January 4, 2013

JOHN STOSSEL: No Regulation? No Problem. Intuition leads us to think—wrongly—that without government we’d be victims of fraud.

It is scary to think about a world without regulation. Intuition leads us to think that without government we’d be victims of fraud, as I explain in my latest book, “No, They Can’t!” But our intuition is wrong.

Consider this: An entire sector of the economy operates almost entirely without government controls. Complete strangers exchange big money there every day.

It’s the Internet. It does have regulation, just not government regulation.

On my next TV show, titled “Freedom 2.0″ (which the Fox Business Network airs this Thursday at 9 p.m. EST), economics professor Ed Stringham explains that Paypal.com, which transfers billions of dollars for people, at first assumed they needed government help to prevent fraud.

“They faced fraudsters from all over the world. They turned to the FBI,” says Stringham. “But the FBI had no idea who these people were.”

So PayPal invented a new form of regulation. “They developed a private fraud detection system, where they used computers to say, ‘This might be fraudulent,’ and then it would send it to a human to investigate that.” That dramatically reduced fraud, and PayPal thrived.

Most people who are victims of fraud don’t find law enforcement especially helpful.