuations to themselves, is because we violate free-market principles. None of our financial systems today adhere to free-market principles and exactly why one after the other fails. Marketplaces that are not free turn by default subprime, guaranteed. Exactly the reason why venture capital failed for identical reasons as real estate (and others will follow if we don’t change course). 

      Back to the topic of consumer protection. No marketplace should be “protected” unilaterally, meaning both supply and demand should enjoy the same protections and transparency. I am not against consumer protection, but i know consumers won’t be protected in reality if the marketplace in which they operate is by economic principle not free. At that point consumer protection is like giving tylenol to a cancer patient, soothing but unable to cure our systemic economic disease.