October 2, 2009 4:12PM

Consumer Protection for Intellectuals

Nate Anderson at Ars Technica has a good write-up of the New America Foundation's interesting proposal for labeling of broadband services, something akin to the nutrition labels we have for food.

Labeling and disclosure are better than direct regulation of the terms on which goods and services can be sold, of course. Labeling does not presume to decide unalterably what factors are or will be the most salient to consumers. But it does seek to channel those interests, and it does presume that consumers discover information that is important to them via labels. (I dealt with some of these concepts in my recent post about privacy notices.)

What labeling is really about, I believe, is pushing consumers to focus on the terms that intellectuals believe are most interesting. Smart people's interests often match up with everyone else's, but not always. Anderson's write-up wonders aloud "whether requiring disclosure of the 'maximum round-trip latency to border router' will do more than induce eye glaze among most broadband users."

I want my ISP to give me a live tech-support person that can solve the problem with my wifi router, but that didn't make it into New America's labeling plan. Any labeling plan will likely be either overinclusive or underinclusive or both, obscuring and omitting the most relevant information.

Yes, labeling is "market-friendlier" than regulation dictating what broadband providers can and can't offer. But if we believe that markets discover the dimensions of goods and services that are salient to consumers, we can also believe that markets discover what information consumers want, and how they best learn it.

Many years ago, I spoke to a panel of regulators about a financial privacy "short notice" project that — heck — may still be going on. I passed around a small package from which I had eaten baby carrots the previous day. Along with a nutrition label, it had a picture of a cornucopia spilling forth vegetables and fruits, with the legend "Five a Day!" This, I suggested, communicates more salient information to consumers than nutrition labels: eat more fruits and vegetables. "But I use nutrition labels," countered a well-meaning regulator, extrapolating from her own experience to that of all Americans.

Commerce is alive with trade names, trademarks, symbols, messages, notices, and signals about the content, quality, and desirability of goods and services. Consumers get much more relevant, actionable information this way, I think, than through mandated labels.

They do not intellectualize about these things, but that's fine. Time is scarce, and it's not worth it for people to intellectualize about the details of most purchases. Those who do, and those who talk about it, press the market toward what is good for all. The average consumer can gather just enough information to be relatively confident of being satisfied overall with any purchase. On the whole, consumers and markets will gravitate toward products and services that make all better off.

There may be consumer demand for organized, industry-wide labeling in some areas, of course. It's a fine thing if there is. 

Anderson takes NAF's plan to be a call for a government mandate, but the write-up itself is vague, saying that broadband providers "should" do various things and observing the absence of a legal requirement for notice. It takes pains to use the passive voice when ordinary speech would identify what actor should establish a labeling regime. 

If only there were a label about that salient feature of the proposal!