Last time, I wrote about how the U.S. Chamber of Commerce’s arguments in favor of forced arbitration fell apart during a U.S. Senate Banking Committee hearing on the Consumer Financial Protection Bureau(CFPB). And this, despite the fact that the hearing was actually more akin to a show trial, stacked with witnesses opposed to the CFPB.
As I pointed out, there’s something very inconsistent and illogical about defending forced arbitration while simultaneously (and erroneously) claiming that arbitration provides better outcomes for consumers. But not only is the Chamber’s argument internally inconsistent, it’s also completely inconsistent with the “free market” economic theory that the Chamber claims to champion.
In order to better understand what I’m getting at here, let’s take a journey back to Economics 101. Free Market economic theory is based upon the assumption of individual rational actors, that is, consumers, workers, managers, and investors who each act in their own individual best interests. Indeed, Adam Smith, the founder of free market economic theory, relied on the concept of individual rational actors as the basis for his famous invisible hand metaphor, beloved by capitalists the world over.
If one accepts free market economic theory, as the Chamber claims to do, then consumers are rational actors, and as rational actors, they would therefore choose arbitration over the court system if arbitration were actually better for them. But the Chamber is defending forced arbitration, suggesting that it actually believes that either consumers aren’t rational or that arbitration isn’t actually a better option for them.
The Chamber’s defense of forced arbitration puts it in a tough spot. While the Chamber likes to think of itself as an avatar of American free market capitalism, its defense of forced arbitration runs counter to the foundations of the very free market economic theory it claims to cherish. In short, it finds itself confronted with the following dilemma: either commit heresy against the gospel of capitalism or admit that forced arbitration is in the best interests of Corporate America and the Big Banks and not of consumers whose power of choice it eliminates.
It is all too fitting that the Chamber appears to have strayed from its faith in free market economic theory at a show trial masquerading as a hearing. Show trials were of course one of the hallmarks of Soviet communist rule, so what better occasion to break from capitalist orthodoxy? As for which the Chamber ultimately renounces—capitalism or the Big Banks that have been pushing forced arbitration on their customers—the smart money says never bet against the banks.