Let’s face it—we’re all a bunch of bloody liars and frauds. When you, I or anyone else click “I have read and agree with the terms and conditions” before downloading a song or playing a game, we don’t really mean it. We certainly haven’t read all those terms and conditions, and chances are we wouldn’t understand them if we did.
Agreeing to terms we don’t comprehend has become something of a modern ritual. Aside from facilitating online distractions, lengthy and complex disclosures and privacy agreements also confront us when the stakes are much higher: buying a house, investing in securities or visiting the doctor. In their provocative new book, More Than You Wanted to Know: The Failure of Mandated Disclosure, U.S. academics Omri Ben-Shahan and Carl Schneider argue this information deluge is more than just a hassle. It may also be harmful.
Most Canadians today probably consider unlimited information to be their birthright, as well as a powerful form of consumer protection. For example, gas mileage figures, mandated by government regulation, can be very useful when shopping for a new car. Yet consumers now get so much information we may be past the point of positive returns. The authors figure it would take the average consumer 76 days just to read every disclosure form that comes her way in any given year. When Ben-Shahan printed off the familiar iTunes service contract, it took up 32 pages of dense eight-point font. “I taped it all together and hung it from the ceiling of the University of Chicago law library,” he explains in an interview. “And all this for a song that costs 99¢. It doesn’t make sense.”
Politicians often impose mandatory disclosure rules because they’re legislatively simple and superficially populist. But such measures can also serve more malign purposes. Consider the current cross-border controversy over new U.S. rules requiring country-of-origin labels on Canadian meat: it’s actually a trade barrier disguised as mandatory disclosure. “By making country of origin a focal point on labels, Americans are being given the message that there’s something wrong with Canadian beef,” notes Ben-Shahan. “This hurts Canadian exporters and American consumers.” The same holds true for environmentalist demands on labelling genetically modified foods. And forcing fast-food restaurants to post calorie counts for all menu items—as Ontario recently prepared—has been proven useless at changing eating habits. Not all information is relevant or necessary.
If the fine print so often goes unread, how do we decide what should be disclosed and when? The authors suggest paying more attention to costs and benefits. It’s probably sufficient for most firms to post their various terms and conditions on a website somewhere and let motivated readers or media outlets track them down, rather than force everyone to go through the kabuki theatre of claiming they’ve read them and agree. When General Mills, maker of Lucky Charms, Yoplait and Old El Paso taco kits, recently changed its website terms such that downloading a coupon meant consumers forfeited their right to sue, it wasn’t necessary for every web user to spot the problem. One eagle-eyed website visitor (and a subsequent New York Times article) was sufficient to force the company to back down.
On the other hand, some disclosures may be so inherently complicated and problematic, they’re poor substitutes for careful decision-making. A comparison of the Canadian and American real estate markets during the 2008 crash seems instructive. Ben-Shahan points out the U.S. allowed banks to sell a wide range of risky mortgages, including negative amortizations, to poorly educated subprime clients, provided all possible risks were disclosed. Canadian regulators simply forbade many of these products. We all know how that turned out. “Sometimes, instead of disclosure, you just need regulations with real teeth,” advises Ben-Shahan.
Sunshine may still be the best disinfectant, but too much at the wrong time can give you a nasty burn.
Peter Shawn Taylor is a writer specializing in economic issues