Donald Boudreaux exposes for Barron’s readers key flaws in the arguments of a new book penned by two Nobel Prize-winning economists.

According to Nobel laureate economists George Akerlof and Robert Shiller, people are cursed with psychological weaknesses and informational deficiencies that make them, as consumers and investors, easy prey for unscrupulous entrepreneurs. Not that the two economics professors doubt the remarkable proficiency of free markets in delivering goods and services that people demand. But in the authors’ view, because most people have “monkeys on their shoulders” that distort their decision-making, what people demand is all too often not what they really want.

Entrepreneurs who cater to these distorted demands are “phishermen” who bait weak and poorly informed consumers and investors with phony appeals, flattering stories, and other “tricks.” People who take the bait are “phools.” …

… Suppose it’s true, however, that modern markets are chock-full of devious phishermen preying successfully upon helpless phools who buy too many oranges in the belief that each has been “kist” by the sun. What’s to be done? The authors offer no specific proposals. Yet they clearly imply that more government regulation is a key part of the solution. At one point, for example, they advocate “more generous funding” for the Securities and Exchange Commission; at another, they speak approvingly of greater regulation of slot machines.

Solutions via government are based on a glaring fallacy: that people deficient in choosing for themselves in the marketplace will automatically shed those deficiencies once the government authorizes them to choose for others. Ironically, while citing slot machines, the authors make no mention of a related scam: government-run lotteries. The lotteries are perhaps the most obvious example of how those who are supposed to protect us from phishing scams themselves eagerly phish for phools.

Nothing, indeed, could be more phoolish than for ordinary men and women to submit to elites who are as confident as professors Akerlof and Shiller that they know best how other people should behave. Such elitism poses a far worse danger to society than entrepreneurs offering aromatic pastries for sale.

Even if people are terrible at making choices in their own best interests, a fundamental truth is that they own their lives. Self-respecting people want to be free to consult those with greater knowledge. But they would much prefer to risk undermining their own well-being through their own choices than to be saddled, bridled, and steered by self-appointed experts.