Book Review: Phishing for Phools

Akerlof and Shiller, Phishing for Phools: The Economics of Manipulation and Deception. Princeton University Press, 2015. 257 pp.

This book, by Nobel-winning economics professors George A. Akerlof (Georgetown University) and Robert J. Shiller (Yale University), is an extended discussion of the role of fraud in economics. The authors argue that fraud is a natural feature of unregulated markets and that fraud is as subject to economic equilibrium as any other product. They back the argument with multiple historical examples, including a short history of advertising, abuses in the pharmaceutical industry, a history of the discovery of the health risks of cigarettes.

One entire chapter is spent on the return on investment of lobbying (at least 100 to 1, in the examples they give) while avoiding partisanship and current issues. Their examples are chosen to be safely in the past. It must have taken serious self-restraint not to talk about the financial disasters of the 2000s and the influence of lobbying and publicity on environmental politics. Instead they discuss the S&L crisis of the 1980s and the way the tobacco industry twisted and continues to twist the public reporting of the health risks of cigarette smoking. Application of their arguments to current issues is left to the readers.

The book makes a powerful case against the libertarian model of economic policy. In what sense is there meaningful freedom if the public is widely deceived and if every common error of thought and, indeed, simple human sympathy and self-interest, is exploited? It seems to me that Akerlof and Shiller have done for microeconomics what Keynes did for macroeconomics; exploded the case for anarchism and even what libertarians call "minarchism"--simple minimal laws governing economic behavior; such simple laws are invariably phished. Instead, they have made a case that law and regulation--governance--is required for a peaceful and prosperous society.